Tehran Construction Material Inflation Exceeds 40% in Q2

EghtesadOnline: The general price index of construction materials for residential properties in Tehran stood at 698.8 in the second quarter of the current Iranian year (June 21-Sept. 21), according to the Statistical Center of Iran's latest report published on its website.

News ID: ۷۵۱۳۸۶

01 November 2020

During the four-quarter period ending Sept. 21, the index grew by 40.8% compared with the previous year's corresponding period.

The annual inflation of construction material was 29.3% n Q1.

Compared with the first quarter of the current year (spring), which ended on June 20, the index saw a 30.3% rise.

In the first quarter, the construction material price index stood at 536.5 and registered a 17.3% quarter-on-quarter growth. The index rose by 71.4% in Q1 compared with last year's corresponding quarter.

In Q1, the year-on-year index growth was 31.9%.

Compared with the first quarter, the category of “ironware, rebar, profile for doors, windows and fences” registered the highest growth among all categories of construction materials with a price growth of 63.9%.

Services recorded the lowest index growth with 5.5% compared with the preceding quarter.

“Ironware, rebar, profile for doors, windows and fences” also witnessed the highest year-on-year and annual price hike with 172.2% and 71.9%, respectively. “Glass” registered the lowest year-on-year price growth with 31.3% and the lowest annual growth with 15.7%.

Building Permit Fees in Tehran Rise 30%

Building permit fees in Tehran increased by 30% as of June 21 compared with last year. The decision was approved by Tehran City Council in the final month of last year (Feb. 20-March 19) as per Tehran Municipality’s 2020-21 Budget but was not enforced until recently 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 ($161) per square meters. The average building permit fees hovered around 5-7 million rials ($18-25) per square meter last year.

With the 30% increase, permit fees will reach 6.5-10 million rials ($23-35) per square meter. However, a report by the Persian-language daily Donya-e-Eqtesad says, such fees will exceed 20 million rials ($71) in some northern districts of the capital city, particularly for high-rise building projects.

In accordance with a 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.

According to Deputy Roads Minister Mehdi Obouri, builders planning to build residential properties in slum areas were previously entitled to a 50% discount in permit fees. 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,” Obouri was quoted as saying by Iran Online.

Before the 30% increase, permit costs accounted for 5 billion rials (around $18,000) of the overall costs of developing a typical building in Tehran, i.e., a 4-5 storey building comprising 8-10 residential units each with a floor area of 80 square meters, constructed on 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 strong growth in the prices of construction materials and land. 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.

Exports at $620m in Fiscal 2019-20

A total of $620 million worth of different types of construction materials were exported from Iran during the last fiscal year (March 2019-20), according to the director general of Trade Promotion Organization of Iran's Arab and African Affairs Division.

“Our exported products included wires and cables, tiles and ceramics, stone, light switches and sockets, faucet, bathtub and shower, door and window, and pipe and profiles," Farzad Piltan was also quoted as saying by Fars News Agency.

Iraq, Afghanistan, Turkey, the UAE and Azerbaijan were the main destinations.

100% of Raw Material Demand Met Domestically

Iran’s building and construction industry supplies 100% of the raw materials it needs from local market, according to Jafar Sarqeini, former caretaker of the Ministry of Industries, Mining and Trade.

“Iran's steel, cement, tile and ceramics industries even produce more than twice the country’s domestic demand. Of the $10 billion worth of exports by mining sector in the last [Iranian] year [March 2019-20], exports of construction materials accounted for $7 billion. Today, Iran is one of the major exporters of steel in the region and one of the main exporters of cement in the world,” he said.

The official made the remarks at the opening ceremony of the 20th International Exhibition of Building and Construction Industry and the ninth edition of the International Exhibition of Elevator Industry, Escalators, Elevating Conveyors, Spare Parts and Equipment, which opened concurrently at Tehran's International Fairgrounds on Sept. 10.