Economy, Domestic Economy

Mortgage Bonds Plunge

Mortgage Bonds PlungeMortgage Bonds Plunge

The effects of recession in the housing market have finally touched mortgage bonds at Iran Fara Bourse or over-the-counter (OTC), pulling the price of each bond down on Saturday to a record low in months – 900,000 rials, ($27.6 based on market rate).

The fall recalls the decline in prices in February 2013, when each mortgage bond was traded at 886,690 rials.

Some analysts argue that the recent decline is the result of the measures taken to end agiotage on such bonds, while others attribute it to the existing recession in the housing sector. The latter group believes that the rate of mortgage bonds will soar as soon as the sector starts growing.

Just two months ago, the price of each mortgage bond rose to 1,000,000 rials ($30.7), forcing authorities to take measures to slow down the growing trend of prices.

Mortgage bonds are among few tools available for the low-income population to buy a home. The decline in their prices, some analysts claim, could trigger an ailing housing market.

Traders at the capital market in Tehran believe that prices may not plunge any further as those who bought them at higher prices will not be ready to sell at lower prices.

Officials from Bank Maskan, the only commercial bank in charge of providing housing loans, and Iran Fara Bourse have met several times to find solutions to end agiotage on mortgage bonds but they have so far failed.

A look at the prices of mortgage bonds since their arrival in the market in November 2010 shows that the price of each bond has ranged from nearly 900,000 to 1,000,000 rials.

Before the bonds entered the OTC market, they were traded at higher prices, at around 5,000,000 rials each. However, the price fell to below 400,000 rials as soon as the bonds’ trade started at OTC. But the falling trend accelerated later in January 2014 after the government increased the ceiling of the housing loans to 350 million rials ($10,700), from the previous 200 rials.

Latest statistics by OTC have revealed that up until now, 500,000 people have bought housing units using mortgage bonds. Under OTC regulations, it’s illegal for mortgage bond holders to use their bonds as investment means. Everybody trading at the market is provided with a “trade code” and is only allowed to have a limited number of trades. Furthermore, trade code holders cannot keep their purchased bonds for more than two months.