Housing Bond Rates Unappealing
Economy, Business And Markets

Housing Bond Rates Unappealing

The Ministry of Roads and Urban Development has expressed dissatisfaction over the interest rates set for the recently-launched mortgage scheme, saying they are unrealistically high.
Bank Maskan (Housing Bank) started to offer the much-anticipated 600 million rials mortgage ($19,800) loans on Tuesday in the form of bonds designed for this purpose at 18.5%, Fars News Agency reported at the weekend.
Deputy minister, Hamed Mazaherian, criticized the interest rate envisaged for the loans arguing that “The 18.5 % interest rate is over and above the inflation rate and makes the loans unaffordable for most homebuyers.”
The senior official believes that interest rates on mortgage loans should not exceed 14%.
Mazaherian admitted that despite the success in doubling the ceiling of mortgage loans from 350 million to 600 million rials, the ministry is not content with the lending rate. He urged the Ministry of Economy and the Central Bank of Iran to revise the rates downwards.  
As to the repayment period set for loans from Bank Maskan’s Housing Savings Account, the official said “It is an achievement for the administration to have succeeded in extending the repayment period to 12 years, but the ministry is still trying to realize the ideal repayment period of 15, 20 and 25 years.”
Bank Maskan’s Housing Savings Account, launched in June, finances first-time homebuyers up to 800 million rials ($26.400) with one year mandatory deposits.
In parallel, it is necessary to develop a secondary mortgage market where banking dues can be traded and the ensuing surge in cash flow would help the construction industry expand, he added.
Elaborating on the long-term plans for the housing industry, Mazaherian said “The ministry is determined to expand the mortgage market in order to diversify financial resources for the industry so that people can eventually receive loans by up to half of home prices from banks.”
In addition, in the next economic development plan (2016-21) Maskan Bank will be transformed into a development bank to execute policies related to the housing industry, the official said.
Housing Unlikely To Rebound Next Year
Meanwhile an expert said the dormant housing market is unlikely to recover markedly in the next 15 months.
High mortgage rates and short repayment periods of mortgages are the main challenges home buyers face, according to Farshid Pourhajat, the head of Property Developers’ Association who regrets “Lack of initiative on the part of monetary and banking authorities to address the two problems.”

 Price Factor
On the future of housing prices, he said, “The number of housing construction permits has shrunk significantly due largely to the heavy burden of construction costs on property developers.”
Elaborating on the formula for calculating the finished price of new homes, he said “The finished price of homes depends on certain variables, namely the price of land and construction materials, wages, insurance, taxes and technical and engineering service fees. A feasible interest margin should then be added to the cost and overheads while the final figure is adjusted to the rate of inflation. All these costs, among other things, have narrowed the profit margin for developers making construction a not very attractive enterprise.”
The official noted that home prices vary to large degrees depending on the location and market conditions.
Pourhajat rejected the effectiveness of short-term goals to address the inactive housing market and said “Workable and long-term solutions are needed to address the root of problems.”
He called on the government to draw on the experience and expertise of the private sector and learn from the best international practices to tackle the housing market problems -- one of the top economic sectors of the country.
 He noted that resource shortage faced by commercial banks has weakened their ability to lend to property developers and criticized the government for preparing to impose higher taxes on the manufactures instead of “supporting the stagnant manufacturing sector as the basic principles of economics demand.”
He castigated authorities in the Ministry of Economy as “indifferent” towards the problems of housing sector and considered the recent tax decision of the government as one causes compounding recession in the industrial sector.
Transparent policies and a stable economy were cited by the official as the main factors that could eventually encourage property developers to return to the fold. To this end, he called for early reforms in economic policies and approaches that could help end the painful recession in the construction sector.


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