Rent-to-Own Firms Enter Iran's Housing Sector

Rent-to-own companies are now allowed to operate in the housing market with the interest rate cap recently devised by the Central Bank of Iran, announced the chairman of Iranian National Leasing Association.

“Through constant action and convincing the Ministry of Roads and Urban Development, real-estate leasing through non-bank rent-to-own companies acquired a license of operation,” Hamid Ebdali said in a press conference, IBENA reported.

Ebdali added that it was not possible for private rent-to-own companies to do this before, “but now the sector can finance up to 70% of the value of a home through the lease option”.

“The interest rate charged by these companies has been set at 21%,” he said.

In mid-January, the Central Bank of Iran announced that it has revised regulations regarding the operation of leasing companies, allowing lenders to offer their services at approximately 3% higher interest rate than those of 18% offered by the banking sector.

The measure came after successive complaints made by lenders over the Money and Credit Council’s decision to set an interest rate cap on lease contracts. Leasing companies claim that the real cost of lease contracts ranges between 25-29%.

Ebdali said, “we were looking to create an operational leasing”, which was removed in regulations released by the central bank. This is while, he added, “this kind of leasing is prevalent throughout the world”.

Mohammad Hadi Moqei, director general of the Iranian National Leasing Association, was also present at the press conference, and provided further details about the current state of rent-to-own companies in the country.

Moqei began by noting that in the past 41 years, “about 400 leasing companies were registered in Iran, which shrank to 41 under the supervision of CBI”.

According to a report published last year, he added that of the 38 licensed leasing companies operating in the country, 16 are banking leasing companies, nine offer services in the auto industry and 13 are private companies.

“The total capital of leasing companies in Iran is 13 trillion rials ($339 million) and the portfolio of the industry stands at about 50 trillion rials ($1.3 billion),” Moqei said. 

“The 16 rent-to-own companies offering banking services have a share of 5.6 trillion rials ($146 million) from the figure, while the companies operating in the auto industry have a share of 4.7 trillion rials ($122.5 million).”

The official said private leasing companies have no significant share.

Elaborating on the activities of rent-to-own companies in the housing sector, he said these companies will complement financing in the sector because “the industry is currently unable to provide cheap mortgages”.

Pointing to the long payback period of loans as one of the problems of rent-to-own companies entering the housing sector, Moqei concluded by saying that “from now on, rent-to-own companies will also be able to provide financial services to owners of empty residential units”.

However, the head of Tehran Society of Builders believes that with the high interest rates of bank mortgages, the addition of rent-to-own companies will not help the stagnant sector. 

Pointing to these leasing companies as new players in offering housing finances, Iraj Rahbari said, “Providing financial support to the housing sector, which is the engine driving many other industries, is a completely positive effort.”

On the downside, Rahbari noted that “a banking interest rate of over 20%, which I am sure will go even higher considering additional costs such as registering and notarizing, will not do much to help the housing market because repaying the loans at this exorbitant interest rate will be very hard”.