Economy, Business And Markets

Housing Stimulus Package Unveiled

Housing Stimulus Package Unveiled
Housing Stimulus Package Unveiled

A draft policy aimed at ending the extended recession in the housing industry has been released, the Persian daily Donya-e-Eghtesad reported Saturday.

First Vice President Eshaq Jahangiri proposed the setting up of a working group in March to identify the ailments of and find workable solutions to the painful recession that has absorbed the key housing sector for more than two years.

Members of the working group, including senior managers from the ministries of road and urban development, economy as well as representatives from the central bank, Bank Maskan (Housing Bank), Securities and Exchange Organization and the municipality, deliberated several plans and proposals in ten meetings. The last such gathering led to a draft policy package containing 35 concrete plans to help revive the housing sector.

 Root Causes

The working group identified five major root causes for the sagging housing market, namely: a sudden leap in prices (in the recent past), shrinking purchasing power of home-buyers, tempting deposit rates in the money market, reaction of builders to price fluctuations and lastly the incomplete units of the controversial public housing Mehr project.

The group believes that mortgages as drivers of demand in the housing market are simply unattractive and the growing need of the multi-billion-dollar Mehr scheme for bank loans has reduced lending to other sectors of the mainly private housing market, especially the construction sector.

Meanwhile, the recent decline in inflation has made bank deposits more alluring to investors, pumping capital into the money market which has further fueled housing market recession.

 Eight Major Proposals

The high-profile team has come up with 35 solutions to inject a breath of fresh air into the hibernated housing market, out of which eight seem to be impressive. The proposals include both new and old plans pending for years.

As a first step, the policy package calls on the government to swiftly repay its housing-related debts to banks, which amounts to around 17 trillion rials ($567 million at the official exchange rate) excluding the interest and related costs.

In the past five months since the Money and Credit Council de-monopolized the mortgage market by allowing lenders other than Bank Maskan to provide mortgage, almost none have managed to meet the 800-million-rial loan ceiling.

Lenders hardly make a secret of the bitter fact that they simply do not have the funds and the largesse to be so generous to homebuyers’ unending needs in the already tight money market.

The second and third proposals enable property developers to sell their new housing units under different financing schemes, namely ‘retail installment’ and ‘retail credit’ sales that lend to consumers wishing to purchase high ticket items but are short on capital.

Unofficial reports put the number of unsold housing units at 800,000 together with an increasing number of newly-built apartments.

The fourth and fifth suggestions call for more flexibility in the conditions set for mortgage and housing construction loans depending on the status of the housing market. One incentive envisaged under the said plans provides easier access to construction loans if builders reduce the construction period to less than two years.

Under the housing recession-exit plan, banks can print mortgage-backed certificates of deposit.

The seventh proposal, which Ministry of Road and Urban Development underlines, exempts real estate developers from paying any type of construction-related tax if they are able to complete their work by the yearend (March 20, 2016). The move is expected to stimulate the supply side of housing given the persistent objections raised by builders and property developers to tax mechanisms.

The draft plan also calls for reducing the average built-up area of apartment from 180 to 88 square meters by the year 2025. Incompatibility of the size of apartments with the limited purchasing power of potential buyers is another hurdle to the housing supply and demand that has preoccupied policymakers for years.