Tehran Housing Dynamics

EghtesadOnline: The Planning and Housing Economy Office of the Ministry of Roads and Urban Development has released a report on Tehran's housing market in the fourth month of the current Iranian year (June 21-July 21).

News ID: ۷۵۰۵۷۲

30 July 2020

A total of 14,330 homes were sold in the capital city during the period to register a year-on-year increase of 192.6% compared with the same month of last year and a rise of 29.7% compared with the preceding month.

The average price of each square meter of a residential unit in the capital city stood at 209.86 million rials ($893) during the month under review, registering an increase of 54.1% year-on-year and 10% month-on-month.

Among Tehran’s 22 districts, District 1 registered the highest average home prices with 453.175 million rials ($1,928) per square meter, followed by District 3 with 384.24 million rials ($1,635) per square meter and District 2 with 324.94 million rials ($1,382) per square meter.

District 18 offered the capital city’s cheapest homes with average per-square meter prices standing at 96.25 million rials ($409), followed by District 20 with 97.98 million rials ($417) per square meter and District 17 with 105.73 million rials ($450) per square meter.

The number of dealt properties shows that among Tehran’s 22 districts, District 5 grabbed the highest number of home sales (1,938) with an average price of 261.7 million rials ($1,113) per square meter. It was followed by District 4 with a total of 1,119 home deals with an average price of 206.32 million rials ($878) per square meter.

Districts 19, 9 and 16 registered the fewest number of deals during the month under review with 73, 140 and 150, respectively.

In the four months ending July 21, a total of 38,245 home sales were registered in the capital city, indicating a 42.5% growth compared with the similar period of last year. The average price of a square meter of residential property stood at 181.52 million rials ($772), which shows an increase of 41.9% year-on-year.

Vacancy Tax

A motion to implement vacancy tax was originally passed in the Iranian year ending March 2016. The Ministry of Roads and Urban Development was tasked with designing, in cooperation with a number of other affiliated organizations and entities inside and outside of the administration, a database containing information on all residential units and homeowners across the country for the tax administration.

The ministry did not mention the precise date on which the database would be put to use because “it must be strengthened and completed step by step so that its result can become more accurate gradually”, Ali Chegini, former deputy minister, said then.

Two months ago, Minister of Roads and Urban Development Mohammad Eslami said the nationwide online database of all residential properties across the country had been completed and submitted to the Iranian National Tax Administration; the tax authority was expected to issue tax statements as of the beginning of summer (June 21).

However, latest developments indicate that vacancy tax won’t be implemented any time sooner than Aug. 22. Homes with floor areas below 150 meters will be exempt from empty home tax, though small-sized residential properties account for a big portion of vacant homes.

“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 in the third year they will be levied tax at the rate of 100% of the property’s assessed rent. A commission comprising officials with the Roads and Urban Development Ministry, INTA and Municipalities Organization will estimate the rent of the properties,” INTA chief Omid Ali Parsa said.

Viability Under Scrutiny

A prominent housing expert, however, says vacancy tax would hardly push down rents or home prices in the short run.

Fardin Yazdani, who has devised the Comprehensive Housing Plan of the Ministry of Roads and Urban Development, added that from the get-go he approved of taxing empty homes in principle.

However, “it can’t be a powerful tool for curtailing home prices and rent levels in the short term, given the fact that most empty residential properties are located in the luxurious, expensive northern districts of the capital city”, he added.

“These under-used housing units have been built as means of investment as opposed to places of living," he said. “Therefore, they will have little effect in bringing the housing market back to equilibrium. The same is true about tenancy market. Demand for such [expensive] homes is low among renters,” he was quoted as saying by Hibna.

Yazdani noted that it is important to set tax rates with an acceptable deterrence level that spur property owners to either give vacant homes on rent or sell the properties off to someone who plans to use it.

“In the long run, however, vacancy tax would lead to a shift in investment preferences in the housing sector. Investors will put their money into mainstream housing units rather than high-end homes with their high-maintenance costs,” he said.

“Policymakers also need to work out an appropriate mechanism of calculating and applying vacancy tax, if they wish to see meaningful results.”

Demographic Projections

According to the Housing Comprehensive Plan (March 2017-27), the Iranian population will reach 88.2 million in the year ending March 2027. Projections show that by then, 68.2 million would be living in urban areas and 20 million in rural areas. The number of households will hit 28.7 million, of whom 22.1 million will inhabit cities and 6.15 million will live in villages.

Newly-formed families will need 4,076,000 homes over 10 years old by March 2027 (including 3,997,000 urban households and 79,000 rural households). The country will be short of 1,370,000 homes (including 673,000 units in cities and 697,000 in villages). A total of 5,313,000 homes, including 3,003,000 in cities and 2,310,000 in villages, have to be repaired or rebuilt by then.

From the Iranian year ending March 2007 to the year ending March 2017, 590,000 residential units were supplied to the market. The highest and lowest number of homes constructed over these years were registered for the year ending March 2013 with 820,000 and the year ending March 2017 with 390,000, respectively.

About 2.5 million homes in the country are empty. The optimal ratio of vacant house worldwide is considered to be 5% in urban areas and 2.5% in rural areas, whereas it is 10.3% in the urban areas and 8.5% in the rural areas of Iran. The Housing Comprehensive Plan says the number of vacant homes must decline to 1.4 million (1.1 million in urban areas and 300,000 in rural areas).