Tehran Home Sales at Three-Year High

After four years of a stubborn downturn in the Iranian housing sector, Tehran finally broke the chains as its home sales hit a 39-month high in a sign that the key sector's recovery has begun in earnest.

According to the latest report of the Central Bank of Iran, nearly 18,000 apartments were sold in the month ending August 22, which has been unprecedented since May 2014.

The number of residential deals during the month indicates an annualized growth of 23.7% while the figure marks an increase of 6.1% compared to the previous month. This is while in the past three years, the average number of home sales in Tehran had not exceeded 13,000 per month.

The Iranian government has been endeavoring to end the beleaguered sector's recession that began in 2012. The allocation of cheap loans to first-time homebuyers and incentives for builders, especially in distressed areas, was among government measures undertaken for promoting the market.

Speaking to Financial Tribune, Iraj Rahbar, the head of the Association of Tehran Builders, said aside from seasonal demand that influenced the market last month, the allocation of home loans has also positively impacted the volume of sales.

"One of the main reasons behind the housing recession has been people's low purchasing power, which was partially resolved by the allocation of cheap housing loans," he said.

Housing Savings Account, launched in June 2015 for the first time, aims to provide first- time homebuyers with loans at an interest rate of 14%, which was later reduced to 9.5% (8% in distressed urban areas) in February 2017. The scheme requires applicants to make an initial deposit and wait for a year to become eligible for the loan.

Rahbar added that if the allocation of loans does not face any hurdles due to its agent bank's capital shortage, the scheme will definitely help the market get back on its feet.

However, Mehdi Soltan-Mohammadi, a housing expert, told Financial Tribune that the effects of the government's measures will be felt more in the market during the coming months.

"The government and municipalities have used a number of instruments to prop up the sluggish housing market but we will witness the results of these measures more significantly in the future, especially if the government manages to successfully implement the rate cuts as banks' interest rates are directly related to investment in the housing sector," he said.

However, he added that built-up demand over the past few months was the major factor behind the previous month's surge in sales.

"Many people were waiting for the result of Iran's presidential election and a clear vision of the country's political situation before deciding whether to buy an apartment or not. Now that things are steady, this potential demand has entered the market," Soltan-Mohammadi said.

Cheap Home Factor

As expected, affordable apartments triggered the capital's turnaround as the home loans were mainly aimed at low-income groups.

As CBI's report indicates, apartments whose prices per square meter did not exceed 46.7 million rials ($ 1,230)–the average price for one square meter of a residential unit in the capital–accounted for almost 60% of all real-estate deals during the month to August 22.

This is while 62% of the purchased apartments were smaller than 90 square meters. All in all, apartments worth less than 3.5 billion rials ($ 92,100) accounted for 53.7% of all sales during the fifth Iranian month, which is a relatively low price in Tehran.

According to CBI's data, the average price for one square meter of a residential unit in Tehran during the month—46.7 million rials ($1,230) —indicates a growth of 6.2% compared to the previous year's corresponding period.

However, Soltan-Mohammadi believes that prices will also increase in the coming months as he noted that "the high volume of home sales in Tehran is to continue for a few more months".

Rahbar also reckons that the hot market for home sales will persist at least until the end of summer, while the future of this sector depends on a variety of factors that are not predictable.