Economy, Domestic Economy

Tehran Real Estate Revisited

Tehran Real Estate Revisited
Tehran Real Estate Revisited

Twelve million people are estimated to live in Tehran at night. During the day, that number increases to about sixteen million. With a daily in- and outflow of more than four million, it is no surprise that Tehran faces perennial traffic and pollution problems.

However the root cause of all this is the property market, which is inflated to the extent that it inhibits millions of commuters from living in the capital and forces them to look for shelter in large in suburban towns such as Karaj, about 50 kilometers to the west of Tehran.

While buying or renting property in Tehran has remained a distant dream for many, the housing market has been experiencing a downturn. Last week, the Statistical Center of Iran reported a price increase in Tehran’s property market of 3.8 percent in the first quarter of the current Iranian year (started March 21). Additionally, property prices were still 10.1 percent down compared to the same period last year.

Rent prices tell a slightly different story. Prices were up 8 percent in Q1 of this year and on a year-on-year basis, they were up 5.2 percent. Rent prices have done a better job partly because more and more people decide to rent an individual flat in the city. Currently, about 20 percent of Tehran’s property is held by single occupiers, compared to 1.7 percent for the rest of the country, and they mostly prefer to rent rather than buy.

However, taking into account the inflation rates of around 20 percent, real values for renting and buying have both fallen over the year.

The price of ground development has also fallen by 10 percent after a decision was made last year to stop an old development policy in place since the 1990s. The old measure allowed companies to pay a fine to Tehran municipality in return for a permission to build higher-density, i.e. taller, buildings.

Despite the recent slump in prices, activity in the housing market has heated up remarkably. The amount of property transactions jumped up by 52 percent while renting transactions were up 33 percent.

One of the factors behind this sudden jump has been that the government’s promise to guarantee bank loans and mortgages to potential buyers. However, the more important reason was apparently psychological. As the government was overhauling national subsidies, many renters and buyers believed it would be an appropriate time to enter the market.

Although activity might have come down slightly after the 2nd phase of the subsidy reform plan was put into force in April 2014, government support for the housing market looks set to keep liquidity and transactions at pace.

The government has put in efforts to expand the supply of housing in Tehran and bring it more in line with demand. According to Mohammad Baqer Nobakht, who is the presidential adviser for strategic planning and supervision, the Rouhani administration is doing much to keep government investment in the construction sector high. On the one hand, that entails completing many of the semi-finished projects started under the former president Mahmoud Ahmadinejad. The largest of these projects, the ‘Mehr’ project, was aimed at creating low-cost social housing but due to bad management it has so far remained largely unfinished.

Additionally, it is estimated that around 450,000 housing units are vacant in Tehran and neighboring Alborz province; an enormous amount given the need for housing in the capital. The government has vowed to put a levy on vacant units. Although an important initiative, the program has so far failed to register vacant homes and track their owners.

Other positive steps to keep alive activity in the Tehran housing market occurred last month, when the government created a fund that aims to provide cheap loans to applicants up to half of the total value of the house. Although the move was criticized on various bases, notably because it offers very low- interest rates and does not differentiate successfully between the income-brackets of applicants, it should still be seen as a much needed tool to help the many financially unsecure families to obtain a home. In the future, the government hopes to expand this fund or perhaps create a second fund.