Experts Analyze Impact of Forex Appreciation on Real-Estate Prices

EghtesadOnline: Prices of construction materials are pegged to the value of the US dollar but the decrease in foreign currency exchange rate won’t necessarily lead to the fall in the prices of construction materials, says Alireza Sarhadi, a housing analyst.

News ID: ۷۵۱۶۱۷

02 December 2020

“Fresh analyses of real-estate market speak of decline in home prices following the appreciation of rial against the dollar. However, the impact of the decrease in the value of dollar would manifest itself in the form of recession in the real-estate market. During the recession, the number of deals decreases rather than prices, as real sellers or investors who need money would agree to lower prices,” he was quoted as saying by the news outlet of Tehran Chamber of Commerce, Industries, Mines and Agriculture.

“Economics is the key factor that can pull the housing market out of recession. When construction maintains its growth and real-estate development is viewed as an occupation, buying and selling of land would improve. When there is economic stability, builders won’t worry about whether they would be capable of selling their properties. Under the current conditions and given the low level of predictability of economic changes, builders are reluctant to invest in the housing market.”

Hossein Vakili, an economic analyst, told IRIB News that the housing market is influenced by the general economic climate and lack of investor trust at the micro- and macro-economic level.

“The housing market has been affected by irrational fluctuations, regulations and pricings just like other markets, namely stock, forex and gold coin. Mismanagement is to blame for the upheaval that swept the housing market, as well as related markets such as metals, cement and steel markets over the past year. As such, home prices increased by 120% in a single year,” he said.

“The rise in prices was expected, considering the 7.5-fold increase in money supply from 4,000 trillion rials in the year ending March 2014 to 30,000 trillion rials [today].”

Vakili said the housing market will see positive developments if Iran’s international relations improve, as the rush for buying will turn into a rush for selling and prices will drop.

10% Decline in Prices Within 3 Months

Home prices have declined by 10% over the past three weeks, as higher supply has put a downward pressure on prices, Mostafa Qoli-Khosravi, the head of Tehran Realtors Association, said recently.

“The Iranian month ending Nov. 20 saw the conclusion of 5,072 home deals in Tehran, indicating a 48% decrease compared with the previous month but a 12% growth compared with the same month of last year. The number of rental agreements in Tehran registered at the state-run Tenement Management Information System [operated by the Ministry of Roads and Urban Development] stood at 16,583, registering a 10% decline month-on-month but a 66% increase year-on-year,” he was quoted as saying by IRNA.

“Over 44,339 sale contracts were finalized across the country during the month under review, indicating a 31% decrease month-on-month but a 67% growth year-on-year. A total of 133,096 lease agreements were signed across the country during the month under review, posting a 9% decline month-on-month but a 273% rise year-on-year.”

Qoli-Khosravi said the decline in the number of deals is indicative of real-estate buyers’ expectation of future house-price depreciation and sellers’ resistance to reduce prices.

“The country’s economic prospects are positive and the foreign currency exchange rate is declining, which have led to decreases in asking home prices. Residential properties with inflated prices don’t have any buyers,” he said.

CBI Report

Latest data published by the Central Bank of Iran show a total of 4,466 homes were sold in the capital during the eighth month of the current fiscal year (Oct. 22-Nov. 20), registering a 48.4% decline compared with the preceding month but a 9.9% growth compared with the same month of last year.

The average price of each square meter of a residential property in Tehran stood at 271.93 million rials (over $1,080) during the month under review, showing a surge of 118.2% over last year’s same month as average prices were registered at 124.63 million rials (about $500) then. Home prices in the capital city increased by 1.8% compared to 267.2 million rials ($1,064) in the seventh month of the current year.

During the first eight months of the current Iranian year that started on March 20, the number of home deals finalized in Tehran totaled 68,043, which shows a 70.7% rise year-on-year.

In the same period, the average price of each square meter of a home in the capital stood at 216.79 million rials ($863), signaling a YOY surge of 70.9% compared with the eight months of last year.

The central regulator also reports changes to tenancy prices in the capital city and across the urban areas.

According to CBI, the price of rented residential units in Tehran and across urban areas increased by 28.7% and 31.9% respectively during the eighth month of the current year compared with the similar month of last year.