The Ministry of Roads and Urban Development is finalizing a plan for selling construction materials to major home builders on credit.
"The plan will be carried out in cooperation with Bank Maskan, the state-run agent bank of Iran’s housing sector, and will be implemented as soon as it is finalized," Roads Minister Mohammad Eslami said.
The project is aimed at reducing the end price of homes by controlling construction costs, maintaining the quality of construction materials and controlling the inflow of money into the housing market.
"The ministry has yet to set the credit ceiling, but it will be based on the floor area," Hibna quoted Eslami as saying.
Rise in Prices of Construction Materials
According to the latest report of the Statistical Center of Iran, the general price index of construction materials for residential units in Tehran jumped by an annual rate of close to 50% during the second quarter of the current fiscal year that ended on Sept. 22, triggering a rise in housing costs in the capital city.
The general price index of residential construction materials reached 315.4 during the second quarter of the current year. The figure indicated an increase of 25.7% when compared with the first quarter of the current year that ended on June 21 when the index stood at 250.8 and marked a 49.1% surge compared with the second quarter of the previous year when the index was registered at 211.6.
During the four quarters ending this year's Q1 (June 21), the index had grown by 17.4%, while it grew by 26.7% during the four quarters ending Q2 (Sept. 22).
The category of "ironware, door, window and fence profiles" experienced the highest price growth during this year's Q2 when the index reached 370.5. The category witnessed massive price hikes of 45% and 94.9% compared with the current year's Q1 and last year's Q2 respectively.
The category was also mostly responsible for the growth in the overall price index since it boasts an importance factor of 18.42%. Its price index grew by a hefty 62.6% during the 12 months ending at Q2.
During the current year's Q2, the category of "lumber" came second in terms of price growth since its index reached 407.3, which was higher by 64.3% and 108.1% higher when compared to the previous quarter and the same quarter of the year before.
During the 12 months ending Q2, the growth rate of the category's price index was equal to 43.2%. Its importance factor was 7.79%.
The category of "services" was the third largest group responsible for the growth in the overall residential construction material price index during this year's summer. Its growth rates were relatively small in terms of numbers, but the increases were significant as the group has an importance factor of 25.57%.
During this year's Q2, the group's index was registered at 274.8 which was higher by 4% and 20% when compared to this year's Q1 and last year's Q2. In the 12 months ending at Q2, the group experienced a growth of 13.8% in its price index.
Building Construction Trends
An analysis of data provided by the Central Bank of Iran shows that homebuilders are increasingly turning to short-term operations, threatening the long-term outlook of the beleaguered housing sector through alarmingly low levels of new construction.
Homebuilders across the country are refraining from starting new projects that would feed the needs of housing sector in the foreseeable future.
They are accelerating the completion of projects to supply a market that has experienced massive price hikes in recent months and profit in the short run.
CBI figures show that the volume of investments made to complete the construction of residential projects during the first quarter of the current fiscal year that ended on June 21 jumped by 53% compared with the similar period of the year before.
However, investments for starting new construction projects, which would address the future needs of housing market, increased by only 20%. That doesn't look bad on paper, but a completely different picture emerges once other aspects of the rise are analyzed.
Data provided by the Economic Policies Department of the Central Bank of Iran indicates that the number of newly-launched residential projects during this year's Q1 declined by 3% compared with the similar period of last year across the country.
This is while the number of residential projects underway had not increased notably last year, having registered a small 3% hike compared to the fiscal 2016-17, when the housing sector was still mired in its five-year recession.
The two sets of CBI figures clearly indicate that during this year's Q1, the increase in the volume of housing investments has not equaled an increase in the future supply of housing since the increased rial investments were forced due to rising construction costs.
Referring to prices in the fiscal 2016-17 as the basis of calculation, and therefore eliminating the effects of inflation, results show that the volume of housing construction investments during this year's Q1 actually declined by 2% on a year-on-year basis. The 20% increase in the volume of investments has been all but due to inflation.
This is very alarming since it means an already embattled housing sector will face further supply shortages in the future.
A total of 326,000 residential units were constructed across Iran during the previous fiscal year (ended March 20, 2018). That was 40% lower than the critical need of the housing sector set around 550,000 residential units each year by the government.
This level of minimum housing requirements has been identified by surveys of the Comprehensive Housing Plan that says housing supply by the turn of the Iranian century in 2021 must reach 900,000 units per year.
Housing supply between 2014 and 2017 stood at 370,000 units per year, much lower than the critical minimum needs.
