Rouhani Administration Reverts to Old Law to Revive Housing Industry

EghtesadOnline: A law that was approved nearly a decade ago and provides incentives to finance the housing sector has been officially communicated to the relevant bodies by first vice president Eshaq Jahangiri. Enforcement of the law is in line with government efforts to pull the sluggish housing sector out of the long and painful recession.

News ID: ۷۷۱۳۱۰

14 November 2016

Eight years after the Organizing and Backing of Housing Production and Supply Law was first approved, Jahangiri communicated the executive guidelines pertaining to Article 14 of the law to four ministries and the Central Bank of Iran on Saturday, banker.ir reported.

It was not clear why the law was on hold for a decade.

Executive guidelines to Article 14 of the law emphasize the need for establishing five new indirect financing methods to stimulate the key housing industry.   The guidelines which have been sent to ministries of roads and urban development, economic affairs and finance, industries, mines and trade, CBI, the Planning and Budget Organization and the Institute of Standards and Industrial Research of Iran, reemphasize the lease-to-own programs – or lease option– (for provision of long-term non-bank mortgage) as one of the most important new indirect instruments of financing the housing sector.

In line with the new guidelines, lease-to-own companies can issue bonds to finance the housing sector and the Ministry of Roads and Urban Development is authorized to offer subsidized loans and provide the assets for such loans from its own resources.

The guideline also defines building projects according to which in cities with a population of over one million, any project that includes the construction of at least 80 residential units will qualify as a "major real estate" project.

In cities with a population over 200,000 and other towns and rural areas, 25 units and 10 units respectively will be considered as major building projects.

With the new definition, big builders and developers can enjoy special conditions. They will be able to finance themselves directly by way of issuing special certificates of deposit, and furthermore  will be given priority in  municipality loans in distressed urban areas compared to other builders.

The third stimulant devised for the financing of the housing sector as part of the new guidelines states that the Ministry of Economy is obliged to coordinate with the Ministry of Roads and Urban Development by way of the Central Insurance company of Iran to create the necessary regulatory grounds for trade insurance bodies to offer insurance cover for home construction.

The fourth stimulant is closely related to a permit that was given to the Ministry of Roads and Urban Development and says the ministry is authorized to empower banks that provide loans for the housing sector through "managed funds."

The fifth and perhaps most important part of the guidelines that consist of 25 articles relates to modernization. It states that builders and constructors, provided they employ modern technology in completing their projects, will be eligible for rebate of up to 50% in costs related to the issuance of permits for residential units, workers' insurance and various types of construction insurance policies, according to Financial Tribune.

Funding for this section of the guidelines will be made available through the annual budget.

Price Hikes by Next Summer

In related news, head of the Tehran Association of Realtors forecast an increase in housing prices by the coming summer.

"It is predicted that property prices will not experience an increase until the end of the current year (March 2017)," Hesam Oqbaei said in a talk with ILNA.

The existing trend will continue until the end of the presidential election (in May), but from the beginning of next summer (June ), the housing sector will see higher prices in line with the inflation rate, he added.

On rents in the second half of the current fiscal year, he said a 10% decrease should be expected before is fiscal year is out.