50 Percent Increase in Housing Prices

According to Esr-e Sazeman news agency, citing Jam News, home ownership, which was once a goal for a large segment of Iranians in the not-too-distant future, has become a distant dream in recent years. In other words, after a period of euphoric price growth, the market boom has been replaced by stagnation, though this stagnation has not led to falling prices. As a result, the housing market has long been limited to single buyers, and the queue of demand has become a memory. On the other hand, sellers either prefer to wait in hopes of price growth, or if they need to quickly convert their property into cash, they cannot find buyers.

When you visit real estate agencies, their consultants have detailed and extensive lists of sellers waiting for buyers, but this wait could last for months. If you are a buyer, the first question from real estate consultants will be: can’t you increase your purchase budget?

The result is that currently most buyers have limited budgets and hope for falling prices, while sellers are unwilling to retreat with hope that the market will soon recover.

Meanwhile, Central Bank statistics show an increase in the number and volume of transactions in the months that have passed this year, which, given the spring and summer buying season, may not seem so unusual.

But has the housing market really entered a period of recovery after a long time, meaning demand for purchases has increased or sellers have slightly retreated from their positions?

Everyone is Looking for a Home

Apart from the story of buying and selling, the rental and mortgage market has also been busy these days. The reduction in bank interest rates has prompted many homeowners to cut mortgage amounts and increase monthly rent, creating new problems for renters. This is despite the fact that by a rough calculation, the reduction in interest rates should lead to a reduction in rent equivalent to every one million rials of mortgage.

Given all this, forecasting the housing market in the coming days has become a concern for many people, and it is unclear exactly where this path is heading.

Hossam Oqbaiee, head of the real estate consultants association, hopes that the shadow of stagnation will diminish from the housing market in the second half of this year and at most next year, although in the rental market, the course of developments will likely not be welcome, at least for tenants.

He believes that the formula of 30,000 tomans monthly rent in exchange for converting one million tomans of mortgage has become customary among people and will not change soon with circulars and regulations, first because the assumption that landlords deposit interest-free loans received from tenants in banks is not easily provable, and second, any change should be made at an opportune time.

The Effect of Interest Rate Reduction Reaches the Housing Market Next Year

According to him, statistics over the past 50 years show that those who wanted to collect rent either had an income-generating approach or did it to make a living. Therefore, landlords’ preference for receiving more rent was over receiving downpayment money, which in recent years has involved calculating bank interest in rental contracts, and such behavior was not previously seen. On the other hand, those who mortgage their homes and receive downpayment are mostly people who don’t have enough money to buy a house, so they provide part of the transaction price through receiving a mortgage. However, the fact that a homeowner mortgages his house and deposits the money in a bank to earn interest is so rare and limited that it cannot be considered as a standard or criterion for rent growth at all.

Oqbaiee says: considering the resilient nature of the housing market, the impact of movements in other economic sectors such as bank interest on the rental market is long-term and takes at least a year to feel the impact of reduced bank interest in the housing market. Therefore, before we see this effect, we should not make hasty decisions. Another point is that the reduction in bank interest rates coincided with the main season for tenants’ relocations, and this has increased sensitivities in this regard. In other words, perhaps if the interest rate reduction had occurred in the second half of the year, it would not have caused such sensitivity in the housing market and would not have created concerns for tenants and owners.

Despite all that has been said, at least the Ministry of Roads and Urban Development is optimistic about the future of this market, including both sales and rentals.

Recovery Returns

Hamed Mazahriyeh, Deputy Minister of this ministry, says housing prices have decreased 30 percent compared to three years ago, and it is expected that the housing market will gradually recover without sudden shocks to the market.

According to him, those who had deposited their money in banks for savings have started thinking about investing in other sectors due to the reduction in bank interest rates. This is while housing prices have had a 5 percent increase compared to a few months ago, but this 5 percent increase in housing prices is below the inflation rate.

Regarding the calculation of one million equivalent to 30,000 tomans in the matter of rents, Mazahriyeh also says that this ministry does not believe in punitive measures for the housing market, and there is no possibility of reviewing individual contracts one by one. Thus, as long as homeowners do not recognize the reduction in interest rates, the reduction in calculating rents based on one million equivalent to 30,000 tomans will not be practical.

As a result, the scissors and razor in the housing market are still in the hands of homeowners, whether they are sellers or intend to rent out.

Decreasing Purchasing Power Increased Demand for Rentals

Hasan Mohtasham, head of the Association of Housing and Construction Developers of Tehran Province, also believes that the reduction in bank interest rates currently has no meaningful relationship with rental rates, and determining rental rates is not in the hands of the government but is subject to the free market, namely supply and demand.

He emphasized: given the dominance of stagnation in housing transactions, which indicates a decrease in people’s purchasing power, demand for renting increases, and the increase in demand to meet housing needs through rental naturally leads to an increase in rental rates.

The head of the housing developers association in Tehran, stating that according to statistics, 850,000 marriages are registered annually, and the amount of housing produced will by no means meet this need, said: therefore, these people resort to renting to meet their needs, and this leads to an increase in housing rental rates.

This housing market expert reminded: the formula of reducing 30,000 tomans monthly rent in exchange for converting one million tomans of mortgage, given the price of the property in the market, does not have economic justification for the owner. Therefore, in the best case scenario, the owner and tenant might agree to reduce the rental rate by 3 percent in the market, considering the 3 percent reduction in interest rates.

Stating that the housing market is experiencing the fourth year of its recession, he continued: given the lifting of sanctions and interactions between Iran and other countries, until late this year we will witness recovery in the housing market and consequently a gradual increase in prices.

Mohtasham reminded in another part of his remarks: if the government prevents an influx of capital into the housing market during the recovery, we will witness a tsunami of price increases in the market, so it is predicted that prices will increase by up to 50 percent in the market.

He reminded: over the past three years, the housing market has been in recession and this recession continues, and the housing market has faced an accumulation of goods. This has caused employment to be questioned, and many workers in this field have faced unemployment.

The Government Cannot Control the Rental Market

Iraj Rabar, a member of the Association of Housing and Construction Developers of the Country, in a conversation with “Omid Iranians”, regarding the mandatory reduction of rental rates in proportion to bank deposit interest rates in the housing market, stated: considering that rental rates in the housing market are determined according to supply and demand, therefore mandatory determination of rental rates in the market cannot be responsive.

Stating that the owner and tenant should reach an agreement on rental rates, he continued: due to the decrease in housing supply, landlords increase rates in proportion to market demand.

A member of the Association of Housing and Construction Developers of the Country, stating that rental rates have an inverse relationship with stagnation in the market, added: if recovery returns to the housing market, we will witness a decrease in rental rates in the market.

This housing market expert, referring to the increase in rental rates in the market, also reminded: rental rates have increased by an average of 15 to 20 percent in the market during the current year. This is while landlords every year, based on the demand in different areas, proceed to increase rental rates in the market.

He added: the psychological atmosphere that currently exists in the country, especially in major cities, indicates expensive housing in the future, and for this reason, people are encouraged to rent housing, because experience has shown that the closer we get to school closures, the more rental housing prices show upward growth.

Source: Parsik