Economy, Business And Markets

P/R for Housing Market Indicates Stability

P/R for Housing Market Indicates StabilityP/R for Housing Market Indicates Stability

Tracking price-to-rent (P/R) ratio for homes in Tehran has disproved the claim that the housing sector is still grappling with a price bubble.

According to a report by Donyay-e-Eqtesad newspaper, the latest price-to-rent ratio belonging to the early summer was recorded to be 14.8, which is the lowest it can get. On average, the P/R ratio fluctuates between 15 and 25. P/R ratios significantly above average are often indicative of a housing bubble.

The current P/R ratio confirms recent reports by the Central Bank of Iran, which had forecast a relative stability that would last for much of the year. At the height of the housing bubble in 2013, the P/R ratio reached 18 and a year later just before the bubble had burst, it was 16.5.

This latest report is bound to convince housing experts that the price bubble in the housing market has now completely vanished and stability has returned.

The fact that the housing market is now impervious to price shocks and  fluctuations—regardless of the stagnation in that sector—is good news since it can be a precursor to a thaw in that distressed market.

As home brokers indicate, both buyers and sellers are now "willing" to seal a deal and a confidence in the stability of the market would be the icing on the cake to make a deal all the more easier.

The last bastion that needs to be conquered, however, is the gap between the offered price and the fixed value which is now about 5 million rials ($150 at market exchange rate) per square meter. There are already signs that this chasm is being gradually narrowed, which if it breaks the spell, can help bring the housing market out of its current slowdown.   

Recovery at Hand  

Given the crucial position of the housing market in Iran's economy, all sectors of the economy are impatiently awaiting a boom in that sector to get the economy back on track.

Hessam Oqbaei, head of Tehran Association of Realtors, told IRNA on Sunday that a review of the housing market in the past 20 years would provide proof that the market should be out of recession sooner or later.

Noting that 1,200 professions rely on the real-esetae market for their survival, Oqbaei said his guild had urged the government to tackle the economic recession by addressing the housing stagnation first, but sadly that advice fell on deaf ears.

"Now is the time to address the housing stagnation head-on to stimulate other related sectors and boost the national income," he advised.

Oqbaei proposed several initiatives to end the housing stagnation, adding that the measures need to be executed all at once to bear fruit.

"First and foremost, people's purchasing power should be increased through lending and that does not include the recent mortgage packages since they are due for 2016 and something should be done for this year," he said.

Money and Credit Council, the highest policymaking body of the central bank, voted in May to almost double the borrowing limit for first-time buyers in Tehran to 800 million rials ($24,000 at the market exchange rate) but applicants should make a one-year deposit before becoming eligible to receive the loans.

"The second requirement would be for the government to empower the private sector to invest in the housing sector through lending to stimulate supply," Oqbaei added.

The third and the most vital decision, he emphasized, would be to banish banks from the real-estate market.

"As the government has emphasized, banks should put an end to their speculative activities in the housing market and return that sector to their managers," he concluded.