The Purchasing Managers’ Index for the construction shows the sector is once again nearing contraction mode after briefly emerging from a nosedive at the beginning of the Iranian year (started March 21), which coincides with the long Norouz holidays that makes all economic sectors slump, according to the latest data released by the Iran Chamber of Cooperatives.
PMI settled at 51.12 in the third month of the current Iranian year (May 22-June 21), down from 52.22 in the second month of the year (April 21-May 21), registering a 2.1% decrease.
PMI is an indicator of the health of economic sectors and provides information about business conditions to decision-makers, analysts and purchasing managers.
Raw material inventory, employment conditions, new orders, supplier deliveries and export/production conditions are among the criteria surveyed, 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 expanding or contracting respectively.
The survey includes 12 business criteria 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 49.44 in the month ending June 21, indicating an 8.25% decline compared with 53.89 in the month ending May 21.
"Supplier Deliveries", which measures how fast deliveries are made, decreased by 13.45% from 61.67 to 53.37.
"Raw Materials (construction materials) Inventory" grew by 4.73% from 46.67 to 48.88 in the month ending June 21.
"Employment" increased by 19.75% from 42.22 to 50.56 in the month ending June 21.
To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "Raw Material Purchase Prices", which stood at 77.22 in the month ending May 21. The sub-index decreased by 1.78% to stand at 75.84 in the month ending June 21.
"Warehouse Inventory" decreased by 4.67% to reach 46.07 in the third month of the current Iranian month from 48.33 in the previous month.
The "Exports" sub-index settled at 52.81 from 51.11, registering a 3.32% growth.
"Prices of Products and Services" increased by 3.62% to stand at 69.66 from 67.22.
"Fuel Consumption" grew by 11.89% to stand at 58.43 from 52.22 and the "Sales" sub-index decreased from 52.22 to 50 in the month ending June 21 to register a 4.25% decline.
The sub-index of "Performance Expectations for the Following Month" settled at 53.93 from 53.33, showing a 1.12% increase.
Recession on Horizon: Real-Estate Developers Center
Noting that the construction market in Iran is in deep recession, Mohammad Mortezavi, the head of Iran Real-Estate Developers Center, says it is necessary to pay attention to the private sector and the government’s housing market.
“In the first sector, where the private sector is in charge of the implementation of housing projects, the continuation of recession and inflation is highly likely. Unfortunately, over the past few years, we have seen a decrease in investment and consequently production in the housing sector for obvious reasons,” he added.
In an article for Donya-e-Eqtesad, Mortezavi said each small change in construction, production and investment in this sector is not isolated from the macroeconomic environment of the country and is directly affected by it.
“In a situation where builders, like other producers, are struggling with economic restrictions as a result of the increase in economic and non-economic risks, high inflation and lack of support from policymakers, it is natural that inflationary recession creates a big hurdle in the way of their activities. The hike in the end price of construction following the rise in costs and inflation in construction inputs, including land, materials and wages, has imposed a devastating inflation on housing and construction,” he added.
The official noted that when it comes to government-sponsored housing projects, the conditions are not any better than private sector construction.
“It is more than a year now since the government launched the Housing Movement Initiative. The parliament has also approved a law in this regard, called the Housing Production Surge Law, according to which new capacities in housing production for low-income groups and those in need of support will be created. One million residential units should be built according to the needs of these people per year for four consecutive years, i.e. a total of four million homes. Almost a year and a half into this project, not much success has been achieved,” he concluded.
