Plan to Make Home Loans More Affordable

EghtesadOnline: The administration of President Hassan Rouhani is mulling new measures to make home loans more appealing to first-time homebuyers, as it seeks to lift the key housing sector out of the doldrums after enduring a period of negligence over the past four years.

News ID: ۷۷۹۴۵۳

27 September 2017

“Seeking to boost the purchasing power of home loan applicants, especially in distressed urban areas, we are trying to reduce the loans’ waiting period to four or five months and increase the repayment period to 20 years while cutting their interest rates by 1-2%,” the managing director of Planning and Economy Office at the Ministry of Roads and Urban Development said.

Ali Chegini added that in the past two years, about 260,000 people have applied for home loans by opening Housing Saving Accounts and some 20,000 applicants have so far received their loans, MRUD’s official website reported.

Chegini noted that applicants for Housing Saving Account loans have significantly increased in recent months, according to Financial Tribune.

Currently, the waiting period for these home loans is at least one year while the repayment period has been set at 12 years.

The Housing Savings Account, launched in June 2015 for the first time, is a government scheme spearheaded by Bank Maskan–the agent bank of the housing sector–that requires applicants, mainly first-time homebuyers, to make a deposit and wait for a year to receive facilities.

While hailed by pundits as an effective first-step, critics point to the fact that the loans barely cover one-third of an average apartment's cost and that the installments are simply unaffordable for a considerable section of the youth population.

Affirming talks of a stimulus package for the housing sector, Hamed Mazaherian, the deputy for housing with the Ministry of Roads and Urban Development, also announced that the ministry is negotiating with the administration to sweeten the Housing Savings Account mortgages.

He noted that the ministry has proposed a list of suggestions to a special committee in government where the resources and expenses are being assessed.

“We are very optimistic that the government will approve and implement our suggestions,” he added.

Mazaherian explained that the housing sector is gradually entering its booming phase but “if we make haste to achieve a boom in the market, we might face a notable leap in prices” so it is the ministry’s policy to improve the housing market gradually.

Stimulating the key housing sector has been among President Rouhani's promises during his reelection campaign that led to a landslide victory in August.  He had previously ordered the interest on home loans to be reduced to single digits, making them the cheapest credits one can get in the Iranian banking system, bar interest-free loans.

Summerly Gain

According to Chegini, during the month ending August 22, Tehran has registered 18,000 home sales that indicate a growth of 15% compared with the same month of the previous year.

According to the managing director of the Planning and Economy Office, the number of housing deals might have declined a bit in the following month but it is predicted that on a year-on-year comparison, the number of deals still stands higher than last year, which can herald prosperity for the housing sector.

According to the Central Bank of Iran's figures, the number of home sales during the aforementioned month has been unprecedented since May 2014. This is while the average number of home sales in Tehran in the past three years had not exceeded 13,000 per month.

“Predictive indicators of housing sector point to  a positive trend in the market and if the Central Bank of Iran manages to control banks’ interest rates that had negative effects on various economic sectors of the country, housing sector can also keep moving toward full recovery,” Chegini said.

According to CBI's latest directive, banks and credit institutions were obligated to refrain from paying high interests after Sept. 2 and cap their interests on one-year deposits at the previously set 15% while paying a maximum interest of 10% to short-term deposits.

Chegini noted that the number of building permits issued has registered an upward trend since the final months of the previous Iranian year (ended March 20, 2017) after years of consecutive decline.

“During the early months of the new fiscal year, the number of construction permits issued in Tehran and other urban areas of the country has increased by 5-6%,” he added.

The official noted that according to the Statistical Center of Iran’s report, the housing sector’s value added during the first quarter of the current year marked a year-on-year growth of 7%, which also point to the sector’s recovery.