The government has set new regulations for the home rental market, following a dramatic rise in prices. However, statistics show these regulations have failed to stem the runaway inflation in this sector.
Prices of rented residential homes in Iran’s urban areas increased by 52.3% in the fourth month of the current fiscal year (June 22-July 22) year-on-year, according to the Central Bank of Iran.
In Tehran, the capital city, the home rent inflation was reportedly 47.4%.
The sharp increase in rent levels was even higher than the rise in home prices as, according to the Statistical Center of Iran, average prices in Tehran saw a 45.2% rise during the month under review compared with the similar period of last year.
This is while on June 18, the Supreme Council of Economic Coordination, chaired by the heads of three branches of government, decided to impose a ceiling on housing rent levels — 25% in Tehran, 20% in cities with a population over 1 million and 15% in other Iranian cities. It also called for the automatic renewal of lease agreements for a year.
‘Departure From Precedent’
Nasir Mashayekh, lawyer and professor of public law, has called the decision “a departure from precedent” in an article for the Persian economic daily Donya-e-Eqtesad.
“The first question is whether the Supreme Council has the mandate to approve binding laws. The answer is clear; according to Article 71 of the Iranian Constitution, the only legal authority to pass laws is the Majlis, the Iranian parliament, and according to Article 85, legislative authority cannot be delegated. Therefore, the Supreme Council is facing two challenges: first, what is the legal position of such a council and second, where did the council get its legislative authority from? These questions do not have convincing answers. Both the ‘principle of the separation of powers’ and the ‘principle of legality of the establishment of governing institutions’ are legal hurdles in the way of the council approving or enacting binding laws,” he said.
“The second issue is deconstruction of legal writing. The decision made by the council has deprived citizens of their two legitimate civil rights. One is the right to own a property that the citizen has acquired through legal means. According to Article 47 of the Iranian Constitution, the legitimate property of every citizen should be respected and protected by the law. Every person has the right to own both his property and the benefits gained from that property. Therefore, forcing the owner to grant the benefits of his property to another person is synonymous with depriving the owner of the benefits of their property; this is contrary to basic human rights and the right to property.”
Gov’t Intervention
Saeed Lotfi, a member of Real-Estate Agents Union, believes that there is no mechanism to control new contracts.
“If the government is willing to control the rental market, it must strengthen infrastructures. Fortunately, we have infrastructures such as the tracking code system, and the Ministry of Industries, Mining and Trade has access to this database. However, the ministry cannot single-handedly enforce measures; other ministries, such as the Economy Ministry and the Real-Estate Registration Organization of Iran must also be connected to our system,” he was quoted as saying by Mehr News Agency.
“Landlords prefer to sign new lease contracts rather than renew the old ones; they believe they can rent out their places at higher rates to new tenants. Rents did not rise in line with home prices in recent years; they are expected to increase to bridge this gap. The bank interest rate is 18%, while security deposit to monthly rent was calculated at 30% for years. Landlords, therefore, prefer to receive the monthly payment of rents instead of security deposit; this can put financial pressure on tenants,” he said.
Gholamreza Salami, a housing expert, says the rise in the prices of residential properties is usually viewed as a cause, whereas it is the effect of other causes that stem from government decisions.
“The cause [of dramatic rise in housing prices] is obviously the misguided monetary and fiscal policies taken by governments; which manifest themselves in the form of runaway inflation and decrease in the purchasing power of the majority of the people. We will understand how futile government efforts are to counter rent growth if we acknowledge that rent growth has been driven by rising housing prices that are driven by inflation, which has been contrived by governments,” he was quoted as saying.
Nasser Zakeri, an economist, also believes that the effect of government intervention by setting rent increase cap or lending security deposit loans has been insignificant on the market.
“Policymakers have failed to notice that the increase in speculative demand results in the growth of rents. Given the lack of investment opportunities in capital market, real-estate market has turned into the only investment opportunity for those who have capital. Under the circumstances, landlords estimate the value of their property and factor in the interest corresponding to the sum and calculate the rent. As the rental property market is not inherently the so-called buyer’s market, landlords can impose their terms on the tenant,” he wrote for the Persian daily Shargh.
“On the other hand, tenants have been hit hard economically with the government reducing the banking interest rates because landlords have found an opportunity to increase the cash share of rents by reducing deposit rates.”
Nonetheless, he says intervention in this market is necessary because of the following reasons:
The share of tenants has been growing rapidly over the past two decades, reaching 40% in Tehran. Accordingly, with the rise in rents, the share of the population facing livelihood challenges has increased significantly.
With sanctions, recession and double-digit inflation, the dimensions of poverty in society have expanded and the population below the poverty line has increased rapidly.
The share of housing in household expenditure has been increasing over the past decades, so much so that many tenants have been forced to move to suburban areas or rent smaller homes.
The inefficiency of the capital market and the implementation of inappropriate monetary policies have resulted in the sharp growth of speculative demand in the real-estate market, raising landlords’ dependency on rental income.
