Construction Loan Ceiling Raised for Tehran Slums

EghtesadOnline: The ceiling on construction loans for new buildings in urban slum areas has increased to 3.5 billion rials ($17,500), the managing director of Urban Regeneration Corporate Holding Company said.

News ID: ۷۵۰۳۸۶

05 July 2020

Mehdi Obouri, who is also deputy minister of roads and urban development, added that licensed real-estate developers, who intend to rebuild residential buildings in Tehran’s slum areas will be granted 2.5 billion rials ($12,500) in loans and they can also take out housing bonds worth 1 billion rials ($5,000) from Bank Maskan, the state-agent bank of the housing sector, the Persian-language daily Iran reported.

“A maximum of 2.3 billion rials ($11,500) in construction loans will be granted to professional real-estate developers planning to construct new buildings in the slum areas of other large cities and provincial capitals with a population of over 200,000 and 1.4 billion rials ($7,000) to those in cities with fewer than 200,000 residents,” he said.

“Self-builders planning to reconstruct their properties in urban slum areas will be offered two loans worth 500 million rials ($2,500) at an interest rate of 9% and 18%, and a 400-million-rial ($2,000) loan at an interest rate of 4%.”

Obouri noted that as per the memorandum of understanding recently signed between Iranian Municipalities Organization and Urban Regeneration Corporate Holding Company, affiliated to the Ministry of Roads and Urban Development, building permits in slum areas will be granted free of charge.

Earlier, builders who intended to build residential properties in slum areas were entitled to a 50% discount in permit fees while the current MoU offers 100% exemption in permit costs.

“Fifty percent exemption in architectural and engineering expenses has also been envisioned in an agreement signed between Iran Construction Engineering Organization and the Interior Ministry’s Development Department to encourage home owners in slum areas to rebuild their homes,” the official added.

25% of “National Housing Initiative” to Be Located in Slum Areas

Out of 400,000 houses planned under the government-sponsored housing development project, known as “National Housing Initiative”, 100,000 will be built in urban slum areas, he said.

Registration for the so-called "National Housing Initiative", aimed at supplying a total of 400,000 affordable homes to a limited category of people, started in November.

Nearly 20,000 of 400,000 homes will be constructed in new towns, including 7,134 in Fooladshahr in Isfahan Province, 4,448 in Parand in Tehran Province, 2,762 in Golbahar in Khorasan Razavi, 1,547 in Sahand in East Azarbaijan Province, 1,497 in Sadra in Fars Province, 800 in Amirkabir in Markazi Province, 520 in Hashtgerd in Alborz Province and 150 in Tehran’s Pardis.

Generally, construction loans for licensed real-estate developers who tap into advanced technology stand at 2.5 billion rial ($12,500) in Tehran, 2.2 billion rials ($11,000) in other large cities and provincial capitals, and 1.7 billion rials ($8.500) in cities with fewer than 200,000 residents.

Licensed real-estate developers can take out loans with an interest rate of 18% worth 2 billion rials ($1,000) in Tehran, 1.8 billion rials ($9,000) in other large cities and provincial capitals, and 1.4 billion rials ($7,000) in cities with fewer than 200,000 inhabitants, Hibna reported.

Director General of Roads and Urban Development Organization of Tehran Province says about4.5 million residents of the province are living in decrepit suburban areas.

"Nearly 30% of the population of this province live in underdeveloped urban and slum areas; there would be no place to shelter these people in case of a hypothetical earthquake," Khalil Mohabbatkhah was also quoted as saying by IRNA.

“Eighteen percent of the Iranian population live in Tehran Province while it has 500 vulnerable, worn-out suburban areas.”

30% Rise in Tehran Building Permit Fees

This is while building permit fees in Tehran have increased by 30% as of June 21 compared with last year. The decision was approved by the Tehran City Council in the final month of last year (Feb. 20-March 19, 2020) as per Tehran Municipality’s 2020-21 budget, but was not enforced until now due to the coronavirus-related suspensions of housing projects.

Building permit fees depend on the floor area, scope of work and the type of building being constructed or altered. They form part of the overall costs incurred during the development of a built asset.

At present, overall construction costs in Tehran have increased to at least 45 million rials (about $225) per square meters. The average building permit fees hovered around 5-7 million rials ($25-35) per square meter last year. With a 30% increase, permit fees will reach 6.5-10 million rials ($32-50) per square meter.

However, a report by the Persian-language economic daily Donya-e-Eqtesad says such fees will exceed 20 million rials ($100) in some northern districts of the capital city, particularly for high-rise building projects.

Before the 30% increase, permit costs accounted for 5 billion rials ($25,000) of the overall costs of developing a typical building in Tehran, i.e. a 4-5-story building comprising 8-10 residential units with an average floor area of 80 square meters, constructed over 300 square meters of land in popular districts of Tehran.

Besides building permit fees, real-estate developers say overall costs of construction are expected to increase on the back of the hike in construction material and land prices.

Costs of construction materials, they say, are now 50% higher when compared with the first half of last year (March 21-Sept. 22, 2019). The average price of a square meter of land in the year ending March 2020 increased by more than 90% compared with the year before.

By June 20, land prices rose by 15% in some neighborhoods compared with March.