Economy, Business And Markets

Builders and Buyers in a Quandary

Builders and Buyers in a Quandary
Builders and Buyers in a Quandary

Interaction between supply and demand patterns and the built-up area (aka carpet area) of housing units is one of the crucial issues in housing markets. In other words, builders need to be update on the size of housing units in accordance with the purchasing power of the people.  

If and when this happens, buyers can find apartments matching their budget while builders and real estate developers can sell their units without unwanted problems and thus prevent their money from being blocked in unsold/empty property.  It is obvious that most Iranian households prefer bigger apartments, but high prices and insufficient income has a tale of its own, more so in recent years with galloping inflation, joblessness, dwindling value of the national currency plus the poor lending performance of banks taking a high toll.

As a result many homebuyers turn to small units which are more affordable. Demand for big apartments has declined also due to the emergence of smaller families in urban areas in recent years, underscoring the need for more small dwelling places.

A closer look at the construction industry, however, shows that a considerable number of newly-built apartments are fairly big and not in keeping with the customers’ purchasing power, the Ministry of Roads and Urban Development says on its website.

The ministry’s office for planning and economy says in a report that 60% of the deals for new houses in the sprawling capital in the first quarter of this fiscal year (started March 21) were for apartments with an area smaller than 80 square meters.

This is while the data released about newly-built units in the first nine months of the previous year shows apartments less than 80 square meters had a paltry 7% share out of the total number of new flats built in Tehran.

It is reported that a similar pattern is emerging in other big cities and urban locations with units smaller than 80 square meters accounting for hardly 8% of the country’s total number of newly-built apartments.

The situation is no more promising for apartments smaller than 60 square meters as they account for less than 1% of the new houses built in Tehran and the surrounding areas. The national figure is also lower than 2%.  

A yawning gap between supply and demand regarding the size of the newly- built housing units is woeful for both buyers and builders. Due to the inefficiency of financing schemes for the low-cost housing sector and the trifling share of loans in covering the overall cost of an ordinary apartment, the majority of buyers face formidable obstacles in buying their own homes.

On the other hand, builders have their own gloom when it comes to selling their units and they usually end up with unsold, empty property on their hands with huge amounts of investments on hold, not to mention the high interest rates at which they borrow for construction purposes.

There are a number of reasons for the present turmoil in the housing market. The main culprits are the urban comprehensive plans, lack of supportive policies, the high cost of commission charged by real estate brokers and the builders’ rigid unwillingness to heed the demand for affordable housing. If a normal and reasonably profitable housing industry is in the cards, builders would do better if they revise their past policies by building more homes but of smaller sizes.