The average residential rent across Iran’s urban areas increased by 50.6% in the fifth month of the current fiscal year (July 23-Aug. 22) compared with the corresponding period of last year.
The inflation rate for the capital city Tehran stood at 45.2%, new data released by the Central Bank of Iran show.
On June 18, the Supreme Council of Economic Coordination, chaired by the heads of three branches of government, decided to impose a ceiling on growth in housing rent levels — 25% in Tehran, 20% in cities with a population of over one million and 15% in other Iranian cities. It also called for the automatic renewal of lease agreements for a year.
The CBI data show the government move has failed to achieve its purpose.
‘Departure From Precedent’
Nasir Mashayekh, lawyer and professor of public law, has called the decision “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 Iranian parliament, and according to Article 85, the 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 in 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 it. 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 the 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 needed 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 Ministry of Economy and the Real-Estate Registration Organization of Iran must also be connected to our system,” he was quoted as saying by Mehr News Agency.
Lotfi said landlords prefer to sign new lease contracts rather than renew old ones, as they believe they can rent out their places at higher rates to new tenants.
“Rents did not keep rising in line with home prices in recent years; they are expected to increase to bridge this gap,” he said.
“The bank interest rate is 18%, while security deposit in the monthly rent has been calculated at 30% for years. Landlords, therefore, prefer to receive monthly payment of rents instead of security deposit, which can put financial pressure on tenants.”
Cause or Effect?
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 [for the dramatic rise in housing prices] is obviously the misguided monetary and fiscal policies adopted by governments, which manifest themselves in the form of runaway inflation and reduce the purchasing power of the majority of people. We will understand how futile governments’ efforts are to counter rent growth if we acknowledge that rent growth has been driven by rising housing prices that have been driven by inflation, which has been contrived by governments,” he said.
Speculative Demand
Nasser Zakeri, an economist, also believes the effects of government intervention by setting a cap on rent increase, or lending security deposit loans have been insignificant on the market.
“Policymakers have failed to notice that the increase in speculative demand lead to a growth in 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 market, the landlord can impose his terms on the tenant,” he wrote for the Persian daily Shargh.
“On the other hand, tenants have been hit hard economically with the government’s reduction of the banking interest rate, because landlords have found the pretext for increasing 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 increase in rents, the share of the population facing livelihood challenges has increased significantly.
With sanctions, recession and double-digit inflation, the dimensions of poverty 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 boosted speculative demand in the real-estate market, raising landlords’ dependency on rental income.
