Government officials seem to have realized the importance of controlling speculative demand in the housing market.
You could see signs of this change in their comments, but will this lead to a comprehensive plan to curb speculation and to fundamental reforms in the housing market? How vital is it to curb speculation? Nasser Zakeri, an economist, prefaced an article for the Persian daily Shargh with these queries. A translation of the text follows:
To better understand the problem, we need to pay attention to a bitter reality in the housing market. Between the fiscal 1976-77 and 1986-87, 78 out of 100 residential units sold in Tehran were purchased for residential purposes and 22 units were bought for investment purposes (construction or leasing).
These two figures changed to 25 and 75 units between the fiscal 2016-17 and 2021-22, respectively. In other words, only 25% of the buyers intended to live in the homes they had purchased.
Speculative demand has sidelined those who really need housing. Therefore, it is no wonder that the number of tenants has grown in the country, particularly in Tehran. Thanks to its financial ability, speculative demand has driven up housing prices and as a result, real buyers have lost their purchasing power and had to resort to the rental market.
Influx of Liquidity Into Real-Estate
The huge liquidity that has entered the real-estate market could have brought about significant economic development and growth for the country, if it had been directed to the production sector and generated employment.
The imprudence of the officials of the time and the struggling economy did not offer an alternative for owners of liquidity to make productive investment, which began to invade the urban real-estate market.
The influx of liquidity into the real-estate market, on the one hand, increased the share of housing in household budget, which hit the livelihood of low-income households. On the other hand, it shrank the power of competition of domestic products vis-à-vis foreign competitors both in the domestic and export markets by raising the prices of all goods and services.
To be more precise, the liquidity that could be used as a valuable asset to serve national goals became the biggest obstacle to development.
Two Groups of Complementary Policies
Sooner or later, the concentration of liquidity must be dispersed from the housing market to prevent the further destruction of the economy.
In order to achieve this goal, production should improve and attractive opportunities for investment should be created. Restrictions should be placed on speculative practices to reduce the attractiveness of housing sector for investors.
These two groups of complementary policies will stem the tide of speculative demand after several decades of its destructive role in the real-estate market, so that the market could once again see the presence of real buyers.
The attraction of investment in the manufacturing sector is contingent upon making serious economic reforms and prioritizing the goal of economic growth. For example, we can probe the role of free trade zones and the reasons behind the success of Jebel Ali Free Zone in the UAE, for instance, the financial turnover of which is more than 20% of the gross domestic product of our country and the fact that the total outlay of our free zones is just a small fraction of Jebel Ali Free Zone’s profitability, despite our country’s vast opportunities.
Among policies that can be adopted to reduce the attractiveness of the real-estate market are imposing restrictions on frequent transactions, collecting tax from the owners of vacant residential units, placing restrictions on the rental income of residential units and finally imposing limits on the ownership of homes in large cities. These measures can gradually reduce the attractiveness of speculative practices in the housing sector by reducing the income from property ownership and increasing the risk of such activities.
Another key point is that the effectiveness of some measures is minimal. For example, the identification of empty housing units increases the risk of investing in real-estate and reduces its attractiveness, but this positive effect will not be very decisive. Therefore, government officials should choose the best way to reduce the attractiveness of this market through research.
I believe the policy of setting ceiling on the number of properties an individual can own will be much more effective for residential units in big cities.
