Housing Boom Tied to Banking Reforms

The Iranian housing market has been mired in recession for the past four years, but while its gradual recovery is almost certain, it will heavily hinge on what President Hassan Rouhani’s government will do to reform the banking system, two housing experts said.

A panel of housing experts, including the head of the Association of Home Builders, Hassan Mohtasham, and secretary of Builders Association, Farshid Pourhajat–a guild establishment that works in coordination with policymakers in the housing sector–among others, discussed the key industry’s prospects of supporting some 300 economic subsectors, IRNA reported.   

“The administration must pay special attention to reforming the financial and banking systems of the country because we will not witness growth, especially in building new homes, at the interest rate of 22%,” Mohtasham said.

He added that if the deposit rates, officially set at 18% but offered higher by many lenders, are brought down, people will not be incentivized to keep their money in banks and will steer their capital toward the production sector.

The official also advised the government to prepare the ground for minimizing the costs of building houses by lowering deposit and interest rates.

The fact that close to 2.5 million empty homes exist throughout the country, about 500,000 of which are in the capital Tehran alone, was also highlighted by Mohtasham.

“More than $200 billion have been invested in these units, which are practically unusable as people cannot afford to buy them,” he said.

According to Mohtasham, the housing sector is emerging out of recession and while its pre-boom phase will continue until the end of summer, the next phase will entail a relative rise in prices and home sales.

Pourhajat said if all Iranian banks engage in offering loans to people with the aim of buying homes, “we will witness a jump in residential real-estate deals on a national scale”.

The official added that if supervision over the banking system is increased and leads to a decline in bank interest rates, the number of housing deals would go up because “home deals experienced a relative rise last year” when the Money and Credit Council set the interest rates at 15%.

MCC, which is a decision-making financial body, in May authorized the Cooperatives Development Bank to offer housing loans, previously a prerogative of Bank Maskan and other non-specialized commercial banks.