When the Money and Credit Council, the highest policymaking body of the central bank, agreed in May to almost double the mortgage loan offered to first-time buyers in Tehran, the initiative was hailed by some as a master plan for stimulating the depression-ravaged housing market.
The approval raised the borrowing limit of Tehran citizens to 800 million rials ($24,000 at the market exchange rate).
Skeptics, however, warned early on that the plan would do little—if nothing at all—to move the housing sector. Banks do not have sufficient lending resources, critics claimed, and even if they did, the measly loans would be at best a drop in ocean with almost no efficacy.
Among the strongest critics of the plan are the lawmakers. They snubbed the initiative on grounds that it offered homebuyers little boost to purchase houses, especially in the capital Tehran.
House prices increased by 220% from June 2005, when former president Mahmoud Ahmadinejad first took office till June 2013. The cost of renting an average flat in urban areas rose by 254% during the same period and land prices in urban areas grew by 81%.
Experts believe such unreasonable prices make owning a house an impossible dream for the average household relying on mortgage loans, which on average cover only 25% of the price of a small apartment in a middle-class neighborhood of Tehran.
A number of lawmakers on Thursday pointed to unfinished housing projects like Mehr–initiated by the former administration and the pending Social Housing Project put forward by the President Hassan Rouhani administration, saying the government should put these plans into order and come up with definitive answers for the entangled housing sector.
Price Concerns
Bohloul Hosseini, a member of the parliamentary Commission of Development, told the parliament’s news website ICANA on Friday that the 800-million-rial mortgage offered to applicants after a lengthy process cannot lead to home ownership and would only spike house prices.
“The new home loans would do nothing to solve the housing problem and therefore the government’s program was an error to begin with,” he said. “The government did this to move the market but it will eventually backfire and cause a new house price surge.”
Hosseini noted that stagnation in the housing sector would not ultimately hurt the economy like other sectors would such as car manufacturing, adding that the recent increase in the mortgage ceiling was unnecessary, especially at a time when banks are squeezed for funds.
He continued: “A lending boost has no real bearing on the housing market and if the government seeks a boom in this sector it should get to finish the Mehr Housing Project.”
The Mehr project is a large-scale construction program initiated in 2007 by the previous administration to provide two million low-income strata of the society with housing units through free land and cheap credits, but the nationwide scheme slowed down due to lack of funding. The project is also blamed for increasing inflation.
The Social Housing Plan initiated by the incumbent administration, however, stipulates that annually 125,000 families, all belonging to the four lowest income deciles, must be added to one of three protection schemes. These schemes include ownership, lower rents and rent subsidies. The first phase of the plan would see the creation of 45,000 new residential units.
Hosseni emphasized that the government “should not insist” on resuscitating the real-estate market, since it has been proven that a boom would increase prices and instead urged the government to focus efforts on building more homes for low-income households.
The lawmaker also rejected the notion that sanctions relief would lead to a rise in house prices.
Too Little, Too Late
Hossein Mohammadzadeh, also a member of the commission, said the government was admonished at the start of the plan that any mortgage scheme should at least cover 50% of home prices and added that while this package could be of some use in small towns, it would be a lame-duckish scheme in major cities.
“To add insult to injury, banks are denying the applicants loans, mentioning capital shortage and this increases demand for loans which will trigger a spike in home prices,” Mohammadzadeh warned.
He criticized the government for prescribing the same package for all cities and urged Bank Maskan to provide all the applicants with the promised mortgages.
Hamed Qader Marzi, another member of the commission, commented that while the mortgage ceiling has risen, banks withhold their loans because of capital restraints.
“If banks make the loans, this would stop short of stimulating the market and if they refuse to do so it would hurt the market further,” he maintained.
Qader Marzi urged the government to raise the mortgage ceiling in big metropolitan areas if it is serious in ending the current recession. “When there is recession in the housing sector, this will adversely affect over 30 related industries,” he warned.
