Expert Probes Record Price Hikes in Housing Market

EghtesadOnline: A housing expert explains five main reasons behind the unprecedented spike in Iran’s home prices since the fiscal 2017-18.

News ID: ۷۸۶۲۹۶

07 April 2021

Mehdi Soltan-Mohammadi believes that the US withdrawal from the Joint Comprehensive Plan of Action and its maximum pressure campaign through sanctions increased uncertainty and risks in Iran’s business environment, which encouraged investors to consider capital assets as optimal investment.

“That increased the risks of investment in other economic sectors. Real-estate market has been one of the hottest markets for investing since then,” he was quoted as saying by Hibna.

“Restricting the country’s access to hard currency reserves and the manifold rise in foreign currency exchange rates drove up the prices of building materials as well. Worsening structural inflation and the lowering of interest rates also added to the appeal of capital assets such as land and stock market.”

Noting that the government’s perpetual budget deficit and its rising spending have fueled the flames of inflation, Soltan-Mohammadi said, “Government-sponsored projects failed to calm uncertainties in the housing market by encouraging the supply side; they instead stirred up the concerns of investors. Back-to-back ambiguous initiatives like price stabilization, capital gains tax, income tax, bank transaction tax, the new puzzling tax on construction, along with the closure of websites and restrictions on the flow of information, have translated into new threats to investment in the housing sector.”

The housing expert noted that the fifth factor behind the exponential rise in real-estate prices is the decline in supply of land in Tehran and other megacities.

“One of the main causes of people’s discontent in the 1970s was the constant rise in land and home prices. Land and home turned into one of the demands made by people after the Islamic Revolution of 1978, following which the rapid outward expansion of Tehran and large cities was placed high on the agenda,” he said.

“In doing so, Tehran’s land area soon increased fourfold; plots of land were distributed among people so prices remained reasonably steady for some time. When the supply of land lost its momentum, policymakers put forth the vertical urban expansion policy. The agenda was not permanent either; it spurred a further increase in the prices of land or land of rundown properties.”

The Central Bank of Iran’s latest report on Tehran’s real-estate market shows the number of home deals finalized in Tehran during the last Iranian year (March 2020-21) totaled 83,303, which shows a 0.3% decline year-on-year.

In the same period, the average price of each square meter of a home in the capital stood at 238.65 million rials ($950), signaling a YOY surge of 80.3% compared with the year before, latest CBI data published on real-estate market show.

A total of 5,273 homes were sold in the capital during the 12th month of the last fiscal year (Feb. 19-March 20), registering a 34.6% increase compared with the preceding month but a 48.4% decline compared with the same month of last year.

The average price of each square meter of a residential property in Tehran stood at 302.74 million rials ($1,200) during the month under review, showing an increase of 93.7% over last year’s same month.

The CBI data also show that during the month ending March 20, newly-built residential properties up to five years old constituted the highest proportion of deals at 38.4% (or 2,025 deals), down by 6.5 percentage points compared with the same month of last year.

That lost share was added to homes with a lifespan of six to 10 years, 11 to 15 years and those above 20 years, which accounted for 18.9%, 12.8%, and 14.4% of total deals compared with the same month of last year’s 16.2%, 10.5% and 12.9%, respectively.

The share of homes that were 16 to 20 years old was 15.6% of the total home deals during the month ending March 20, registering no change compared with the same month of the year before.

Residential units with an average price range of 150 million rials ($600) to 200 million rials ($800) per square meter were the most popular in Tehran during the Iranian month under review, as they grabbed a 16% share of all deals.

Of the total number of deals, 61.4% belonged to homes cheaper than the average per-square meter price of the city (i.e., 302.7 million rials or $1,173).

Residential units with a floor area of 50-60 square meters registered the highest number of sales with a 14.8% share of total deals.

Units with an area of 60-70 square meters and 70-80 square meters came second and third with a share of 13.3% and 11.3%, respectively. All-in-all, residential properties with an area of less than 80 square meters had a 52.6% share of total deals.