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EghtesadOnline: Home prices in Iran are bound to jump if the US dollar’s rally against the rial were to continue in the domestic market, the newly-elected head of the Tehran Association of Realtors announced.

“If the situation continues, the housing market will experience significant surges in prices unless the government takes measures to control the rate of foreign currencies and speed up the Social Housing Project,” Mostafa Qoli Khosravi was also quoted as saying by the official news website of Iran Chamber of Commerce, Industries, Mines and Agriculture.

Last week, the rial was quoted around 42,000 to the dollar to hit a record low against the US currency in Tehran’s foreign exchange market, in keeping with its customary surge in December.

The official predicted that in the last quarter of the current fiscal year (ending March 20, 2018), home prices will rise a bit faster than the country’s average inflation rate, but the market won’t witness any significant leap in prices till the yearend, according to Financial Tribune.

“As the exchange rate of US dollar has crossed 42,000 rials, the value of people’s deposits in banks will automatically decrease. Hence, investors will shift their activities to the housing sector,” Khosravi added.

The Central Bank of Iran has been walking a fine line between letting the rial weaken alongside the inflation rate and keeping the currency market from overheating. However, the recent enforcement of rate cuts and the surge in forex rates have raised the alarm about the flight of bank deposits to other markets such as gold and foreign currencies, stoking inflation.

 A Rosier Picture

The realtor noted that when he discussed the situation of the housing sector with a number of builders, they are optimistic about the key sector.

In light of the fact that each year, the number of newly built residential units is 600,000 less than demand, the official was asked whether this lack of supply would have inflationary effects on housing market.

“The price of residential units depends on two factors, namely demand and the country’s inflation rate. During the eight years of the former administration, the government was constantly worried about home price rises so it tightened its grip on the market. But as we look back at 2012, when the value of US dollar in Tehran’s foreign exchange market tripled in a short time, it was followed by home price hikes,” he added.

Khosravi noted that the administration of President Hassan Rouhani also had the same worries when he started his first term four years ago but it managed to control the market by promising affordable housing through the Social Housing Plan, but this measure will not work in the long run.

Social Housing Plan is a subcategory of the government’s Comprehensive Housing Plan that incorporates programs to provide low-income groups and those covered by state charities like the Imam Khomeini Relief Committee and State Welfare Organization of Iran with affordable housing.

 “Despite the fact that the average inflation rate in our country hovers around 10%, the housing sector’s inflation rate cannot be expected to not go any higher,” he said.

 As Khosravi underlined, there is a shortage of 2 million residential units in the country which, if not resolved quickly, would lead to a notable surge in home prices.

“A lot is happening in the housing sector at the moment. The value of US dollar has reached 42,000 rials and it probably will even go higher and since it is the reference currency for most economic activities, there is a good chance that home prices will surge through the next Iranian year (starting March 21, 2018),” he concluded.

 

Tehran Home Prices