The economic stimulus package unveiled by the government at the weekend was a shift from its anti-inflationary policies to tackling recession by stimulating demand .The package has a six-month expiry date and includes loans for buying cars and home appliances without any need for deposits and possible cuts in interest rates. Its ultimate goal is to help manufacturers with swollen inventories sell their wares, which should then improve growth rates and ultimately ease the painful recession.
However, the key housing sector seems to have been lost in the new grand bargain and is conspicuous in its strange absence from the policy package. Indeed the only reference to the housing market in the package is a short statement about a government decree in 2014 regarding the payment of 300,000 loans each worth 500 milion rials ($14,000) for reconstruction in distressed urban areas.
This is while last year the housing market experienced a lackluster spell marking a sharp decline in new projects and the consequent recession, according to Persian economic daily Donya-e-Eqtesad.
Meanwhile, the Ministry of Roads and Urban Development, which is in charge of housing policies, has proposed eight short-term schemes for stimulating housing demand, none of which seem to have deserved the proper reference in the latest stimulus package.
Establishing a real-estate leasing company with a 50 trillion-rial fund, selling newly built units in installments, raising the housing loan ceiling to 600 million rials from the present 450m, increasing Bank Maskan’s capital, starting a secondary mortgage market for doubling housing loan resources, establishing regional deposit funds in the cities, flexibility in the housing loan ceiling, reimbursement of government debts for housing loan subsidies to the banking system and decreasing Bank Maskan’s reserve requirement to 2% from the current 10% are the eight proposals made by the ministry.
Short-Shrift
Now the question is why the housing sector was pushed aside in the government’s new incentive package. Economists and analysts have cited a number of reasons.
The first is that the package has a short life of barely six months while policies in the housing market usually are or should be long-term. The second point is that the government has already proposed a number of schemes for the housing sector, namely increasing housing loan ceiling to 800 million rials, the 900-milion-rial construction loan and the loan for construction in distressed urban areas which makes new policies irrelevant. And the third reason is the need to stimulate demand in the embattled markets like new cars and home appliances, which have been hit more severely due to dropping sales and swollen inventories.
Nevertheless, experts believe all these reasons, however valid, do not justify the absence of housing sector in the package. They believe that preparing the conditions for the payment of 800-million-rial housing loan was indeed the most important scheme, which should have been included in the package but was not.
Proposals
A complementary scheme for including the housing sector in the incentive package is for Bank Maskan to issue mortgage bonds backed by housing loans and by doing so absorb a part of the resources freed through deposit rate cuts to enable the top housing lender establish a secondary mortgage market.
Launching pre-sales and linking builders to customers through loans that can be transferred to customers after construction is over, building houses for low-income strata, construction loans and improving the supply side of housing through leasing procedures are other schemes proposed by economists.
