Most Banks Have Shut the Door to Homeownership

EghtesadOnline: As per rules banks must earmark 20% of their loans to the housing sector; however "they show little if any interest in doing so despite the 18% return," a board member of the Iranian Builders' Association said.

News ID: ۷۸۷۶۳۶

17 January 2022

"There have been serious disputes over home loans in the past as it was seen as one key factor in controlling inflation. The Majlis approved measures as per which lenders were required to increase the share of mortgages in their lending portfolio," Iraj Tahmaseb was quoted as saying by Tasnim News Agency.

Banks are seemingly worried about long term loans, he said and “simply refuse to play by the rules.”

As such, the loans are unable to bridge the gap between homebuyers’ financial ability and the prohibitive home prices, especially in the past few years.

Even when the loans are given, the amount is miniscule compared to the cost of a residential unit. Home prices keep on rising across the country at terrible speed, more so in the major urban areas. The situation is such that almost all fixed-wage earners and young couples have given up the idea of buying their own homes.

Banks and credit institutions gave 4,977 trillion rials ($20.2 billion) in loans to businesses in the first three months of the current fiscal year that ends in March.

Housing loans hardly accounted for 1.2% of the total or 61.7 trillion rials. As per the 2021-22 budget, Iranian banks are obliged to set aside 1,600 trillion rials ($6 billion) for home loan applicants.

The obligation applies to all commercial banks while specialized banks are exempt, except for Bank Maskan, which is the main mortgage lender.

The decision was in line with efforts to boost the ailing housing sector as home prices, real estate and construction costs shot up exponentially making it difficult, and for most people impossible, to have a shelter of their own.

Mehdi Ashari, a housing expert, says the longevity of housing loan repayment is the main reason behind lenders' aversion.

"Floating rates seem to be the only solution to address this issue, otherwise banks will not risk their resources."

A floating interest rate is one that changes periodically: the rate of interest moves up and down, or floats, reflecting economic or financial market conditions.

Data released by the Central Bank of Iran show the average price of a square meter of residential unit in Tehran was 309.7 million rials [$1,100] last August – up 34% over last year same time when prices were in the range of 231 million rials (about $820) then.

Home prices in the capital city grew by 3.1% compared to the 300.4 million rials ($1,067) in June.