Improving the buying power of homebuyers leads to higher demand which in turn helps in easing the recession in the housing sector, Ahmadreza Sarhadi, a housing expert said Friday.
“In the present housing market there is a surplus of supply. The demand side is also pretty slow because homebuyers’ purchasing power is low. So far as these realities exist, we will not be able to get out of the recession,” he was quoted as saying in an interview with eghtesadnews.com.
Elaborating on ways to help lift the purchasing power Sarhadi said that there are two ways to do this. “The first one is to include paying housing loans similar to what is common in many countries. The loans help increase purchasing power and gradually lead to demand for housing.”
The second is to improve the macroeconomic factors that determine the overall health of the economy, he said. High unemployment and low wages are two critical macroeconomic issues that must be addressed first, he stressed.
“If there are enough jobs and decent wages, people can buy houses because then the people can apply for housing loans and have the ability to repay.”
Loans Not Successful
The analyst noted that the existing loan installments and repayment period are visibly unaffordable for the youth and those at the lower end of the economic ladder. “Bank Maskan provides 1.6 billion rials ($ 53,000) in mortgages to young couples, which they must repay in monthly installments of 25 million rials ($828). This is while the monthly average salary in the country now is 15 million rials ($496).”
With employment and the production sector at low levels and the economy struggling to survive, such housing loans will not produce results or stimulate the property market, he lamented.
In the past the economic situation was more favorable and young people could take the first steps to buy their home after 2-3 years of working and saving. “Those in charge of the economy and housing sector should revise housing loans and try to turn the economy around.”
Pointing to the lifting of sanctions, the analyst said that some expected a quick economic revival after the implementation of the nuclear deal (in January) but that has not come about yet. He said the end of sanctions could help bring foreign investment and modern technology into the country and in the process stimulate the major sectors of the economy.
“Lifting of the sanctions has (so far) not had any major positive impact on the economy and has not helped reenergize different sectors, namely the property market.”
Necessary Measures
Turning to the notion of the so-called Resistance Economy, the analyst opined that the scheme lacks comprehensiveness and is not well-defined and will have no considerable impact on improving the economic conditions. He said that relying on the ability and potential of the domestic economy is nothing new, but the “capabilities of the domestic economy are very limited.”
The Resistance Economy is a set of principles outlined by the Leader Ayatollah Seyyed Ali Khamenei to help bolster domestic production, curb dependence on oil exports, improve productivity and encourage Iranians to buy domestically-made products.
“We also need international markets. We need to produce goods which can compete in the global markets. These measures are necessary for a functioning and robust economy. If we embark on this path, maybe after 5-6 months we can gradually move out of recession.”
Asked about forecasts that project the country’s growth rate at 5%, Sarhadi said that achieving such a feat is not easy. “Reenergizing the manufacturing sector, improving foreign trade and economic ties, importing modern technology and having a clear vision are the prerequisites for achieving high growth rates.”
