Iran's housing affordability index, an indicator of how affordable residential units are to the people, has improved in the past few years, the head of the Planning and Housing Economy Office at the Ministry of Roads and Housing Development said.
"The housing affordability index, which is a gauge for how hard the road to becoming a homeowner in cities is, has currently reached 6, indicating a two-notch improvement compared with the fiscal 2011-12," Ali Chegini also told HIBNA, the news portal of Bank Maskan, the agent bank of the housing sector.
According to Chegini, the housing affordability index is based on the ratio of the purchase value of a 75-square-meter residential unit to the total average income of urban households.
The ratio effectively showcases the purchasing power of households against home prices.
Whenever home prices increase under the influence of periodic surges and household purchasing power fails to catch up, the housing affordability index goes up, indicating worsening conditions for housing applicants.
According to Chegini, the index stood at 8 around 2012, a time when home prices experienced a massive jump, but has now declined to 6, meaning that if an Iranian urban household saves all their annual income, they will be able to purchase a 75-square-meter home after six years.
The natural waiting period for homeownership is thrice the housing affordability index. In other words, the natural saving rate for households to become homeowners is around 30%. So to calculate the natural waiting period, the housing affordability index must be multiplied by three, meaning that Iranian households currently have to wait an average of 18 years to buy a 75-square-meter home using only their savings.
However, other variables exert influence over home prices that could also entail an indirect detrimental effect on the housing affordability index.
Other Factors
According to the MRUD official, eight variables are liable to have an effect on the price of residential units in Tehran during the next fiscal year that will commence on March 20.
"They include the inflation rate and the liquidity growth rate, bank interest rates, the return rate of gold, currency and bonds markets, the country's oil revenues, household incomes and savings, the ceiling and the way home purchase bank loans are paid, the finished cost of building homes and also non-economic parameters such as international politics," Chegini said.
To elaborate more about the inflation rate, which he referred to as the most important deciding variable in relation to potential housing price jumps next year, the official pointed to a number of major studies and forecasts.
"The International Monetary Fund has projected an inflation rate of 11.2% for Iran next year," he said, adding that the fiscal 2018-19 budget law and the Majlis Research Center, the research arm of the Iranian Parliament, have respectively predicted the average rate for the whole year at 9% and 10.9%.
"Another local economic research institute has predicted the inflation rate of next year at 15%," he added.
All-in-all, these predictions show Iran will once again experience inflation rates in the double digits, higher than the current rate that stands at 9.9%.
As for bank interest rates and how they influence the housing market, Chegini said even as the rates and subsequently the attractiveness of money market have dwindled, they still retain their status as a major option for investors.
The recent initiative by the Central Bank of Iran that for two weeks offered rial certificates of deposit at 20% interest rates managed to control shocking fluctuations in the foreign exchange market, which saw the US dollar and euro climb to all-time highs against Iran's national currency.
The rial CDs managed to absorb a whopping 2.4 quadrillion rials ($49.7 billion) in two weeks.
"So if bank interest rates are still this attractive next year, both the increase of home sales and the rise of home prices will be limited because these two markets operate in opposing directions," he said.
In conclusion, Chegini predicted that the most likely scenario will be an increase in home prices higher than the inflation rate, but stressed that there will be no sudden price jumps.
