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EghtesadOnline: The Housing Savings Account scheme, the mortgage loan program of the government-owned Bank Maskan, once acted as a stimulus for the housing sector, but not anymore.

The HSA initiative was launched more than three years ago in June 2015. Its target applicants are mostly first-time prospective homebuyers from middle-class backgrounds and people living in old urban areas. It was aimed at increasing home ownership among youth population.

The scheme requires applicants to make an initial deposit (400 million rials or $3,508) and wait out the one-year maturity period for credits with a ceiling of 800 million rials ($7,017), plus the depositor’s down payment, in the capital Tehran. 

In towns with a population of over 200,000, the cap on the loans is at 600 million rials ($5,263). Buyers in towns with a population of less than 200,000 can apply for a maximum 400 million rials ($3,508), Financial Tribune reported.

When the scheme was first launched, the loan's interest rate was set at 14%. In February 2017, after a directive by the Money and Credit Council, they were reduced to 9.5% in general cases and 8% for those who wanted to buy a home in rundown parts of the cities. These interest rates make HSA loans cheapest in the country. 

HSA was supposed to absorb 66.76 trillion rials ($585.61 million) from the time of its establishment until its third anniversary last July. The volume of deposits belonging to the initiative during this period reached 69.90 trillion rials ($613.15 million), indicating that 104% of the initial target were realized. 

It is said to be a self-sustaining fund since all the resources it absorbs are redirected to boost the financial strength of Bank Maskan for it to be able to support prospective homebuyers through cheap facilities. It was initially designed to attract 94,000 deposits whereas up until last year, as many as 300,000 applicants made deposits with Bank Maskan.



Does It Make Financial Sense?

According to a report by the Persian weekly Tejarat-e Farda, loans granted under this initiative used to cover 40% of the costs of buying a home in Tehran and almost 100% of the prices of homes in cities like Ilam. 

But given the sudden depreciation of the local currency and its domino effect on different markets, including the housing market, and the significant rise in prices of homes, particularly in Tehran, do investing in this program and taking out its loans make financial sense?

Loans granted under HSA initiative currently cover a meager 20% of the average prices of homes in Tehran and this has driven up full withdrawal rates to 13% in the current year (March 2018-19). 

Some experts warn that the change heralds the end of the role HSA played in reviving the housing sector in the past three years, unless reforms are made.

Increasing the loan limit ceiling and the purchasing power of first-timers seems to be one of the most effective mechanisms to enhance the attractiveness of HSA loans. On the minus side, the rise in installment payments scares off a significant group of applicants and raises the chances of defaults.

There's also the inflation factor roiling HSA's prospects. With runaway inflation battering the country, home prices too are increasing at a fast pace, which means those in need of buying homes will have a major difficulty planning for their future in taking out loans.

With rising prices, HSA loans will cover a lower share of the total price of homes on sale.

According to the Statistical Center of Iran's latest report, the goods and services Consumer Price Index registered a year-on-year increase of 37.4% in the Iranian month Azar (Nov. 22-Dec. 21) compared with the similar month of last year. 

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 151.7 in Azar, indicating a 2.6% rise compared with the previous month. The reports also show the CPI Index in the 12-month period ending Dec. 21 increased by 18% compared with last year’s corresponding period. 

Another drawback of the HSA scheme is the underwriting process. Although Bank Maskan puts a lien on the property being purchased, some of its branches demand extra guarantees. The adoption of a uniform standard when it comes to the guarantees applicants need to provide would increase these loans’ attractiveness. 

Observing the documentation guidelines is also difficult for many applicants. 

First-time prospective homebuyers have to purchase homes built under 15 years to become eligible for HSA loans. This is while a considerable number of homes are older than 15 and better built than the new ones. Relaxing the housing age requirement would reduce the motivation of owners of old properties to tear down and rebuild their homes and instead increase the appeal of renovation. 



Gripped by Recession

Iran's housing market has been gripped by recession in recent months, as home prices rise and the number of deals declines.

According to the Central Bank of Iran, only 6,814 homes were sold in Tehran, which holds the largest share of home deals made in the country, in the ninth month of the current fiscal year, signaling a year-on-year decrease of 61.7% compared with the 17,776 deals in the corresponding month of last year. 

Furthermore, the number of property deals declined by 0.6% compared to the preceding month.

The average price of each square meter of a residential unit in Tehran stood at about 95.5 million rials ($834) during the ninth month, showing an annual surge of 91.8% compared to last year. Home prices in the capital grew by 4.1% compared to the about 91.7 million rials ($801) in the eighth month of the current year.

The trend of rising prices in tandem with the falling number of deals in Tehran emerged from the third month of the current year that ended on June 21, when prices grew by 45.8% and deals fell by 3.1% on an annual basis. It has only exacerbated in the following months.

During the ninth month of the current year, residential units with a lifespan of 5 years grabbed the highest share of the total of 6,814 deals at 43.4%, down by 5.4% compared with the same month of last year. 

The lost share was added to units six to 10 years old and homes ranging from 16 to 20 years, which registered a 16.1% and 15.4% share of total deals. 

The share of deals involving homes above 20 years old has also improved to reach from 9.8% of the total deals last year to 11.2% this year, but they still had the smallest share of total deals in Azar. Homes with a lifespan of 11 to 15 years posted a share of 13.9% of total deals.

CBI figures show that Tehran residents once again favored smaller and cheaper homes, as their purchasing power has significantly dwindled in recent months due to the massive price hikes.

Relatively cheap residential units with an average price range of 50 million rials ($436) to 60 million rials ($524) per square meter were the most popular in Tehran during the ninth month, as they grabbed a 9.8% share of all deals. 

They were followed by units priced at 60 million to 70 million rials ($611) and 40-50 million rials ($349-436) per square meter with a respective share of 9% and 8.9%. 

From the total number of deals, 56.7% belonged to homes cheaper than the average per-square meter price of the city (95.5 million rials or $834). 

Residential units with an area of 50-60 square meters registered the highest number of deals with a 14.8% share of total deals. Units with an area of 60-70 square meters and 70-80 square meters came second and third with shares of 14.5% and 12.3% respectively. 

All-in-all, units with an area of less than 80 square meters had a 55.7% share of total deals.

CBI data further show that Tehran's homes worth between 3 billion rials ($26,212) and 4.5 billion rials ($39,318) were the most popular with a 17.2% share of total deals. Homes with price tags of between 1.5 billion rials ($13,392) and 3 billion rials (26,212) and between 4.5 billion rials (39,318) and 6 billion rials ($52,424) came next with a respective share of 16.6% and 10.9% of total deals. 

Collectively, residential units valued under 6 billion rials had a 47.3% share of total home deals in Tehran during the ninth month of the current year.


Iran Bank Maskan Housing Sector Housing Savings Account Credibility mortgage loan