As growth in crucial investment markets inside Iran has stalled, real-estate capital has increasingly flown abroad. Countries providing easy access to residence permits in return for property acquisitions have been successful in attracting Iranians.
Since Turkey enacted a law in April 2014 giving foreigners fast-track access to residence permits if they buy a house, the country has seen an explosion of interest from Iranian buyers.
The law also created a full-fledged advertisement market in Iran, with extensive space in online and print media dedicated to buying homes in Anatolia, Istanbul and the Aegean.
Under the regulations, residence permits can be extended as long as the foreigner continues to own the house.
Other countries with similar regulations in place, particularly Malaysia, Malta and Cyprus, are also enjoying a boost in Iranian real-estate investment.
According to sociologist Saeed Moidfar, the main reason for Iranians purchasing a house in countries where they have easy access to residency is related to the double mechanism of “attraction and repulsion.” As IRNA reported, he argued that economic instability has caused over $1.2 trillion of Iranian capital to relocate abroad.
Saeed Leylaz, economist at Tehran’s Shahid Beheshti University, believes that apart from domestic economic indicators, the dollar-rial peg was an important incentive for the capital flight.
“Up until the first half of 1391 (2012), when the system of single currency rates [between the rial and dollar] fell apart, the value of the dollar to rial reached a point where even foreign fruits were cheaper than those in Tehran and trips to Anatolia cheaper than trips to Mashhad,” Leylaz told IRNA.
He added that: “For 10 years, the government was controlling currency rates but it wasn’t able to control inflation. In fact, this caused capital to escape [the country], “arguing that the rapid increase in inflation after 2012 meant the government was in effect assisting the capital flight.
“I don’t have anything against keeping the price of the dollar to the rial stable but we should look at the issue in relation to inflation. If the government fails to control inflation, then the dollar should be allowed to appreciate along with the inflation rate,” he remarked.
Apart from the implicit incentive offered by the government for exchanging the rial to dollar, another reason for outward property investment has to do with slumping stock and housing markets in Iran. Tehran, which has carried the bulk of property investment, has in particular seen its housing market slump as construction has slowed and price growth stabilized. In contrast, Istanbul, driven by investment from wealthy Arabs and internal growth, has seen its house prices grow by 15.2 percent in dollar terms between 2010 and 2013, according to the Turkish Central Bank.
Prospective Deal to Reactivate Dubai Connection
Iran has always had strong trade connections with the UAE, particularly Dubai. Iranian investors were among the first showing interest in Dubai’s freehold program when it was launched in the early 2000s.
According to a survey conducted by REIDIN.com and Conovi, Dubai and Istanbul are by far the largest property markets for Iranians. Up to 38 percent of this investment are driven by small residential property investments of less than $100,000.
However, sanctions have muted interest in the Dubai market.
It was reported in Emirati media that weeks before the expected final nuclear agreement, Iranian investors have once again started to contact their Dubai-based agents.
“In the last 48 hours, we have been taking calls from Iranian prospects, who have sounded out the possibility on exposures in locations such as the Downtown and for mid-tier properties elsewhere in Dubai’s freehold areas,” according to Juwaad Beg, CEO of Al Madina Al Raeda Real Estate. “These are definitely early days, but if the sanctions are lifted in full, Dubai’s real estate will be a clear—and immediate—winner from Iranian fund flow into the UAE.”
“Historically, Iranian buyers, especially high net worth ones, have shown a preference for Dubai Marina, while Emirates Hills has been another. They also had a faint smattering of interest for the Palm,” said Luke Hexter of Luxhabitat.
Nevertheless, residence permits are not as easily issued to Iranians in Dubai compared to other hotspots. Instead, the attraction of Dubai market is driven mainly by network and family connections between the two countries.
In 2013, the UAE attracted $10.5 billion in foreign investment, according to the World Bank. This figure has doubled since 2010. The major inputs of foreign capital have been low interest rates in the developed world and investors fleeing the Arab Spring and its political consequences.
