The key housing sector has now been in recession for five years and despite efforts by the government and the ministry of urban development to breathe new life into it, the results have not been encouraging.
Hesam Oghbaei, head of Tehran Association of Realtors told Tasnim News Agency that “stimulating demand” in and of itself is not enough. “If we want to provoke demand it should be gradual keeping in mind what the future may hold for the supply side. Stoking a sharp increase in demand could be destructive,” he said.
Housing officials and market observers – including Oghbaei himself – have expressed optimism that a recovery could well be around autumn. However, others are skeptical given the weak prospects for growth in the months ahead and the poverty of the international oil market where crude is languishing at or below $50 a barrel.
Central Bank of Iran data for the second month of spring showed that 15,431 homes were sold in Tehran during the period, marking a y/y increase of 8.2%. The surge in home sales in the capital is seen by most analysts as a positive sign that could presage a recovery.
Oghbaei was of the opinion that increasing the mortgage ceiling is a positive measure which could trigger demand. However, he cautioned against investing too much faith in the demand side saying that the government should also look at the supply side.
“I think the housing market is in a very critical situation. On the one hand we need to stimulate sales while trying to tame inflation. On the other, we need to increase the supply side to be able to create a balance between supply and demand in the market,” he said.
Housing Starts Limping
He pointed to the decline in the number of building permits issued saying it indicates a plunge in home construction. “There has been a 40-56% drop in housing starts in 2015 across the country compared to a year earlier,”
The slowdown in home construction is due largely due to the “declining purchasing power, the investors’ wariness to invest in real estate and the exodus of novice builders from the market”.
Another key issue that needs attention is the volume of supply. Oghbaei stated that about one million residential units need to be constructed in the country every year. “If we build a million units every year the market will reach a balance by 2028.”
He added that although property prices have bottomed out, the low purchasing power keeps people from buying houses. “It seems the prices will remain stable throughout this year. However the gradual increase in home sales is expected to continue.”
