Builders Focusing on Tehran's Distressed Areas

Top construction companies in Iran are mostly known for building luxury apartment, villas and malls in the northern districts of Tehran, but the sluggish market for expensive residential units has forced them to reconsider their policies and move a part of their operations to more humble neighborhoods with a bigger focus on distressed areas of the city.

Part of the reasons behind the new trend is the hot market for real-estate deals in cheaper areas. This could be because the government has considered stimulus packages for builders and cheap loans for buyers to promote the housing market in distressed districts.

Bank Maskan offers Housing Saving Account loans up to 1.6 billion rials ($42,105) to applicants who intend to buy an apartment in distressed areas without the usual condition of being a first-time homebuyer.      

The agent bank for the housing sector also allocates no-deposit loans of up to 500 million rials ($13,300) for construction in Tehran’s old districts while those loans are no longer available in other parts of the city.

This is while Tehran Municipality’s stimulus package, which includes construction permit bonuses, 50-100% municipality construction tax exemption, special parking space advantages and discount on engineering services fees, reduces 25-30% of the construction cost and makes investment in those areas more lucrative than in other parts of the city.

According to a report published by Tehran Municipality on construction data in the capital, during the first two months of the new Iranian year to May 21, the number of new apartments built in 12 old districts of Tehran leaped by 56% compared with the corresponding period of last year while construction in the whole city during the period declined by 15% year-on-year.

Construction projects in Tehran’s distressed neighborhoods during the month to June 21 went up by 65% year-on-year. During that period, construction permits for more than 1,200 residential units in these areas were issued, Financial Tribune’s sister newspaper Donya-e-Eqtesad reported.

All these factors have convinced the big builders and construction companies to allocate a part of their investments and resources to construction in distressed districts.

Recently, some well-known construction companies officially called on the owners of old homes in distressed districts to engage in construction partnership.

The owners also prefer to deal with credible companies instead of small-time brokers who tend to buy their properties at much lower prices than they are really worth.

A senior executive at Liman Construction Company told Financial Tribune that companies have called on home owners to assess the potential of joint ventures in those neighborhoods, telling them that they are ready to launch the projects as soon as they are done with the assessment.

“Most of the companies are looking for the best properties both in terms of location and features. They also prefer to buy a number of old houses and turn them into one big residential complex to rack up more profit,” Mohammad Hassan Mahani-Manesh added.

 Supportive Measures

During the four-year tenure of the previous government, the Ministry of Roads and Urban Development helped boost the renovation process of distressed areas.

According to a deputy minister at MRUD, a plan for old neighborhoods’ revitalization has been devised and passed for the first time in Iran in which a clear policy has been devised for 2,700 distressed districts of the country.

“Despite the government’s strained finances, we managed to provide significant resources for the revitalization of distressed areas,” Mohammad Saeed Izadi was also quoted as saying by ILNA.

Izadi, who is also the CEO of Urban Development and Revitalization Organization affiliated with the Roads Ministry, added that four years ago, the budget for renovating  old neighborhoods stood at 370 billion rials ($9.7 million), but today the figure has reached 6.4 trillion rials ($168.4 million)

“I still believe that our budget is not even closely adequate and this is while only 25% of resources in the form of Islamic bonds have been allocated to us so far,” he said.

Izadi noted that the Central Bank of Iran is offering 10 trillion rials ($263,000) of Mehr Housing Project’s credit line as loans to builders investing in distressed districts.

“The most important act of MRUD for the renovation of old neighborhoods pertains to more than 860 projects in progress in 352 districts, of which 168 have been implemented,” he said.