50% of Tenancy Deals Conform With Directive of Nat’l HQ

EghtesadOnline: Deputy Minister of Roads and Urban Development Mahmoud Mahmoudzadeh said 50% of tenancy agreements extended in the fourth month of the current fiscal year (June 21-July 21) were in conformity with the directive recently issued by the National Coronavirus Headquarters aimed at capping rent increases.

News ID: ۷۵۰۵۰۲

22 July 2020

Reports indicate that lease extensions increased and the rate of home relocations declined during the month under review, he added.

The directive approved by the headquarters suspends a landlord’s ability to terminate a lease during the current health crisis, in addition to giving a three-month reprieve given by the Health Ministry.

Tenancy agreements signed as of June 29 may not increase rents by more than 25% in Tehran and 20% in other large cities, President Hassan Rouhani said on June 28.

Mahmoudzadeh later explained that the 20% cap on rent increase applies to Mashhad, Isfahan, Tabriz, Ahvaz, Qom, Shiraz and Karaj. He added that the cap is at 15% in other Iranian cities.

“There are some exceptions to the rule. The tenant must have delivered on their commitments during their current tenancy term; in other words, the tenant should not be considered to be in arrears by the judiciary. Moreover, those who have caused financial losses for the landlord won’t be entitled to the new incentive. Once the landlord legally sells their property during the lease period, the tenant must move out within two months. The final exception is when the tenant refuses to accept the aforementioned legal rent increase. If the landlord asks for a higher rent [than what was approved], the tenant can refuse to pay the rent without facing an eviction notice.”

Asked if the new pronouncement is legally enforceable, Mahmoudzadeh said, “Not a single judicial authority is allowed to order the tenant to vacate the premises as per the new legislation. This is a decision made by the Supreme National Security Council of the Islamic Republic of Iran and it is beyond the jurisdiction of the Iranian Parliament. It does not violate either the rights of the landlords or tenants. Rather, it will soothe the sentiments of the rental market, particularly in large cities.”

The deputy minister noted that all residential estate deals, including home sale, rental and lease agreements, are required to be registered in the state-run Tenement Management Information System operated by the Ministry of Roads and Urban Development and obtain the tracking code as of June 29, 2020, IRNA reported.

In early May, the taskforce approved a self-executing two-month extension of rental agreements with the termination date falling between February 20 and May 20 to control the spread of coronavirus and help tenants battling job and income losses during the pandemic.

Security Deposit Loans in the Next Few Days

The official further said the government will make security deposit loans available for renters in the next few days, IRNA reported.

The government will allocate a fraction of the 750-trillion-rial [$3.27 billion] coronavirus bailout to renters, Minister of Roads and Urban Development Mohammad Eslami has said.

The interest-only security deposit loans, in which the renters pay only the interest costs and not the principal, will be paid to landlords.

“Renters of homes with an area of less than 75 square meters in Tehran and 90 square meters in other cities will qualify for this type of funding. An official contract needs to be finalized between the landlord and renter before banks can begin the lending process,” he was quoted as saying by Mehr News Agency.

Bank Maskan, the state-agent bank of the housing sector, has announced that in view of the resources available, there will be a limit on the number of loans the creditor can provide.

Financial resources needed to carry out this program must be provided through deposits.

Bank Maskan believes that security deposit loans can be offered in the forms of Qarzol-Hassaneh loans (interest-free microcredit), interest-only security deposit loans or security deposit loans that require both principal and interest repayments. However, the Central Bank of Iran has yet to approve the type of such hypothetical loans.

Tax Exemption for 3-Year Rent Agreements

Landlords willing to sign three-year lease contracts will be granted exemption from vacancy tax and other potential tax measures concerning the housing sector, says Parvaneh Aslani, a senior official with the Ministry of Roads and Urban Development.

“What's more, landlords who put their rental property on the market before Sept. 21 will be eligible for exemption from vacancy tax,” she was quoted as saying by IRNA.

According to the official, there is a strong possibility that these incentives would help move housing and rental markets toward equilibrium.

The Iranian Parliament approved the outlines of an updated version of its own vacancy tax as per Article 54 of Direct Tax Code, which was once approved in the Iranian year ending March 2016, as a way to increase the supply of rental housing and the use of homes as means of living as opposed to capital investment.

“Details of the proposal are expected to be discussed in the parliament this week,” Ehsan Khandouzi, a lawmaker, told Fars News Agency.

The nationwide online database of all residential properties across the country will be completed and put at the Iranian National Tax Administration’s disposal, Deputy Roads Minister Mahmoud Mahmoudazadeh said last month.

“In so doing, INTA will be able to mine the database to track vacant homes subject to Vacancy Tax in less than two weeks,” he added.

Echoing the same remarks, INTA Chief Omid Ali Parsa said his administration will start the enforcement of vacancy tax as soon as the ministry finishes its assignment.

“Empty homes will not be taxed in the first year but they will be subject to tax at the rate of 50% of the property’s assessed rent in the second year and the tax will be levied at the rate of 100% of the assessed rent in the third year. A commission comprising officials of the Roads and Urban Development Ministry, INTA and Municipalities Organization will estimate the rent of the properties,” he said.

However, Parsa believes that these rates and penalties are not high enough to work as a powerful deterrent to ensure all available housing is used.

According to Mahmoudzadeh, a total of 6.6 million households or 30.7% of the country’s 18.1 million urban households in the country live in rented homes.

More than 2.1 million homes in urban areas are empty and there are about two million second homes.

Vacancy tax is among a series of measures taken by the government to help tenants face off exorbitant price rises.