Economy, Business And Markets

Govt’ Trying to Lift Housing Market

Govt’ Trying to Lift Housing MarketGovt’ Trying to Lift Housing Market

The minister of roads and urban development has proposed raising the value of ‘Jualah’ contracts from 100 million rials ($3,340 at the official exchange rate) to 200 million rials ($6,670), to help increase the purchasing power of homebuyers.

Abbas Akhoundi pointed to the importance of increasing mortgage ceilings in extricating the sluggish housing market out of recession. “The ministry intends to help stimulate demand by increasing purchasing power,” the ministry’s website quoted him as saying.

Jualah is an Islamic-finance agreement whereby one party promises to reward another party for the performance of a service.

Jualah contracts worth 200 million rials, if confirmed by Money and Credit Council, would be added to Bank Maskan’s already-approved 800-million rial ($26,700) loans which would  add up to 1 billion-rials ($33,400) .

Akhoundi noted that the ministry prefers that the people buy houses based on initial deposits (a certain amount kept with banks before purchase) because providing housing loans in a rush can stoke inflation.

“Bank Maskan’s Housing Savings Account, which provides homebuyers with 400-800 million rials ($13,350-$26,700) in big cities and small towns respectively, has raised a total of 35 trillion rials ($1.16 billion) so far. This plan not only empowers homebuyers but also controls the prices through gradual increase on the demand side,” he said, referring to the one-year deposit needed for loans to mature.

“Lending in haste with no arrangement for deposits endangers the government’s achievements in controlling inflation,” the minister said.

The Money and Credit Council, in trying to lift the stagnant housing industry, agreed to increase housing loans to 800 million ($20,000) rials in Tehran, and 500 and 400 million rials respectively for homebuyers in other major cities and towns.  

 Builders’ Reaction

Following the announcement about the rise in housing loans, Ahmad Tavalla, a member of Isfahan Builder’s Association, said that rise in the loan ceilings would not help the market and suggested alternative schemes such as creating a real estate leasing and selling shares of construction project to buyers.

“The new (higher) amounts of loans are not enough to increase buyers’ purchasing power,” he said stressing that the mortgage should cover at least half the price of a normal apartment (which now is over and above the total amount of loan).

“This would stimulate the market and help buyers invest their money in the housing market-which otherwise is spent on unnecessary items or is put in their bank accounts,” he said.

One major drawback of the loans offered by Iranian banks for over three decades is that the amount is negligible compared to the total value of any normal mid-size apartment. It deserves mention that the low/middle-income strata plus the working class, as is the case in almost all countries, apply for housing loans simply because they cannot afford to buy the homes with their own savings, albeit if they have any.