Need for Bigger Home Loans as Prices Soar

EghtesadOnline: The value of home loans has not increased in line with recent skyrocketing prices, drastically eroding the purchasing power of Iranians and contributing to a downturn in housing sales.

News ID: ۷۸۳۱۸۰

07 July 2018

"Loans offered in the housing sector used to cover 50% of the final price of the homes on sale in the past, but they are now barely enough to cover 25% of the price, particularly in metropolises," Mohammad Reza Rezaei, the head of Majlis Development Commission, told IBENA on Wednesday.

"In view of the rapidly rising bubble in the real-estate sector, the government loans are not worth much in terms of the whole price of homes," he added.

Trading in the property market has substantially slowed since the onset of the inflationary trend, according to Financial Tribune.

Rezaei called for urgent government action to jumpstart the stagnant market, warning that otherwise the recession could drag on for years.

"Extending the repayment periods, coupled with an increase in the value of loans, can inject vitality into the market, but the lack of a visionary approach would lead to a lingering stagnation," he said.

"Offering cheaper loans and discounting the land's value from the final price of the property are some of the potential measures that could help restore the balance between supply and demand in the troubled sector."

Experts associate the soaring home prices mainly to the volatile foreign currency market that saw the rial plunge to 62,000 against the US dollar in April, before the government stepped in to enforce a fixed rate of 42,000 and ban any trade beyond that rate.

Iran's housing sector was fresh out of a years-long recession when hit by the current stagflation about three months ago.

Rezaei's remarks suggest that a recent reduction in the interest rate on home loans and the extension of repayment periods have not made the facilities affordable enough for prospective home buyers.

Housing Savings Account requires first-time prospective homebuyers to make a down payment and wait for a year to become eligible to receive double the amount of their investments as loans.

According to a report by Bank Maskan, the operator of HSA and the agent bank of the housing sector, Tehran prices have recorded a whopping 45% growth year-on-year in the third Iranian month that ended on June 21.

A total of 14,886 residential units were handled by Tehran's registered real-estate agents, down 22.1% and 3.1% compared with the previous month and the same month of the previous year respectively, the report said.

The price of each square meter of residential unit stood at 65.1 million rials ($1,529), up by 8.9% when compared with the second month of the current year. The annual price growth, however, was equal to a staggering 45.8%.

The decline in the number of home deals in the third month is most probably due to lower speculative demand from those looking to make a quick profit.

Bank Melli Iran also joined Bank Maskan in providing banking services to the housing sector after the sector’s top regulator, Central Bank of Iran, authorized it in 2015.