Housing market future?

The housing market is likely to pick up in the spring of 2016 after parliamentary elections, Head of Tehran Association of Realtors said.

It is, however, expected to remain stable up until the end of the current fiscal  year (ends March 20, 2016) as homebuyers await a semblance of “social and political stability”, Hesam Oghbaie told Eghtesad News.

“The upcoming parliamentary elections could help stimulate the economy and that is why the horizon seems promising for the sector.” Majlis elections are slated for Feb. 26, 2016.

He urged the authorities to diversify housing plans by promoting installment sales, better lending and barter deals which could help end the prolonged stagnation in the market.

Home installment sale, a proposal by property developers “could drive the housing market if lending rates are lowered and repayment periods are extended”, the news agency quoted him as saying.

Recalling the decline in the number of construction permits issued in the first half of the current Iranian year, Oghbaie warned that “This could disturb the balance between housing supply and demand” in the not too distant future.

As a solution he called on the government to offer tax breaks to foster investment opportunities in the sector and said “Raising taxes at a time when the housing market is grappling with recession could be catastrophic.”

He endorsed recent reports suggesting that housing prices have touched rock bottom, and said, “The average price of one square meter of a housing unit in Tehran city is at or around 41 million rials ($1,138) and in Tehran Province 13 million rials ($ 361). The figure at the country level stands at 13 million rials which is a clear indication that property prices have reached the lowest level in large cities.”

However, he added that in certain regions where supply has long outstripped demand further price decline is likely.

Meanwhile, the official expected housing rentals to slide by 10% in the coming months since in winter people tend not to move house.

 Value Creation
Meanwhile a housing expert opined that the market will not improve unless efforts are focused on creating value in the sector.

“Added value and growth should increase in the housing sector in order to make investment feasible,” Farhad Beizaie told Tasnim News Agency.

There are two ways to create value in the key sector and boost consumer confidence: cash flow and demand. “Firstly, by improving housing index which in turn results in sectoral inflation; second, by increasing construction and reducing costs.” The latter can neutralize likely inflationary pressures that normally threaten homebuyers.

He stressed that lower costs would stimulate demand and new constructions and said “One mandate of the government is to provide land that covers a substantial part of the cost of a home. Unfortunately governments have done nothing special in this regard during the past several years.”

Beizaie argued that since the government has a vested interest in the property market, “It is reluctant to take any measure that is likely to reduce the final price of land.”

The Rouhani administration has offered some loan schemes to pull the housing industry out of the doldrums. The measures are good but not enough.

As most mortgages barely cover 12% of the total price of a housing unit in Tehran and other big cities, they have done little to revive the industry seen as a major driver of the economy in most countries, including the developed world, with the difference being that in those countries loans are easy to come by and cover close to 90% of the cost of a house.

By Financial Tribune