Expert: Decline in Home Sales Not Considered ‘Recession’

EghtesadOnline: Iran’s real-estate market is witnessing a decline in home deals, which cannot be considered a recession, Beitollah Sattarian, a housing expert said.

News ID: ۷۸۶۱۴۳

02 March 2021

“Demand for housing has always outweighed supply over the past 50 years, which trend will continue into the next [Iranian] year [starting March 20]. I believe all four indexes in the housing sector, namely the number of deals, price, production and investment, will grow next year,” he was quoted as saying by ISNA.

“The short period of decline in the number of deals is not tantamount to recession, as nearly 2,000 home deals were struck in the month ending Feb. 18 in Tehran. It is too soon to consider such a decrease in home deals as recession. Despite Covid-19 in Iran and the whole world, home prices in Tehran went up by 100%. The number of deals dropped suddenly following the US presidential election in the month ending Nov. 20. Over 10 months to Jan. 19, the number of home sales increased by 23%, which is indicative of an investment surge in the market.”

Stressing that the recent decline in the number of home deals is to blame on the political climate surrounding the Joint Comprehensive Plan of Action and the upcoming Iranian presidential election, Sattarian noted that this downturn is likely to continue into May and June but won’t last.

“On the other hand, most producers are micro investors who lack long-term vision. Iran’s housing sector is not an integrated entity; governments have always failed to gather micro builders within one inclusive community, which is why we are constantly experiencing boom and bust cycles in the real-estate market,” he said.

“The government has left the construction industry to its own devices whereas half of the country’s money is in the housing sector. There are in fact two macroeconomic sectors in Iran: oil and construction. All other jobs are either directly or indirectly influenced by the construction industry.”

CBI Report

Latest data released by the Central Bank of Iran show a total of 3,917 homes were sold in Tehran during the 11th month of the current fiscal year (Jan. 20-Feb. 18), registering a 70.5% decline compared with the same month of last year.

Compared with the preceding month, the number of sales rose 11.4%.

The average price of each square meter of a residential property in Tehran stood at 283.89 million rials ($1,135) during the month under review, showing an increase of 97.2% over last year’s same month, as average prices reached 143.97 million rials ($575). Home prices in the capital city increased by 3.7% compared to 273.86 million rials ($1,095) in the 10th month of the current year.

During the 11-month period of the current Iranian year (March 19, 2020- Feb. 18), the number of home deals finalized in Tehran totaled 78,030, which shows a 6.4% rise year-on-year.

In the same period, the average price of each square meter of a home in the capital stood at 232.83 million rials ($909), signaling a YOY surge of 78.9% compared with the similar period of last year.

The central regulator also reports changes to tenancy prices in the capital city and across the urban areas.

According to CBI, the price of rented residential units in Tehran and across urban areas increased by 30.6% and 33.9% respectively during the 11th month of the current Iranian year year-on-year.

Housing PMI

Iran Chamber of Cooperatives has released a report on Purchasing Managers' Index for the country’s real-estate and construction sector, known by the Farsi acronym “Shamekh”, for the 10th month of the current Iranian year ending Jan. 19.

PMI for housing sector in the 10th month of the current Iranian year (Dec. 21, 2020-Jan. 19) settled at 58.33 from 60.67 in the preceding month (Nov. 21-Dec. 20, 2020).

It settled at 58.33 in the month under review from 60.67 in the ninth fiscal month, indicating a 3.86% decrease.

PMI is an indicator of the health of economic sectors. It provides information about current business conditions to decision-makers, analysts and purchasing managers.

Raw material inventory, employment conditions, new orders, supplier deliveries and export/production conditions were among the criteria quizzed, yielding a final score of between 1 and 100.

If a business scores 50, it means that no change has been perceived compared to the previous month, while scores higher or lower than 50 indicate that the business is booming or stagnating respectively.

The housing PMI is based on five major survey fields: "new orders", "raw material inventory ", "production", "supplier deliveries" and "employment".

The survey includes 12 questions about business conditions and any changes, whether it be improving, no changes or deteriorating.

It is measured through a monthly survey sent to senior executives of 100 companies active in the real-estate sector. It is based on five major survey areas: "new orders" with a coefficient of 30%, "raw material inventory" (10%), "production" (25%), "supplier deliveries" (15%) and "employment" (20%).

The "new orders" sub-index stood at 53.89 in the month ending Jan. 19, indicating a 4.99% increase compared with the previous month’s reading of 51.33.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased from 51.33 in the month ending Dec. 20 to 55 in the month ending Jan. 19, indicating a 7.15% growth.

The "raw materials (construction materials) inventory" sub-index declined by 5.84% from 51.33 in the month ending Dec. 20 to 48.33 in the month leading to Jan. 19.

The "employment" sub-index increased by 0.81% from 54 in the ninth month to 54.44 in the 10th Iranian month.

To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "raw materials purchase prices", which stood at 66 in the month ending Dec. 20. The sub-index decreased by 2.36% to stand at 64.44 in the month ending Jan. 19.

"Warehouse inventory" dropped by 17.93% to 36.11 in the 10th Iranian month from 44 in the ninth fiscal month.

The "exports" sub-index settled at 47.78 in the month ending Jan. 19 from 47.33 in the month ending Dec. 20, registering a 0.95% increase.

"Prices of products or services" dropped by 7.85% to stand at 52.22 in the month ending Jan. 19 from 56.67 in the month ending Dec. 20.

"Fuel consumption" decreased by 8.45% from 64 in the ninth Iranian month to 58.59 in the 10th Iranian month.

"Sales" fell by 8.69% from 48.67 in the ninth month to 44.44 in the 10th month.

And, the "performance expectations for the following month" sub-index settled at 67.78 in the month ending Jan. 19 from 72 in the month ending Dec. 20, showing a 5.86% decline.