Stagflation in Tehran's housing market is on its way out, at least in some parts of the capital city.
Home prices have increased significantly over the past two years. The gap between housing costs, either rents or property value, and households’ purchasing power has widened and this led to an all-time low in the number of home deals.
“However, the breakneck growth in home prices has decelerated since the fourth Iranian month (June 22-July 22, 2019). At present, the housing market is in a state of equilibrium and prices are not that different from what they were then,” Mehdi Soltan-Mohammadi, a housing expert, told Tehran Chamber of Commerce, Industries, Mines and Agriculture in an interview.
The market has been energized over the past several months, thanks to an increase in the number of home deals.
The Central Bank of Iran's latest report shows 10,687 homes were sold in Tehran during the 10th month of the current fiscal year (Dec. 22, 2019-Jan. 20) to register a 12.1% rise compared with the month before.
The number of home sales in the capital city rose by 59% compared to last year's similar month.
The average price of each square meter of a residential unit in Tehran stood at 138.09 million rials ($965) during the month under review, indicating a 2.1% increase compared with the preceding month.
Compared with the same month of last year, the average prices showed a surge of 40.9%, CBI reported.
Market Liquidity in Different Areas
Soltan-Mohammadi said many customers who were left out of the market have decided to make purchases and homeowners waiting for further price hikes have come to realize that they won’t reap more profits in the future and decided to put their properties for sale.
“All this has paved the ground for market liquidity in mid- and downtown areas of Tehran," he said.
The housing market is in effect not experiencing any growth in the number of home sales or prices in uptown areas. However, according to the expert, it has perked up in southern and middle districts of the capital city as well as the suburban areas, particularly in towns created on the outskirts of Tehran, thanks to their infrastructural developments such as subway station in Hashtgerd—located 68 kilometers west of the city of Tehran.
According to the CBI report, the distribution of dealt properties during the period under review indicates that among Tehran's 22 districts, District 5 grabbed the highest share of total deals at 16.3%. It was followed by districts 2 and 4 with a respective share of 9.4% and 9.2%.
All-in-all, 10 districts (two, three, four, five, seven, eight, 10, 11, 14 and 15) grabbed the lion's share of the deals at 73.8% with the remaining 12 districts holding a 26.2% share.
Among Tehran's 22 districts, District 1 registered the highest average home price at 301.6 million rials ($2,109) per square meter. District 18 offered the capital city's cheapest homes with an average per-square meter price standing at 65.3 million rials ($456). The aforesaid numbers show a respective increase of 30.5% and 55.3% YOY.
Shift From Investments in Banks
The expert noted that the housing market has always been targeted by two types of customers: those who consider buying a house as an investment and those who view it as buying housing services (say for personal use).
"Given the decline in bank's interest rates, it is only natural that investors would switch to various markets, including housing," he concluded.
Newly-built residential units—those of ages up to five years—grabbed the highest proportion of the total number of deals under CBI review with 41.8%, down by 1.6 percentage points compared with the same month of last year.
That lost share was added to homes six to 10 years old and homes 16 to 20 years old. Homes with a lifespan of six to 10 years and of 16 to 20 years accounted for 19.4% and 16.9% of total deals respectively.
The share of deals for 11-15-year-old homes decreased from 13.8% of the total deals in last year’s same month to 12.6% this year. Homes that were 20 years old posted a share of 9.3% of total deals, compared with 11.2% in the same month of last year.
“Another important point is that Iran has a very small housing market,” said Soltan-Mohamadi, adding that home production has not exceeded an annual 400,000 units over the past three years whereas demand for home stands at 800,000-900,000 units per year.
"Despite the price rise, new home output did not grow in the years ending March 2018 and 2019, which is a cause for concern. Lack of harmony between supply and demand will help maintain the rising prices of homes, though we are expecting to see a slowdown in price increases during the next two years."
The CBI report also shows residential units with an average price range of 90 million rials ($629) to 105 million rials ($734) per square meter were the highest in demand, as they grabbed an 11.6% share of all deals.
They were followed by units priced at 105 million rials to 120 million rials ($839) per square meter and those priced at 75 million rials ($524) to 90 million rials per square meter with a respective share of 10.8% and 10.3%.
From the total number of deals, 57.9% belonged to homes cheaper than the average per-square meter price of the city (i.e. 138.09 million rials or $965).
Residential units with a floor area of 60-70 square meters registered the highest number of deals, with a 15.2% share of total deals.
Units with an area of 50-60 square meters and 70-80 square meters came next with a respective share of 14.5% and 12.6%. All-in-all, units with an area of under 80 square meters had a 55.9% share of total deals.
CBI data further show that homes in Tehran worth between 3 billion rials ($20,097) and 4.5 billion rials ($31,468) were highest in demand with a 13% share of total deals.
Homes with price tags of between 4.5 billion rials ($31,468) and 6 billion rials and those between 6 billion and 7.5 billion ($52.447) came next with respective shares of 12.1% and 10.8% of total deals.
On the whole, homes valued under 9 billion rials ($62,937) had a 48.5% share of total home deals.
