The past couple of years have seen the housing market go through a downswing, mainly as a result of macroeconomic uncertainties that pushed capital investors out of the market and rendered the prospective home-buyers unable to afford the heavy prices created by inflation.
In recent months, parallel with the economy showing signs of tepid recovery, the government has unveiled plans that are expected to help breathe new life into the stagnant housing market.
Earlier this month, the Ministry of Roads and Urban Development released an unofficial draft of the Comprehensive Housing Plan, providing a summary of the sector’s current situation and future prospect and the government’s strategic and executive plans for the housing sector for the next 13 years. The plan is to be reviewed by experts before being passed on by the ministry to the executive authorities.
The ministry has proposed its plans for the housing sector in eight main categories: housing for low-income households, renovation and rehabilitation of dilapidated buildings and informal urban settlements, reforms in urban and regional planning, improving construction efficiency, expansion of financing system, rural housing, development of rental market and housing in cities.
Some major housing programs proposed by the ministry include: social housing, supportive housing, rehabilitation of informal settlements and financing through secondary mortgage markets.
Social Housing Program
Under the social housing program, the government will assist households of the poorest two deciles of the Iranian society through rental subsidies, affordable loans and low-cost housing provided either directly by the government or by various organizations and charitable foundations.
The plan proposes the construction of 150,000 affordable housing units every year. The ministry has been assigned the task of constructing 70,000 houses every year, which will be provided to poor households at 60% subsidized rent. The remaining 80,000 units will be constructed by municipality and charitable foundations and offered either for rental or purchase poor households through low-interest rate loans.
Supportive Housing Program
This program also targets low-income groups who cannot afford to pay the full amount of the mortgage loan’s monthly installments. Under this scheme, homebuyers can obtain mortgage loans up to 50% of the price of a 75-square-meter house in urban areas from any commercial bank after depositing a sum of 500 million rials ($15,000 at market exchange rate) in the bank for one year. The government will pay 35% of the loans’ monthly installments. The program is expected to support up to 250,000 households per year.
According to a member of the Parliament’s Development Commission, Alireza Khosravi, the first phase of the program entails the construction of 8,000-10,000 houses in rural areas for households with at least one disabled member, Alef news website reported.
The second phase envisions the construction of 120,000 housing units in collaboration with the Ministry of Roads and Urban Development and the Ministry of Cooperatives, Labor and Social Welfare. Eligible households will be identified by the Social Welfare Organization and Imam Khomeini Relief Committee, said the lawmaker.
The plan also entails construction of 15,000 houses for households not supported by any insurance or welfare organization.
Rehabilitation of Informal Settlements
Informal settlements are found on the periphery of large cities as a result of migration from villages and small towns. These settlements usually lack proper sanitation, safe water supply, electricity or other basic amenities.
Estimates show that about 13.5 million of the country’s population, comprising 3.1 million households, live in informal settlements. These people live in 2.7 million houses, about 1.4 million of which are in need of restoration. The process requires rehabilitating 140,000 housing units every year for 10 years.
Under this program, the households will receive 200 million rials ($6,000) in loans with 25% interest rate from commercial banks for renovating their houses. The government and house-owners each will deposit 25% of the total amount of the loans with the bank for one year before receiving the loan.
Secondary Mortgage Market
The secondary mortgage market provides a new source of capital by attracting investors to the housing market after mortgages are initiated in the primary mortgage markets.
Under this scheme, the mortgage lending banks sell the loans from the primary mortgage market to investors—the leasing companies in Iran—who will charge slightly higher interest rates on homebuyers.
The plan, expected to be implemented in the coming months after receiving approval of the Money and Credit Council, aims to fill the gap in the domestic housing market for non-bank credit providers. Bank Maskan is currently the sole specialized bank in the housing sector, providing mortgage loans of up to 800 million rials ($24,000 at market exchange rate) to first-time homebuyers at 14% interest rate.
The council earlier put the bar on interest rates at 21 percent, which sparked controversy among mortgage companies and real-estate developers. While mortgage institutions point out that credit can only flow with interest rates of 24 percent upwards, estate developers argue that buyers will not participate in a scheme charging rates above the current inflation rates.
While the previously mentioned plans are suitable for low-income groups, the secondary mortgage market is believed to be more suitable for middle to high income groups because of the relatively high interest rates and short period of loan payment.
All in all, the Comprehensive Housing Plan proposes a number of executive programs to help provide low-income households with affordable housing as well as finance housing purchases by various income groups.
Supporters of the government’s new housing schems believe that successful implementation of any of the abovementioned plans would generate new activities in the housing market for the respective income group, thus helping to lift the housing market out of its current stagnation.
But, skeptics point out that involvement of various organizations and authorities in implementing the plans could slow down or pose complications in practice. Supervision is another major concern, particularly in the case of secondary mortgage markets which will be tested for the first time in Iran’s housing market.
While many are also concerned about the government not being able to fund the proposed schemes, authorities defend the plan, pointing out that they have been drafted to be flexible, depending on the future of Iran’s economy.
The Comprehensive Housing Plan assumes three different scenarios: The first (default) scenario is based on lifting of sanctions (imposed against Iran by the West over the country’s nuclear energy program) which envisions 5.2% average annual economic growth until 2027; the second scenario assumes continuation of the sanctions and 3% average economic growth while the third scenario is based on the removal of sanctions and exponential growth in productivity. The latter assumes 6% annual economic growth during the period.
