Impact of JCPOA Pullout on Iran's Housing Sector Uncertain

EghtesadOnline: Iran’s housing sector has been showing signs of exiting a deep recession that had undermined the country’s overall growth for more than five years, but US President Donald Trump’s pullout on May 8 from the Joint Comprehensive Plan of Action, Iran’s multilateral nuclear deal, also cast a pall over the sector.

News ID: ۷۸۲۵۲۱

12 May 2018

The sector will not be directly hit by any of the sanctions Trump has promised to reinstate against the country, though it is influenced by other markets and economic sectors that are sure to be affected in the coming months.

This has made officials and pundits uncertain about the immediate and long-term prospects of the sector, with predictions ranging from no notable changes whatsoever to delayed boom, according to Financial Tribune.

“The housing sector in Iran is completely indigenous and all its factors of production from workforce and technology to construction materials are procured domestically. Therefore, political developments and behaviors of international players will not have a direct impact on the housing market,” a senior official at the Ministry of Roads and Urban Development was quoted as saying by Hamshahrionline.com .

“However, home prices can be influenced by developments in other parallel markets, so the increase in prices is due to factors such as inflation, bank interest rates and the value of assets that can replace housing,” Hamed Mazaherian, deputy for housing and buildings at the ministry, added.

Latest data released by the Central Bank of Iran indicated that Tehran experienced the highest increase in home prices, as they showed a year-on-year rise of 30% during the first month of the current fiscal year to April 20.

Bank interest rates are now officially capped at 15%, but CBI decided to temporarily offer them at 20% and government bonds with a rate of 20.5% were published soon after.

As Mazaherian said, the housing sector signaled growth during the final quarter of the previous fiscal year to March 20 and registered good annual increases in the number of home deals that are usually interpreted as a sign of boom.

“But this boom occurred at the same time as developments in other markets,” he said. “We are now waiting for stability to return to other markets so that we can outline the situation of the housing market.”

The official was referring to the volatility in the foreign exchange market that has seen Iran’s rial repeatedly hit all-time lows. These fluctuations, which mainly occurred because of the then anticipated departure of the US from the nuclear deal, have also severely affected other markets such as gold and capital where instability prevails to this day.

Divergent Views

Hesam Oqbaei, the deputy head of Tehran Association of Realtors, believes that the blow dealt to the nuclear deal will mostly have an additional psychological effect on markets, including the housing market.

“But it is predicted that the housing market will be the most resilient and suffer the least impact from this,” he told ILNA.

Oqbaei, however, conceded that as the foreign exchange market is likely to continue to be affected by the US withdrawal, the housing market may experience further price hikes, especially as summer–when home deals are usually at their highest–is close.

Two experts who spoke with Donya-e-Eqtesad, Financial Tribune’s sister newspaper, had other insights.

Fardin Yazdani said a portion of the “capital demand” or speculative activities may exit the housing market in the short run, which will lead to lower prices or the least stable prices.

“The possibility also exists that a portion of the liquidity may enter the housing market and demand for homes will increase in the housing market that has a lesser degree of risk,” he said.

The pundit also warned that in the absence of government measures, the market may be gripped by “stagflation”.

On the other hand, Gholamreza Salami agreed that the volume of speculative demand in the market will dwindle in the short run and affect prices, but said the long-term impact of the US withdrawal on the housing market is not predictable.

A member of the parliament has also made predictions about the housing sector and painted a brighter picture.

Mohammad Reza Rezaei, the head of Majlis Development Commission, said, “The housing market will continue on its path without any changes because construction materials are not produced outside the country, which can cause JCPOA developments to affect home prices.”