Economy, Domestic Economy

Bleak Future for Ubiquitous Commercial Estates

Bleak Future for Ubiquitous Commercial Estates  Bleak Future for Ubiquitous Commercial Estates

Malls here, malls there and malls everywhere!  The ubiquitous presence and influence of these monstrous structures across Tehran and other big cities are causing some real concern. The understandable anxiety of social pundits and environmentalists aside, economists and experts are asking what will happen when the commercial real estate bubble bursts, as was the case in several neighboring Arab sheikdoms in the recent past.

The surplus commercial spaces in the new multi-storey shopping centers, most of which will be ready simultaneously  for sale to the highest bidders, would very likely have few if any takers. The big real estate builders and their minions, who had plans to make huge profits, could well be dismayed simply because of market mechanisms: excess supply, dwindling demand.

Even playing by the rules of the so-called liberal economics will hardly inject the much-needed oxygen into the sagging multi-billion-dollar commercial estate industry in the sprawling megacities, in particular Tehran Province, which is now home to 14 million people.

In recent weeks and months, the High Council for Urban Planning and the ministry of roads and urban development have given some belated attention to the need to check the emergence of malls, haphazard constructions, and most importantly the pattern of land use change plus sale of density or agglomeration.

According to official data, more than 60,000 hectares of agricultural land and natural resources across the country have been destroyed and changed their use illegally since 2006. Almost all land use change approvals plus sale of density were issued by the municipalities for which they apparently charge exorbitantly with little or no regard for the environment, traffic congestion, shortage of water, electricity, gas and other basic urban needs.

  TM Singled Out

 University lecturer and senior real estate expert, Hussein Abdoh Tabrizi believes the municipalities are in part responsible for the current sorry state of affairs in the key commercial real estate market.

In a talk with the Persian economic daily Donya-e-Eghtesad magazine, he criticized the Tehran Municipality (TM) for allowing the hugely disorganized constructions across the overcrowded city. "In order to remain financially solvent, the municipalities normally earn a large part of their income by issuing construction and change of use permits. But such wrong practice cannot continue for long for the simple reason that the real estate market is saturated and cannot sustain the rapidly increasing numbers" of malls and commercial/residential districts.

Noting that taxes are and should be the primary source of revenue for municipalities, Dr. Abdoh says in Iran a percentage of value added tax is allocated to municipalities for their expenditures, but is apparently not enough. He recommends that municipalities should approach the Majlis with proposals for meeting their expenses through alternative sources of earnings, and by extension, reduce reliance on unsustainable sources of revenues.

"If the lack of sustainable earnings is really pushing the municipalities to allow denser districts and change of land/buildings' use, why have they over the past two decades not proposed alternative solutions to the government or Majlis to solve the problem?" Abdoh asked as a matter of fact. He also underlined the need for more transparency and openness in the accounting and auditing of municipality accounts.

Regarding the potential for a commercial real estate bubble, Abdoh said wherever there is a "huge gap between the price of commercial units and the income they are expected to generate, a real estate bubble is bound to form and burst, shattering with it dreams of real estate developers expecting windfalls from their investments."

This said, the university teacher acknowledges that the excess commercial spaces are not going to be a formidable barrier or discourage construction of new malls in the future. "Consumers are usually more interested in large shopping areas with enough parking lots.  Plus, the lower rents might trigger the reemergence of some businesses such as book stores and the traditional café-confectionaries of Tehran which vanished during the past three decades due largely to the high rents and property costs."