National Action Plan for Production and Supply of Housing
The strained economy of Iran is exacerbated by the housing problem, which, as all problems, calls for a solution. With the local currency taking a nosedive against the dollar, at least twice, since the Iranian New Year on March 20, having reached an exchange rate of 220.000 Rials to the dollar, not willing to risk the consequences of holding on to large amounts of cash, many are investing in property to hedge their money against depreciation. But that’s for the rich. What of the poor? They’re taken care of by the government. Or are they?
Over the past two years, five out of 22 districts of the capital city, Tehran, saw housing prices more than double. To level the playing field, in a separate move from the national action plan, there’s the Mehr scheme, instituted in 1979, the year of The Islamic Revolution of Iran, and other ongoing Housing schemes brought into play by the Housing Foundation.
The government’s main plan of action for providing affordable housing for the financially constrained, the National Action Plan for Production and Supply of Housing, involves the construction of 400,000 small and medium sized flats nationwide within a two year time frame. The majority of the new housing units are to be built in Tehran’s new suburban townships, such as Parand and Pardis.
There are of course house flippers who buy property just to sell at a higher price. And they are instrumental in keeping millions of apartments uninhabited--hoarded if you like to push prices up, even when sales are at a low. 2.5 million residential units nationwide are empty, half a million of them in the capital Tehran.
This has further exacerbated inflation. But 85 percent of properties are still traded by real consumers. And private construction companies have built up big flats of at least 130 square metres mostly, in uptown and affluent areas, where people don’t need help to buy. The government has to aid those wanting 70-80 square metre flats mostly in or off south and east Tehran.
How will the plan unfold?
Real estate for the project shall be provided by the ministry of urban development while private sector subcontractors awarded the construction work will be entitled to state loans and subsidized building material. The ministry will only supervise construction BY those private firms.
An amendment to Article 54 of the Direct Tax Law, was unanimously approved by Parliament on 5th August to heavily tax empty homes.
Inexplicably, immediately after the National Action Plan was announced, prices rose a further 12.5 percent, the largest one-month increase of the year.
Hassan Mohtasham, Head of the Tehran Mass Builders Association, believes that only when houses are no longer viewed as investment opportunities and illiquid assets, will prices be normalized in the country. The fact of the matter remains that, in Tehran, as is the norm in capitals cities worldwide, houses are expensive because the population tends to be more eager to seek shelter in these areas as they offer better facilities and amenities than other places. This leads to a greater demand than the city can supply.
But even in capital cities the price ceiling can be managed to remain at a certain, foreseeable point and this is only possible if houses are not considered as capital goods.
Hassan Mohtasham, Head of the Tehran Mass Builders Association
Who will the scheme benefit?
The national housing scheme would, in most likelihood, fail to cover the entire population as a certain section of the target population, usually affluent, would not be willing to live in the areas where such housing would be constructed. Conversely, another segment of society, usually working class, low income families, simply cannot afford the initial deposit necessary for a bank loan toward the future purchase of a home.
Another segment of the society cannot afford costs as they cannot deposit a sum to receive banking facilities for a future delivery of housing as nothing is certain. They have already seen that promises given over the Mehr housing scheme were not honored. Therefore I think that a segment of the society would be unwilling to receive housing from such projects and they would prefer to afford it by themselves.
Hadi Haghshenas, Economist
Rent on residential units in Tehran, as well as other urban areas, increased by around 30 percent in the second Iranian calendar month (late May), compared to the same month last year.
The rental situation
It would appear, if the experience of Mr Jafari, a house hunting senior citizen, is to be taken as the norm, that the housing market is very bleak. Mr. Jafari has been forced, as many others have, to look for a new property to rent since he cannot afford to renew the rental agreement for his current residence.
Estate agents are often vilified as price inflating villains who manipulate fees to their advantage, however, according to Vahid Javadi, Tehran Real Estate Consultants, Supervisor, this is far from the truth.
We do our best to secure a transaction. When the seller offers a high asking price we try to modify it by negotiations so that a deal would be made and we would receive a sum as commission. So, we also prefer low prices in a bid to have a prosperous property market.
Vahid Javadi, Tehran Real Estate Consultants, Supervisor
What are the options?
For a typical retiree, living on a fixed pension, acquiring sufficient funds to pay for even a modest flat in West Tehran, is beyond reach, even with a discount from an understanding estate agent. With no funds other than their present rental deposit, any increase in rent would require a loan. Having a fixed income, which may rise by 5-10% annually, while housing costs increase more than 30% during the same timeframe, necessitates a reduction in other expenditures to fill the gap.
In the normal run of things we must be able to let a bigger home, but in fact we have to let a smaller home and that at higher prices. If for instance, we are living in a 70-square-meter apartment, we have to add to our mortgage and choose a 65-square-meter apartment.
Hassan Jafari Panah, Tenant
Soaring prices
Data published by the Central Bank of Iran, CBI, shows the average price of residential property in Tehran stood at over 200 million Rials per square metre in the month between 21 June and 21 July. That will have been 886 dollars at the time, or under 1000 dollars today, showing a surge of around 56.5 percent compared with the same month last year.
Despite the astronomical increase in the cost of property in Tehran, there has been an increase in the number homes sold by 193.5 percent, which translates into more than 14,000 homes sold in one month.
Housing prices, since February 2018, have more than doubled in five out of 22 districts of the capital, Tehran.
Past performance
In addition to The Mehr Housing scheme, which was founded in 1979, there are other ongoing Housing schemes by the Housing Foundation.
Mr Haqshenas, who was appointed governor-gen of Golestan province shortly after the devastating floods last year, stressed that, under the circumstances, the Housing Foundation had performed well.
He puts this down to various factors, including the fact that the Housing Foundation built houses where houses already existed. Therefore, the first hurdle in such projects, allotment of land, was resolved.
All houses built by the Housing Foundation in damaged areas are solely villa-style. Villas and high-rise buildings inflict totally different costs on the environment. The third point is that the housing units built by the Housing Foundation were exclusively for housing. When people see their incomes fall from a certain level, the size of house, construction materials, architecture, and location in the city become important for them, and these factors raise or reduce the price of housing.
Hadi Haqshenas, Governor, Golestan
Why is the market so unstable?
House flippers, those who buy property just to sell at a higher price, are instrumental in keeping millions of apartments uninhabited--hoarded if you like—to push prices up, even when sales are at a low. 2.5 million units are empty nationwide, half a million of them in the capital Tehran. This has further exacerbated inflation. 85 percent of properties are still traded by real consumers. And private housing construction firms have built large flats of at least 130 square metres, mostly in uptown and affluent areas, where people don’t need financial assistance in order to buy a home. The government has to aid those wanting 70-80 square metre flats mostly in or off south and east Tehran.
” Someone living in poor areas cannot go and let an unoccupied house in a well-off area. Imagine there are unoccupied houses ready to be let. On average, each square meter of home is mortgaged for IRR 30 million and therefore based on calculations; its monthly rent will be IRR 90 million. About half Iranian people who are retiree or employee have salaries below IRR 50 million. How can they pay twice their salary for rent?” Mr Haqshenas asks.
Inflation is to blame
The housing market is presently beset by inflated prices which have come about as a result of ‘bill printing’ as economists call it. What we are seeing in the housing market is not a product of the housing market performance; rather it is a product of the money market performance. This is also reflected in the foreign exchange market, gold market, housing market and car manufacturing market.
If for any reason whatsoever, the money stock increases due to the Central Bank’s bill printing, the dollar conversion into the Rial, the reduction of banking interest rates, creation of money by banks through certain mechanisms, the outcome will be inflation as long as equal volumes of commodity are not supplied.
Hadi, Haqshenas, Economist
How the Vacancy tax work?
The empty house taxation law stipulates that in every city with a population greater than 100,000 no house should remain unoccupied for longer than 4 months in each tax year. Should the properties remain vacant for longer the owner will be taxed accordingly.
In the first year a house is left vacant, the fine will be 6 times the regular tax. In the second year 12 times as much, and from the third year on, 18 times as much.
Newly built homes will have 12 months after the completion of the construction period before the law is applicable to them. Mass-produced units however, will have 18 months.
If this policy is implemented correctly it can keep rentals from rising. In real estate transactions, if taxes are increased, the buyer will suffer losses since the seller does not pay taxes.
Who is to blame?
The present government has most assuredly come, and is still coming, under immense fire for a state of affairs which, in all fairness, it inherited from the previous administration.
The Rial took its first plunge in 2012, going from 8000 Rials to the dollar to around 15000 rials per dollar. It was also in the former administration’s time when inflation spiked with banks and credit companies luring in customer assets with the promise of high interest rates. One must not forget however, that coincided with calculated US sanctions severely targeting the country at the time.
Sanctions have definitely affected the dollar exchange rates significantly. But I never understand why the dollar has affected so many other sectors. We are producing our own steel, rebar and cement, but as soon as the dollar rises in value, construction materials also increase in value. That is blamed on the government; there is either mismanagement or misuse.
Vahid Javadi, Tehran Real Estate Consultants, Supervisor
Is this a new problem?
The housing problem is nothing new, existing even during President Ahmadinejad’s first term in 2007, when the Mehr housing construction project was initiated. It was to provide 2.5 million low-income people with housing units through free land and low interest credit. It was scheduled to be concluded in five years. 870.000 units were concluded however, by the 10th administration. And the 11th and 12th Administrations have had to complete 1.100.000 units. Making a total 1.970.000 units complete, with 530.000 units yet to be built.
It set out to complete the project with better building materials and on sites with better infrastructure than the early units, which were totally demolished in the 7.3 Richter earthquake of 2017 in Kermanshah.
Where do things stand at present?
Hessam Oghbaei, deputy chief of Iran’s Real Estate Agencies’ Union, says we entered the first phase of the administration's anti-inflation campaign in the first quarter of the current calendar year (which began on March 20), and that we are preparing for economic growth in the country.
Despite enduring severe stagflation over the course of the past three years, coupled with an unprecedentedly recession in the housing sector, steps have been taken in a bid to end inflation in the country.
Mr Oghbaei asserts that the volume of transactions in the housing sector will hopefully reach a point where we will be able to confidently say the sector has been revived and is doing well.
Improved procedures
One improvement envisaged for Mehr phase B, is to allow government employees immediate access to their units, and payment in 15-year installments. This is while plenty of buyers of Mehr A didn’t get keys to their homes, for 12 years, even though they’d deposited their down payments.
Despite having surpassed the national action plan of 400,000 projected housing units, not to mention the Mehr Housing project ,many buyers as well as estate agents, find fault with the Government’s construction and loaning plans in general.
Alternative proposal
It has been proposed that since there are so many Barraks in Tehran and much government owned land outside Tehran, why not relocate the barracks outside Tehran and use the locations thus freed up to built affordable housing.
We have many military barracks in the city now. There are many plots of land owned by the government. If rentals are to decline, housing prices should also decrease. We can choose to move some barracks from inside the city instead of building houses in the vicinity of Tehran. Houses built in this way are not of help to residents of Tehran. I work in Tehran. Instead of spending a lot on coming and going I prefer to stay here at higher prices.
Hassan Jafari Panah, Tenant
What Iran really needs is to build a million housing units per year while in recent years only around 300 thousand have been built per year. Not all suitable for financially vulnerable nationals even. Also by the time units are built up, demand may have increased to exceed supply yet again.
In Reference to the actions taken by the Housing Foundation of the Islamic Revolution, which as the administrator for developing villages and constructing urban residential units, , signed an MOU, a memorandum of understanding, with the Welfare Organization a year and a half ago. The two were to construct 20,000 housing units for persons with disabilities, breadwinner women, and the underprivileged under the Organization’s guardianship and residents of rural areas with a population of less than 25.000 people.
Loans, to the tune of 250 million Rials (about $6,000), were to be granted to each family. And the two entities were to provide some 150 million Rials (nearly $3,500) as non-repayable loans to each family. Those sums today however are a lot less alluring. They stand respectively at 1136 dollars and 682 dollars.
Today, in Iran’s economy, the concern with the housing market lies in the housing supply. For whatever reason, in recent decades, the housing supply and demand has not been balanced. If over the past ten-year period, on average 6-7 million marriages have taken place, equal housing has not been provided. We are not considering the supply of existing unoccupied domiciles; rather we mean a new housing supply. So you can increase supply and the prices will decline.
The provision of housing is often a matter of life and death, such as after a nature disaster has struck, just as it did on 2th November 2017 when the western province of Kermanshah was hit by a massive earthquake. This left 70.000 people homeless and exposed to aid pouring in by the nation.
Two years later, in January 2019, the Housing Foundation was proud to announce the completion of 23,000 housing units in the quake-stricken region, or 90 percent of the retrofitting and reconstruction.
Another measure announced in July, was that the Government had rolled out Security Deposit Loans for Home Renters. CBI Governor Hemmati explained: a total of 200 trillion Rials ($915 million at the time) out of the 750 trillion-Rials ($3.43 billion) would be allocated to low-income renters as security deposit assistance at the lending rate of 13%. And about 600,000 households were found to be eligible for the loan.
The government appears serious in taking its measures to help tenants face off exorbitant price rises. The National Coronavirus Headquarters issued a directive to cap rent increases.
Corona related rules
By way of that guideline, a landlord may not terminate a lease during the corona crisis, until three months after the Health Ministry declares the end of the outbreak.
Also, tenancy agreements signed as of June 29 may not increase rents by more than 25% in Tehran and 20% in other large cities.
As long as Iran’s money stock is increasing, we cannot expect any decline in housing prices unless the government adopts a mechanism to pare down the money stock. In simpler terms, if the Rial is strengthened we can expect the housing prices to decline just normally and not in real terms. Therefore the most influential factor in the housing market is the money market.
Hadi, Haqshenas, Economist
At present 6.6 million households or 30.7% of the country’s 18.1 million urban households live in rented homes, according to official statistics. But despite the best of efforts taken, to take care of them, the biggest problem is the ever-increasing gap between wages and the actual inflation rate of around 35 percent.
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