Real-estate development follows two trajectories; the government-sponsored National Housing Movement (aiming to build one million housing units per year) and private sector initiatives that have always been the backbone of the market for meeting housing demand.
Iraj Rahbar, the head of Tehran Province Mass Builders Association, prefaced his article for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
In state-sponsored housing projects, the government, banks and applicants together provide land, financial resources and loans. But in private sector’s projects, the entire construction process and financing is carried out by the investor or builder. Therefore, the key prerequisite is for the builder to have the money to start the project and to ensure a return on investment when the project is completed.
Problems facing private sector builders today are quite clear: the recession gripping the market [leading to a decline in home deals] and the failure to complete the last link of the construction chain, i.e., the sale of units with a reasonable profit in the shortest possible time.
Recession in recent years, especially the one afflicting the construction market of Tehran and other provinces at present, is to blame on the same issue: the last missing link in the supply chain and the absence of buyers for most of the units real-estate developers have already built or plan to build. In fact, the main cause of the current, deep recession in the construction market is the lack of effective demand.
These conditions have locked up funds in the final stage of construction. Homes have been built but the real-estate developers cannot sell them at a reasonable price and at the right time. As a result, their money has been locked and they cannot start new projects to supply residential units as long as the money does not return to builders.
The rise in home prices and the continuous shrinkage of the purchasing power of households and their forced exit from the market have given rise to this situation.
Demand and the purchasing power of people must strengthen in order to exit the recession in the construction market.
Another problem is the faulty approaches used by the policymaker; instead of paying attention to the fundamental issues of construction and housing market, the policymaker is trying to solve the problem through temporary solutions that have little impact, such as selling home equity (the so-called housing meter sale plan).
These measures can temporarily and on a limited scale extend financial support to some builders. By offering their completed units in the stock market, real-estate developers can release a fraction of their capital. However, these solutions won’t be effective when it comes to people who are seeking to buy a dwelling (first-time homebuyers).
At the current prices and the insufficient levels of income and savings, a person without housing could buy 4 or 5 square meters of an offered unit, which will only release a part of the blocked resources of the builder but won’t provide housing for the buyer.
In a situation where rents continue to rise, people who don’t have a home won’t be able to save. A solution should be worked out for this missing link.
A fraction of this demand can be met through government-sponsored housing projects, and cooperation between the government and private sector builders. The investment conditions should ensure that in the event of delays in the provision of funds (from banks or applicants), projects do not face inflation and increase the end price of housing.
Strengthening the demand side should be a priority in policymaking. You cannot hope for a boom in construction and production of residential units, as well as the growth of investment without creating an effective demand in the market. Hence, it is necessary to increase bank loans in accordance with construction costs.
Official Data
The latest data released by the Central Bank of Iran and the Statistical Center of Iran confirm that the housing market in the capital city Tehran is further falling into recession.
According to CBI, a total of 5,416 homes were sold in Tehran during the seventh month of the current Iranian year (Sept. 23-Oct. 22), registering a 10.2% fall compared to the previous month and a 1% decrease compared with the corresponding month of the previous year.
This is the fourth consecutive month of decline in sales reported by CBI.
This is while SCI says a total of 4,830 residential properties were sold during the month under review across Tehran, down from 5,159 in the preceding month, adding that District 5 saw the highest number of housing deals with 729, while District 19 had the lowest figure with 31.
The CBI report also shows the average price of each square meter of a residential property in Tehran stood at 437.24 million rials ($1,230) during the month under review, registering a 38.2% rise over the preceding year’s same month.
Home prices in the capital city increased by 1.2% compared with 432.16 million rials ($1,216) in the sixth month of the current fiscal year (ended Sept. 22).
During the month ending Oct. 22, residential properties up to five years old constituted the biggest proportion of homes sold (1,551) or 28.6% deals, down by 4.4 percentage points compared with the same month of last year.
The lost share was added to homes with a lifespan of 11-15 years and over 20 years. They accounted for 16.2% and 21.1% of total deals compared with the same month of last year’s 13.7% and 13.1% respectively.
The distribution of sold properties indicates that among Tehran’s 22 districts, District 5 grabbed the biggest share of total sales with 15%, followed by District 10 with 9.3% and District 2 with 8.7%.
All-in-all, 10 districts (5, 10, 2, 4, 14, 7, 8, 1, 15 and 11) grabbed the lion's share of sales with 74.4%, with the remaining 12 districts holding a 25.6% share.
Among Tehran's 22 districts, District 1 registered the highest average home price of 883.3 million rials ($2,486) per square meter. District 18 offered the capital city's cheapest homes with an average per-square meter price of 213 million rials ($599). The aforesaid figures show a respective increase of 26.8% and 40.7% YOY.
Residential units with an average price range of 300 million rials ($844) to 350 million rials ($985) per square meter were the most popular in Tehran during the Iranian month under review, as they accounted for 12.2% of all deals. They were followed by units priced at 250 million rials ($730) to 300 million rials per square meter with a share of 11% and homes priced at 350 million rials to 400 million rials ($1,125) per square meter with a share of 10.9%.
From the total number of deals, 56.1% belonged to homes cheaper than the average per-square meter price of the city (i.e., 437.24 million rials, or $1,230).
Residential units with a floor area of 50-60 square meters registered the highest number of sales, with a 15.2% share of the total.
Units with an area of 60-70 and 40-50 square meters ranked second and third with a respective share of 14.7% and 11.8%. All-in-all, residential properties with an area of under 80 square meters had a 56.8% share of total deals.
The data indicate that Tehran’s homes worth between 10 billion rials ($28,145) and 15 billion rials ($42,217) were the most popular with a share of 14.6% of the total deals. These were followed by homes with a price tag of between 15 billion rials and 20 billion rials ($56,290), as well as those priced at 20 billion rials to 25 billion rials ($70,363) with a respective share of 12.8% and 9.5% of total deals.
Collectively, homes valued under 30 billion rials ($84,435) had a 50.3% share of total home deals in Tehran during the seventh month of the current year.
The central regulator also reported changes in tenancy prices in the capital city and across urban areas.
According to CBI, residential rents in Tehran and across urban areas increased by 40.9% and 46.8% respectively during the sixth fiscal month (ended Sept. 22) year-on-year.
According to SCI, the annualized inflation of residential buildings in Tehran reached 32.4% in the month to Oct. 22, according to the Statistical Center of Iran.
Year-on-year and month-on-month inflation reached 44.7% and -0.1% respectively.
The report has put the average price at 464.79 million rials ($1,309) per square meter, noting that among the capital city’s 22 districts, District 1 registered the highest average price of 995.41 million rials ($2,801) while District 18 had the lowest rate of 226.89 million rials ($638) per square meter.
