The state of housing market in the new Iranian year (started March 21) will be highly dependent on the outcome of the nuclear negotiations in Vienna, Austria, between Iran and world powers over the revival of the Joint Comprehensive Plan of Action, says Fardin Yazdani, a housing expert in an article for the Persian economic daily Donya-e-Eqtesad.
A translation of the text follows:
The trade sector of the Iranian economy was practically shut down when US sanctions were introduced in the fiscal 2018-19; the cost of doing business increased dramatically and so resources were shifted to the asset market, including real-estate and land. The three years from fiscal 2019-18 to fiscal 2020-21 saw a sharp rise in prices of land and real-estate.
On the other hand, various industries, including manufacturing, faced challenges such as an increase in the prices of construction materials and land. The whole thing resulted in a surge in construction cost, while housing production declined as prices increased.
The latest round of price increases has one difference with those of previous rounds. Prices used to stimulate production, increase profitability and boost investment. However, the rise in prices over the three years under review did not lead to growth in investment because they were coupled with a jump in prices and fall in demand.
The decline in price hike, recession and a fall in the number of home deals were the highlights of last year’s real-estate market. The recession gripping the construction sector deepened, as developments affecting the housing market led to a decrease in demand and production
In fact, price rises were so high that the market could no longer afford to pay or expect further increases. The decline in price hike, recession and a fall in the number of home deals were the highlights of last year’s real-estate market. The recession gripping the construction sector deepened, as developments affecting the housing market led to a decrease in demand and production.
The state of housing market in the new year would depend on the outcome of nuclear negotiations in Vienna, Austria.
Two scenarios can be defined in this regard. At the macro level, if JCPOA is revived, foreign transactions will be facilitated, investments can be made in markets pegged to global economy and imports of intermediary goods will become cheaper and easier. All in all, an agreement would revitalize the economy’s trade sector, economic growth will improve and oil revenues will grow and consequently the uptrend in the growth of money supply will slow down and you can expect a decline in inflation.
The prices of building materials and costs related to real-estate development will subsequently decrease. Less money will be directed to the property market, including land market, demand will strengthen and household economy and income will move toward equilibrium compared with that of last year.
You can at least expect demand to improve in the next two years. This is conditioned on positive economic growth in the new year. Prices will be curtailed; there won’t be a surge in demand for home deals; nothing special will happen in the market in terms of production within a year but producers will be more eager to build homes with a smaller area to meet consumer demand.
There is only one certain factor, i.e., if the government-sponsored National Housing Plan is implemented, some real-estate developers will focus on contracting activities.
On the other hand, if no agreement is reached, we will see lower economic growth. The economic situation and the government budget deficit will still be the same as that of last year.
It is not clear whether the calm that might prevail in the market in terms of stability or reduction of costs will remain in the market if the agreement is not reached.
A part of the increase in money supply may shift to land and real-estate market again, resulting in an increase in the cost price, but it is almost certain that the housing market will not see price fluctuations similar to those in the fiscal 2018-19.
