Tehran Housing Sector Rally Expected to Cool Off

EghtesadOnline: After a bigger-than-expected rally in home prices in the first quarter of the current fiscal year that started on March 21, housing experts believe the one-off bull run will lose steam as the year moves toward the second half.

News ID: ۷۸۲۸۵۰

10 June 2018

Rejecting claims that the price hike was fueled by the policies of the Ministry of Roads and Urban Development that imposed curbs on the construction of high-rises, Hamed Mazaherian, the deputy housing minister, said the decline in the construction of apartments was due to a drop in demand for building permits.

Mazaherian traced the surge in house prices to the volatility in “parallel markets” such as gold and currency markets, which caused an investor rush toward the property market, Mehr News Agency reported.

“Foreign exchange volatility toward the end of the previous fiscal year caused those in possession of liquidity to enter the housing sector to turn their money into something valuable and this caused a big shock to the market,” Financial Tribune quoted him as saying.

The deputy minister predicted that no such price surge will occur in the coming months but said that would again hinge on the wider calm in other markets.

The latest report by the Central Bank of Iran indicates that the number of home sales in Tehran during the second month of the current year to May 21 reached 19,100, signaling a respective increase of 278.7% and 16.7% when compared with the previous month and the same month of last year.

During the period, the average price of one square meter of a residential unit in Tehran reached 59.8 million rials ($1,420), which was higher by 8.2% and 34.8% in comparison with the previous month and the same month of last year respectively.

Reports also showed that in some trendy districts of the capital, home prices had registered a rise of 40-50%, warning of a new bubble forming in the housing sector.

The rise in property prices came around the same time as US President Donald Trump began to threaten to exit the nuclear deal Iran had signed with world powers in 2015.

The uncertainty around the Joint Comprehensive Plan of Action, as the agreement is formally known, caused a slide in rial, the Iranian currency, sparking a rush toward safe-haven assets such as the property and gold markets.

In response to a run on the rial, which caused it to lose 40% of its value, the government unified the exchange rate for the US dollar in April.

The rally also heated up the gold market, sending the benchmark Bahar Azadi gold coin to all-time highs. Shortly afterwards, a rally in home prices also ensued.

Abbas Zeinali, a housing expert, told ISNA that since the housing market has no capacity for growth, it is bound to experience falling prices toward the second half of the year.

“Every year during the first three to four months of the year, some fluctuations happen in the housing sector which began earlier this year,” he said.

Zeinali noted that the reason for this was that the housing recession had taken so long, which has been followed by a relative boom.

“The trend will probably continue in the future, but expecting a rising trajectory afterwards is far-fetched,” he said.