Economy, Business And Markets

Housing Unmoved by Sanctions Relief

Housing Unmoved by Sanctions Relief Housing Unmoved by Sanctions Relief

The lifting of sanctions per se cannot pull the sluggish housing market out from the doldrums because high interest rates, low purchasing power, insufficient housing loans and the large number of vacant units are key unresolved factors affecting the property market, says head of Bank Maskan’s Risk Management Department, Ruhollah Rahnama.

“A comprehensive approach is needed to revive the market as the housing sector is complex and interconnected with many other industries,” he told the Persian-language weekly Tejarat-e-Farda.

Maskan is the leading provider of mortgage in Iran.

“Houses are built largely with domestically-made materials and therefore the lifting of sanctions is not expected to lift the real estate market.”

Iran’s key housing market is struggling with prolonged stagnation and despite the government’s stopgap measures, including raising the mortgage ceiling, it is not showing any sign of early recovery. Following the lifting of international economic sanctions last month, hopes had emerged that the market may turn a corner.

The capital market is capable of channeling people’s deposits toward the housing sector, according to the official, but “this would take some time simply because the capital market too is not powerful enough.”

“Lower deposit rates will redirect liquidity to other markets including the real estate but market trends in previous years show that heavy liquidity flows hinder not help the housing market,’’ Rahnama said, referring to the prospects of rampant speculation and the destructive role of middlemen in the volatile property market.

The Central Bank of Iran’s decision to reduce interest rates through the interbank market could lead to such a situation if proper management of the market is absent, he warned.

Policymakers should help improve the demand side and encourage direct investments in construction to balance the market and prevent speculative activities, he stressed.

Foreign investors are mostly interested in the energy industries rather than housing/construction, as the former are more lucrative and less risky, he said.

“In the past foreigners invested in Mehr Housing Projects mainly because the government had guaranteed the purchase of housing units.”

Rahnama recalled that many units built in the framework of the controversial multi-billion-dollar low-cost housing scheme are vacant, and said, “Financing homebuyers with cheap and long-term loans without considering the demand’s side and purchasing power of the people is tantamount to wasting precious resources.”

Mehr is an affordable housing scheme launched by the former president Mahmoud Ahmadinejad. The project has been criticized strongly for its lack of strategy and inflationary impact.  

Foreign companies from Turkey, South Korea and Malaysia were involved in the project to build homes across the country for the low-income strata.

Rahnama hoped that the market would improve in the long-term as the economy gets back on its feet, interest rates are cut gradually and the purchasing power improves.