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Demand Rises in Real Estate Market
Economy, Business And Markets

Demand Rises in Real Estate Market

The real estate market has seen some positive changes since September and this is expected to benefit many home buyers and renters. The changes are also affecting people’s interest in applying for various housing loans and mortgages, Eghtesad Online reports.
The report shows that the number of home buyers increased in September for the first time this year (starting March 21) by about 17%. This is while the rate had consecutively declined for the first 5 months of the current Iranian calendar year.
According to statistics gathered from the electronic real estate data system, real estate purchase contracts recorded a 200% increase in May, which was not considered a natural growth as it occurred due to the implementation of the second phase of the subsidy reform plan (the first phase was implemented by the previous government leading to high inflation).
Yet, the market changes in the final days of summer indicated a turning point in real estate transactions and are a sign of a gradual return of investor confidence to the market. Only in September, 169,000 housing units were sold in Tehran, according to the same data.
The second positive change that impacted the market was the enactment by the government of an increase in the amount of loans granted for housing projects. According to that, the ceiling of loans has moved up from about 300 million rials to about 500 million rials provided that the project is carried out in city’s older areas with dilapidated buildings. The move is aimed at directing the finances towards areas in which the construction costs and the final price for the newly built structures are relatively lower -- something that will lead to an increase in demand from home buyers among the low-income strata.
It has been emphasized in the enactment that “the final constructed units, using the new housing loans, should be sold to newly-wed young couples, who don’t own a home, or to the low-income households.”
Considering the current stagnation in the housing and construction market, the recent increase in the amount of loans would serve as a strong stimulus for constructors to resume their projects. It is also expected to cut the period of stagnation, which was estimated by market analysts to last at least until the end of the current Iranian year (March 21, 2015).
The new ceiling for loans will consist 50% to 67% of the total cost of construction. According to the latest report released by the Central Bank of Iran (CBI), the cost of constructing one apartment at any place in the country except for Tehran is about 6 million rials per square meter and the average price of the land, per square meter, is about 51 million rials.
Since the share of land price from total construction costs is 4% for every square meter of the building, it is estimated that a 55-meter apartment will be built at the total cost of about 660 million rials.
In south Tehran, the overall cost of building a 55-meter apartment reaches up to 1 billion rials, taking into account the generally higher prices in the capital compared to any other big Iranian city.  

 Loans for Next Year
Through its new enactment, the government has defined certain obligations for the banks. For instance, starting from next year, banks need to annually grant 300,000 of new housing loans during a period of 6 consecutive years.
Three floating ceilings for renovation loans have been defined in the enactment of the government for the “targeted strata” based on the situation of the cities or towns. Therefore, the loans allocated for building housing units in old neighborhoods for newly-wed young couples and low-income earners is equal to about 500 million rials in metropolises, 400 million rials in provincial capitals and towns with more than 200,000 population, and 300 million rials in other towns.
The interest rate for the new loans is 13%. The difference between this rate and the general interest rate of the banks (22%) will be paid to the banks by the government through the budget resources.

 Rentals
The third positive change in the real estate market affects new renters. According to the statistics published by the planning department of the ministry of roads and urban development, the rate of renting in Tehran increased gradually since the beginning of this year (starting March 21). The growth rate stopped in September and the average amount of rent for an apartment, with a 5% drop, reached 209,000 rials per square meter in the first half of the year (March 21-September 22). The figure indicates a 9.4% rise compared to the same period last year.
The studies conducted by the housing and construction office of the roads ministry signify that the rental amount is directly affected by economic factors and population growth. Economic factors include inflation rate and real estate prices, while the population component consists of marriage rate and the number of construction projects.
As Donya-e Eghtesad reported recently, the new changes have ended the downward trend in the rental market in the past few months.
As new data suggests, changes in inflation have the biggest impact on fluctuations in the rental amount. Therefore, the reduction in inflation this year has resulted in modest fluctuations in the rental market.
On the other hand, lower marriage rates in the past two years have resulted in a decrease in demand for rentals.
Besides, the rise in construction in residential areas in recent years and a decrease in housing prices have subsequently caused an increase in number of rental places and have stabilized prices.

 Criticism of New Plan
However, critics of the new housing plan have cast doubt on the way the Rouhani administration aims to fund the plan.
“The interest rate applied to the new loans is about 13%, which is below the current average rate,” said former CBI official Ahmad Mojtahedi in an interview with the Tejarat Farda magazine.
He questioned the availability of financial resources, the difference in interest rates applied, and the banks’ ways of providing their share of the loans. “Will a specific credit line be opened for that, or is the government going to provide the banks with certain resources?” he asked.
Other critics say that there are not enough financial resources left for the government, except for the revenue generated from the subsidy reform plan, which amounts to over $100 billion per year, to finance its housing projects.
Mojtahedi rejected such assumptions, saying, “A good portion of the revenue generated from the subsidy reform plan is spent on cash handouts, and according to the law, the rest of the amount must be channeled into production and industry sectors.” Therefore, he said, the entire government revenue from the subsidy reform plan is spent this way. “So, there seems to be no money left for the government to finance its housing project, which would need 300,000 loans per year,” he added.

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