The average Consumer Price Index for housing rent levels in urban areas during the four-quarter period ending Dec. 20, which marks the end of the third quarter of the current Iranian year (fall), increased by 26% compared with the corresponding period of last year.
The Statistical Center of Iran had put the inflation rate for the preceding quarter (summer), which ended on Sept. 21, at 24.3%.
The highest inflation was registered for Chaharmahal-Bakhtiari Province with 32.8% and the lowest rate was posted for West Azarbaijan Province with 13.3%.
According to the SCI report, CPI for rent levels in urban areas (using the Iranian year to March 2017 as the base year) stood at 209 in the third quarter of the current Iranian year (Sept. 22-Dec. 20), indicating a 6.8% increase compared with the previous quarter.
The SCI had put the quarter-on-quarter rent inflation rate for the preceding quarter, which ended on Sept. 21 at 11.8%.
West Azarbaijan and Sistan-Baluchestan provinces registered the highest and lowest quarter-on-quarter inflation rates for tenants in urban areas with 19% and 3.9%, respectively.
The consumer rent price index in urban areas increased by 28.4% in Q3 over the same quarter of last year.
SCI had put the year-on-year rent inflation rate for the preceding quarter at 28.9%.
The highest and lowest inflation rates on a year-on-year basis in the third quarter of the current year were posted by Kermanshah with 38.6% and Sistan-Baluchestan with 12.7%.
Price-to-Rent Ratio at All-Time High
The gap between the cost of buying and renting was at its highest level in Iran in the fourth quarter of last Iranian year (Dec. 22, 2019-March 19).
Analysis conducted by the Persian economic daily Donya-e-Eqtesad, using SCI data, show that the national price-to-rent ratio settled at 29 in Q4 of the fiscal 2019-20.
In the year ending March 2017, when Iran’s housing market did not experience a sudden and large price movement or recession, the index stood at 16.
The price-to-rent ratio is the ratio of home prices to annualized rent in a given location used as a benchmark for estimating whether it is cheaper to rent or own property.
A price-to-rent ratio of 1 to 15 indicates it is much better to buy than rent and a price-to-rent ratio of 16 to 20 and above indicates it is better to rent than buy.
As a general rule, a lower price-to-rent ratio means conditions are more favorable for buying a home whereas a higher price-to-rent ratio means conditions are better for renting.
The price-to-rent ratio reached 25 in Tehran compared with 30 in Tabriz, 50 in Isfahan, 25 in Karaj, 26 in Mashhad, 21 in Ahvaz, 34 in Shiraz and 32 in Qom in the fourth quarter of the last year.
Several conclusions can be drawn from these data:
First, given the fact that price-to-rent ratios rise and fall as the housing market heats up or cools down, the real-estate market in large provincial capital cities showed, in terms of value, higher growth rates in Q4 than in Tehran.
Second, the increase in rents has been higher in Tehran than in other big Iranian cities.
These data can also provide an answer to the question concerning the dearth of supply in Iran’s housing market: Over the past two years, many residential properties purchased by investors were not offered on the market due to the decline in profitability.
Under normal conditions, the return on investment on rental properties is between 4-7% and even a good 10% in some years. But at present, rental property ROI has declined to 3%, which discourages landlords from renting their homes.
Notably, the price-to-rent ratio compares the economics of buying versus renting, but not the affordability. If home prices are out of reach for most people in a specific market, then their only option will be to rent, regardless of whether the price-to-rent ratio is high or low.
The rental market in Iran can be described as a two-way dead-end. On the one hand, rental affordability is at lower levels than current rents and on the other hand, homeowners are disheartened by the decrease in rental property ROI.
