mortgage ceiling

Will the new mortgage plan deliver?

The recent decision by Money and Credit Council to raise the borrowing ceiling for first-time buyers in Tehran to 800 million rials ($24,000 at market exchange rate) and 600 million rials ($18,000) in other cities has been hailed by the government as a landmark step to stimulate the struggling housing market, but most analysts have sounded skeptical about any real benefits.

As part of the stimulus package, the amount of housing loans in smaller towns would also increase and all private and state-owned banks are now free to grant home loans, in addition to the traditional mortgage provider, Bank Maskan.

A primetime televised debate on Friday night brought together analysts and government officials who had diverging views on the issue, IRNA reports.

Ali Chegini, a senior official at the housing ministry, dismissed claims that the increase in mortgage ceiling is only a catalyst to push up house prices, saying, “To truly address the market woes, one should only listen to the voice of mortgage recipients.”

He said: “We believe that with this very policy of granting mortgages to people, many people will eventfully become homeowners. This policy, of course, has been the norm in the past and is nothing new, so others should not oppose a plan aimed at improving the general welfare of Iranians.”

“Not only the government is not after stoking inflation and a housing price hike, it also opposes the accumulation of deposits in banks. Every economic policy has its upsides and downsides, and one should wait to see the real effects of this decision and then attempt to fix its shortcomings.”

Chegini, however, acknowledged that if the home loans fail to shield low-income households, “high inflation” and “price hike” would afflict the housing market in a matter of years.

Inflation Factor
Farhad Beizaei, policy manager at Iran University of Science and Technology weighed in, contending that the government must keep on with its plan to curb inflation.
He said, however, since there has been a deep recession in the real estate market, any stimulation plan could fuel inflation. “Even though Bank Maskan and the ministry of roads and urban development have backed the new mortgage plan, the inflationary effects of the plan are known to all,” Beizaei warned.

He further said the inflationary effects of the package could undermine the purchasing power of households in town, adding that mortgages have never led to a boom in the housing market in the past.

Too Little, Too Late
A member of the parliament’s committee on civil affairs drubbed the loan package for the measly sum it provides, saying the loan could not even buy “a pantry in an uptown neighborhood” or “a room in a downtown neighborhood.”

Alireza Khosravi stressed the importance of home ownership for people and complained that it had become an elusive goal for Iranian families. “Many banks are even refraining from offering the 30-million-rial marriage loan. How can we expect them to provide home loans?”

Composite Planning
A board member of Bank Maskan argued that in order to remedy the problems, the government has to advance both supply and demand policies simultaneously.
Abolghasem Rahimi said housing policies take time to show their effects and to see the full impact of the mortgage plan, a period of 18-24 months is needed. “On the demand side, the effects are immediately felt since the money flows right away, so if before the demand starts rising there is enough supply then we can see the impacts readily,” Rahimi maintained.

The banking official wished that the debate had taken place after the plan came into effect in the near future so that viewers could assess the situation better. He also forecast that the plan would prevent a surge in home prices in the near term. “If we had deferred the decision until 2016-17, then a price hike would have become inevitable.”

By Financial Tribune