Monthly Construction PMI Rallies 19.25% to Break Above Threshold

EghtesadOnline: A new report by Iran Chamber of Cooperatives shows monthly Purchasing Managers’ Index for the domestic construction sector has grown to stand above the 50 mark.

News ID: ۷۸۷۲۸۱

09 November 2021

PMI in the seventh month of the current Iranian year (Sept. 23-Oct 22) settled at 56.92 from 47.73 in the preceding month (Aug. 23-Sept. 22), indicating a 19.25% increase.

PMI is an indicator of the health of economic sectors and 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 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 55.39 in the month ending Oct. 22, indicating a 22.87% increase compared with 45.08 of the month ending Sept. 22.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased by 7% from 49.95 in the month ending Sept. 22 to 53.45 in the month ending Oct. 22.

The "raw materials (construction materials) inventory" sub-index declined by 3.62% from 48.1 in the month ending Sept. 22 to 46.36 in the month leading to Oct. 22.

The "employment" sub-index increased by 3.11% from 48.86 in the month ending Sept. 22 to 50.38 in the month ending Oct. 22.

To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "raw material purchase prices", which stood at 74.24 in the month ending Sept. 22. The sub-index declined by 0.75% to stand at 72.69 in the month ending Oct. 22.

"Warehouse inventory" decreased by 3.67% to reach 49.61 in the seventh Iranian month from 51.5 in the sixth month.

The "exports" sub-index settled at 48.07 in the month ending Oct. 22 from 49.99 in the month ending Sept. 22, registering a 3.84% increase.

"Prices of products or services" declined by 4.45% to stand at 61.15 in the month ending Oct. 22 from 64 in the previous month.

"Fuel consumption" increased by 5.49% from 48.48 in the sixth Iranian month to 51.14 in the seventh month.

"Sales" declined by 1.02% from 53.62 in the sixth month to 53.07 in the seventh month.

And, "performance expectations for the following month" sub-index settled at 45.38 in the month ending Oct. 22 from 50 in the month before, showing a 9.24% decline.

Tehran’s Construction Material Inflation at 88.4% in Q2

The general price index of construction materials for residential properties in Tehran, using 2011 as the base year, grew by 88.4% during the four-quarter period ending Sept. 22, which marks the end of the second quarter of the current Iranian year, compared with the previous year's corresponding period.

The annual inflation of construction material was 93.5% in Q1.

The index stood at 1154.2.5 in Q2 (June 22-Sept. 22), according to the Statistical Center of Iran's latest report published on its website. Compared with the previous quarter, which ended on June 21, the index saw a 7.2% rise.

In the first quarter of current Iranian year (March 21-June 21), the construction material price index stood at 1,076.5 and registered a 19.4% quarter-on-quarter growth.

The index rose by 65.2% in Q2 compared with last year's corresponding quarter (year-on-year). In Q1, the year-on-year index growth was 100.7%.

Compared with the previous quarter, the category of “cement, concrete, sand and gravel” registered the highest growth among all categories of construction materials with a growth of 18.2%.

“Ironware, rebar, profile for doors, windows and fences” recorded the lowest index growth with 2.8% compared with the preceding quarter.

“Cement, concrete, sand and gravel” witnessed the highest year-on-year inflation with 144% while “ironware, rebar, profile for doors, windows and fences” category registered the lowest year-on-year price growth with 38.2%.

The highest annual price hike was registered for “ironware, rebar, profile for doors, windows and fences” group with 133.6% and the lowest annual growth was posted by “services” group with 40.4%.

Growth in Iran’s Construction Industry

Iran's construction industry is expected to have expanded marginally by 0.7% in 2020 - down from a growth of 8% in 2019.

A report by Research and Markets expects the country's construction output to expand by 1.8% in 2021, before registering an annual average growth of 3.3% between 2022 and 2025.

This will be supported by investments in the energy, oil and gas, petrochemicals, infrastructure and industrial sectors. In an effort to boost the economy and improve infrastructure, the Iranian government aims to complete over 3,900 km of new railroads and roads by March 2022.

The outbreak of the coronavirus pandemic, along with the steep decline in oil and gas prices, has weighed on the Iranian economy, which was already battered by US sanctions that curb oil and gas exports, which are crucial for government revenues.

The economic weakness amid the Covid-19 pandemic and US sanctions, coupled with the depreciation of the currency and rising inflation, further weighed on the construction industry's output last year.

Surge in Housing Production’

The Iranian Parliament’s double-urgency motion called “Surge in Housing Production” was recently approved by the Guardians Council – an oversight that ensures laws are in line with the Iranian Constitution and Sharia. The proposal was first approved by the parliament in April and sent to the council but was returned to the parliament for some amendments. Now the Guardians Council has given the plan, which also happens to be one of the key campaign promises of the new president, Ebrahim Raeisi, its blessing.

The new law on “Surge in Housing Production” requires the government to engage in the construction of one million housing units annually. It has envisioned the formation of a so-called “Supreme Housing Council” at the highest tier of the government led by the president with the minister of roads and urban development as its secretary along with 11 members of the Cabinet and the head of the Islamic Revolution Housing Foundation as its active members and one parliamentarian as the observer member.

The establishment of a “National Housing Fund” with the aim of allocating financial resources has been included in the law and the minister of roads and urban development will be the head of the board of trustees of the fund, Otaghiranonline.ir reported.

According to the new law, banks will be mandated to allocate 20% of their financial facilities to real-estate development annually. The banking system will be required to spend 3,600 trillion rials ($12.88 billion) on housing loans. That would be loans worth 4,000 million rials ($14,311) for each residential unit in urban areas and 2,500 million rials ($8,944) in rural areas.

Another article of the law requires government organizations and institutions to give their suburban lands (excluding the agricultural lands and those protected for environmental purposes) to the Ministry of Roads and Urban Development under 99-year lease agreements. The law also says the provision of building materials such as cement and steel must be ensured.

“The engagement of the private sector and provision of land and loans are key elements of the law,” says Ali Nikzad, deputy parliament speaker.

“Banking facilities will be adjusted to the inflation in the coming years. Real-estate development will help create employment as the construction of 100 square meters of a residential unit generates 2.5 direct and indirect jobs.”

CBI on Tehran Real-Estate Market

New data released by the Central Bank of Iran show Tehran’s real-estate market sales have declined in the seventh fiscal month (Sep. 23-Oct. 22), while prices remained stable.

A total of 5,471 homes were sold in Tehran during the month, registering a decrease of 29.8% compared with the preceding month and a 36.8% fall compared with the same month of last year.

CBI’s data published on its website also indicate that the average price of each square meter of a residential property in Tehran stood at 316.31 million rials ($1,131) during the month under review, showing a surge of 18.4% over last year’s same month, when average prices reached 267.2 million rials ($955).

Home prices in the capital city declined by 0.2% compared to 317.03 million rials ($1,134) in the sixth month of the current year.