The Purchasing Managers’ Index for the construction sector settled at 52.22 in the second month of the current Iranian year (April 21-May 21), up from 33.95 in the first month of the year (March 21-April 20), registering a 53.81% increase, new data released by the Iran Chamber of Cooperatives indicate.
The first month of every Iranian year is marked with a slowdown in activities across all economic sectors, including construction, due to the long Norouz (Iranian New Year starting March 21) holidays that last more than two weeks.
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 53.89 in the month ending May 21, indicating a 64.75% increase compared with 32.71 in the month ending April 20.
"Supplier Deliveries", which measures how fast deliveries are made, increased by 75.29% from 35.18 to 61.67.
"Raw Materials (construction materials) Inventory" grew by 9.57% from 42.59 to 46.67 in the month ending May 21.
"Employment" declined by 9.37% from 46.59 to 42.22 in the month ending May 21.
To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "Raw Material Purchase Prices", which stood at 79.01 in the month ending April 20. The sub-index decreased by 2.26% to stand at 77.22 in the month ending May 21.
"Warehouse Inventory" increased by 0.39% to reach 48.33 in the second month of the current Iranian month from 48.14 in the previous month.
The "Exports" sub-index settled at 51.11 from 48.14, registering a 6.16% growth.
"Prices of Products and Services" declined by 6.11% to stand at 67.22 from 71.6.
"Fuel Consumption" grew by 41.02% to stand at 52.22 from 37.03 and the "Sales" sub-index increased from 24.07 to 52.22 in the month ending May 21 to register a 116.95% growth.
The sub-index of "Performance Expectations for the Following Month" settled at 53.33 from 67.28, showing a 20.73% decrease.
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 future of two markets, i.e., the private sector and the government’s housing markets in the new Iranian year.
“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.
