EghtesadOnline: The decline in prices of homes located in districts one, two, three and six, which are affluent neighborhoods of Tehran, have been sharper than those in other districts of the capital city, says Mahmoud Mahmoudzadeh, deputy minister of roads and urban development.
“Home prices in these four districts have decreased by 20% on average over the past month, following the appreciation of the local currency rial’s exchange rate against foreign currencies,” he was quoted as saying by IRNA.
“Speculative practices in the housing sector are often focused on districts one and three, and then two and six. These districts are highly influenced by developments in other markets. Prices of land, construction materials and services are the main factors affecting home prices. As no price decrease has been reported regarding these three factors, the decline in home prices of late can be attributed to those from outside the housing market.”
Mahmoudzadeh noted that neighborhoods that are attractive to investors have experienced significant price declines over the past month, whereas other areas witnessed a lower price decrease, nearly 3-10%.
Mostafa Qoli-Khosravi, the head of Tehran Association of Realtors said home prices have recently declined by 10% over the past three weeks, as supply has increased.
“The Iranian month ending Nov. 20 saw 5,072 home deals concluded in Tehran, indicating a 48% decrease compared with the previous month, but a 12% growth compared with the same month of last year. The number of rental agreements in Tehran registered at the state-run Tenement Management Information System [operated by the Ministry of Roads and Urban Development] stood at 16,583, registering a 10% decline month-on-month but a 66% increase year-on-year,” he added.
Over 44,339 sale contracts were finalized across the country during the month under review, indicating a 31% decrease month-on-month but a 67% growth year-on-year. A total of 133,096 lease agreements were signed across the country, during the month under review, posting a 9% decline month-on-month but a 273% rise year-on-year.
“The decline in the number of deals is indicative of real-estate buyers’ expectation of future house price depreciation and sellers’ resistance to reduce prices,” Qoli-Khosravi said.
“The country’s economic prospects are positive, as the foreign currency exchange rate is declining and asking home prices have decreased. Residential properties with inflated prices don’t have any buyers.”
Currency Appreciation and Real-Estate Prices
Prices of construction materials are pegged to the value of the dollar but the decrease in foreign currency conversion rate won’t necessarily lead to the fall in the prices of building materials, says Alireza Sarhadi, a housing analyst.
“Fresh analyses of real-estate market speak of a decline in home prices following the appreciation of the rial against the dollar. However, the impact of the decrease in the value of dollar would manifest itself in the form of recession in the real-estate market. During the recession, it is the number of deals that decreases rather than prices; real sellers or investors who need their money would compromise for low prices,” he was quoted as saying by the news outlet of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
“Economic stability is the key factor that can pull the housing market out of recession. When construction maintains its growth and real-estate development is viewed as a career on its own, buying and selling of land would improve. When there is economic stability, builders won’t worry about whether they would be capable of selling their properties. Under current conditions and given the low level of predictability of economic changes, builders are reluctant to invest in the housing market.”
Hossein Vakili, an economic analyst, told IRIB News that the housing market is influenced by the general economic climate and lack of investor trust at the micro- and macro-economic level.
“The housing market has been affected by irrational fluctuations, regulations and pricings just like other markets, namely stocks, forex and gold coin. Mismanagement is to blame for the turmoil that swept the housing market, as well as related markets such as metals, cement and steel markets over the past year. As such, home prices increased by 120% in a single year,” he said.
“The rise in prices was expected, considering the 7.5-fold increase in money supply from 4,000 trillion rials in the year ending March 2014 to 30,000 trillion rials [today].”
Vakili said the housing market will see positive developments if Iran’s international relations improve. The rush for buying will turn into a rush for selling and prices will drop.
Performance of Tehran’s Districts
Latest data published by the Central Bank of Iran show that the average price of each square meter of a residential property in Tehran during the eighth month of the current fiscal (Oct. 22-Nov. 20) stood at 271.93 million rials ($1,045) during the month under review, showing a surge of 118.2% over last year’s same month.
Home prices in the capital city increased by 1.8% compared to the seventh month of the current year.
The distribution of dealt properties shows that among Tehran’s 22 districts, District 5 grabbed the highest share of total deals at 12.1%. It was followed by districts 10 and four with a share of 8.6% and 8.4%, respectively.
All-in-all, 10 districts (five, 10, four, two, 14, seven, eight, 15, 11 and one) grabbed the lion's share of the deals at 70.4% with the remaining 12 districts holding a 29.6% share.
Among Tehran's 22 districts, District 1 registered the highest average home price of 550.1 million rials ($2,115) per square meter. District 18 offered the capital city's cheapest homes with an average per-square meter price of 120.4 million rials ($463). The aforesaid numbers show a respective increase of 134.3% and 99% YOY.
Residential units with an average price range of 140 million rials ($538) to 160 million rials ($615) per square meter were the most popular in Tehran during the Iranian month under review, as they grabbed an 8.6% share of all deals.
From the total number of deals, 62.1% belonged to homes cheaper than the average per-square meter price of the city.