Economy, Business And Markets

Upsurge Forecast in Housing Sector

Upsurge Forecast in Housing Sector Upsurge Forecast in Housing Sector

An upsurge in the housing market is likely toward the middle of the Iranian fiscal year (September 21), Hamed Mazaherian, deputy minister of roads and urban development said in an opinion piece published on Tehran Chamber of Commerce, Industries, Mines and Agriculture’s website.

“According to the boom and bust cycles in the housing market and the conditions at the macroeconomic level, housing deals will get back on track with the ending of the holy month of Ramadan in July,” he wrote.

Elaborating on his sanguine note, Mazaherian said that a small increase in prices is expected simultaneously with the rise in home sales. The official, however, dismissed any abrupt and sharp increases in home prices saying “in percentage terms, price increases will not be more than the general inflation rate.”

Improvement in housing construction will very likely start earlier in the first half of the calendar year that started in March 20, he wrote.

Turning to the issue of interest rates, Mazaherian pointed to the recent two percentage point cuts in deposit/lending rates saying such a measure can help attract investment in the housing sector and help boost construction and purchases. “Cuts in interest rates is not enough, but still it is a good step. The effects of such measures will be felt more if the gradual process of lowering rates in line with inflation continues.”

The deputy minister discussed the best areas for investment in the housing sector noting that building homes for the middle class will have the highest return. “The next good bet for investment is office buildings in commercial districts.”

  Improving Purchasing Power

Mazaherian was of the opinion that increasing the loan ceiling is one of the key policies of the ministry to help increase purchasing power. “The ministry’s proposal for increasing the mortgage ceiling which was ratified by the Money and Credit Council in March will be of great help to homebuyers.”

He defended the ministry’s mortgage scheme saying the stimulus plan was well    received by homebuyers and applicants in big numbers had registered with Bank Maskan’s Housing Savings Account for first-time homebuyers.

He shrugged off criticism from quarters that claim the repayment period and installment of loans are far from what young couples – who are the target of the loans – can afford.

“The Roads and Urban Development Ministry and the Central Bank of Iran believe that the increase in housing loans has solved the problem of home ownership for the middle class to a good extent. Now the mortgages cover a good part of the purchase price of an apartment,” he wrote.

Bank Maskan provides 1.6 billion rial ($52,995) home loans to young couples and they should repay in installments of 25 million rials ($828). This is while young people get by an average of 15 million rials ($496) in a month’s salary. Citing this as a major sticking point, experts and market watchers have often questioned the effects of the new loans in lifting the lethargic property market.  

The senior official pointed to the other types of loans provided by Bank Maskan saying homebuyers could choose from a variety of loans. “Homebuyers can also take out 1 billion rial ($ 33,000) mortgages by buying Maskan’s housing bonds. There are a variety of other schemes available for homebuyers.”

The most important fact is that the housing bubble has burst – something that was unprecedented in recent decades. After adjusting for inflation, home prices have dropped to 2010 levels.

“After the housing bubble burst [in 2013], recession in the housing sector came to an end and we expect better times in the coming months. That is why major builders and land developers have stopped selling form over the past year and  a half and are waiting to see what happens in the housing market in the coming months.”