Economy, Business And Markets

Housing Construction Haunted by Tax Regime

Housing Construction Haunted by Tax RegimeHousing Construction Haunted by Tax Regime

Easing certain tax regulations and insurance policy should help improve the sluggish housing construction sector and keep prices in check, a Tehran-based housing analyst says.

There has been widespread disapproval of the recent revision in direct taxation laws which impose taxes on income generated from real estate and construction activities as of March 2016, ISNA reported.

A revised Direct Tax Act was enacted for the period when the country was (and still is) under international sanctions. But housing market observers and builders say extension of the controversial piece of legislation into the post-sanctions era (expected to commence by early next year) would discourage most builders from taking construction projects,”  head of legal committee of the National Union of Builders, Majid Niknezhad said.

Iran reached an agreement with major world powers on July 14 to put curbs on its nuclear program in exchange for sanctions relief, putting an end to a decade-long dispute.  

“Despite the general assumption that homebuilders make huge profits, they face serious challenges given the rising cost of land, taxes, construction materials, workers and engineers’ wages as well as insurance,” he said.

The cost of building one square meter of a normal apartment in Tehran is 28 million rials ($823 at the market exchange rate) which almost always increases further due to high inflation and unavoidable overheads from the start to the end of any project that usually takes between one-three years.

He warned that continued stagnation in the key construction sector will lead to demand accumulation and a sudden leap in prices. “The country needs one million new housing units per year, but so long as the large number of housing units does not have buyers the builders cannot start new projects.”

Official data indicates that the number of construction permits has remained flat over the recent past and is not likely to grow before the

Iranian year is out (March 20), offering no respite for the construction industry  which is a major employer in Iran after the oil sector.