Construction Sector Expands 5.4 Percent in 2nd Quarter

EghtesadOnline: The gross domestic product of Iran’s construction sector, which is the sub-sector of “industries and mining, sans oil” group, witnessed a 5.4% expansion in the second quarter of the current year (June 21-Sept. 21) compared with the corresponding period of last year, the Statistical Center of Iran’s latest report shows.

News ID: ۷۵۱۶۷۴

09 December 2020

SCI’s previous reading of Iran’s economic growth showed the GDP of construction sector contracted by 2% in Q1 (March 20-June 20).

The sector’s economic growth stood at 2% during the first half of the current fiscal year (March 20-Sept. 21).

The “real estate, rent and services to businesses” sub-sector of services stood at 0.9% in Q2, -6.5% in Q1 and -2.8% in H1.

Construction and “real estate, rent and services to businesses” sub-sector experienced growth rates of 5.6% and 3.8% in the last fiscal year (March 21, 2019-March 19).

Iran’s overall gross domestic product saw a contraction of 1.9% in H1, while economic growth, excluding oil, stood at -1.3%.

A sectoral breakdown of growth rates in the report shows that only “agriculture” and “industries and mining, excluding oil” sectors experienced growth of 1.7% and 2% respectively.

“Industries and mining” contracted by 0.7% and “services” contracted by 3.5%.

SCI also reported economic growth in the second quarter of the current year, as GDP expanded 0.2% in Q2 while it shrank 0.2% without the oil sector. The “agriculture” sector saw a 2.7% expansion; “industries and mining” 4% while “industries and mining sector, excluding oil” expanded by 4.2%. The “services” sector, however, contracted by 3% in Q2.

According to SCI, gross domestic product saw a contraction of 3.5% during the first quarter of the current fiscal year, year-on-year, while economic growth, excluding oil, stood at -1.7%.

A sectoral breakdown of growth rates in the report shows only the agriculture sector experienced growth with a meager rate of 0.1%. The industries and services sectors contracted by 4.4% and 3.5% respectively.

Iran’s economy shrank by 6.9% in the last fiscal year (March 2019-20), which stood at -0.5%, excluding the oil sector.

Only the agriculture sector experienced growth with 2.8% last year, as industries and services saw contractions of 14.7% and 0.7%, respectively.

Q1 Construction Permits

SCI’s latest data concerning building permits issued in Tehran as well as the country’s urban areas during the first quarter of the current fiscal year show a total of 1,680 permits were issued by Tehran Municipality, indicating a decline of 30% and 23.8% over the preceding quarter (Dec. 22, 2019-March 19) and the same quarter of last year respectively.

A total of 12,818 homes are expected to be built as a result of the permits issued in Q1 to register a quarter-on-quarter decline of 26.9% and a year-on-year decrease of 15.3%.

In Tehran, the total floor area of housing units with permits in winter stood at 2,281,000 square meters, registering a 26.6% QOQ and an 18% YOY decline.

The average number of residential units per permit in the capital city was 7.6.

The average floor area of units per permit in the capital city was at 1,358 square meters.

Municipalities across the country issued 38,360 building permits in the first quarter of the current year, registering an 11.6% decrease QOQ but a 5% increase YOY.

A total of 102,160 housing units are expected to be built as a result of the permits issued across Iran’s urban areas in Q1, indicating a 15% decrease compared with the quarter before but a 6.8% growth year-on-year.

Across the country, the total floor area of units with building permits in Q1 was at 19,377,000 square meters, posting a 15% decline QOQ but a 10.5% increase YOY.

The average number of residential units per permit across the country was 2.7.

The average floor area of residential units per permit was 505 square meters.

Tehran Construction Material Inflation at 40.8%

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, according to the Statistical Center of Iran.

During the four-quarter period ending Sept. 21, the index grew by 40.8% YOY.

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

Compared with the previous quarter, i.e., 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% QOQ 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 ($173) per square meters. The average building permit fees hovered around 5-7 million rials ($19-27) per square meter last year.

With the 30% increase, permit fees have reached 6.5-10 million rials ($25-38) per square meter. However, a report by the Persian-language economic daily Donya-e-Eqtesad shows that such fees will exceed 20 million rials ($77) per square meter 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 who intended 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.

“A 50% 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 homeowners 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 ($19,230) 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 on 300 square meters of land in the 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 compared with the first half of last year (March 21-Sept. 22, 2019). The average price of 1 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.