Iran property boom likely to continue

Iran property boom likely to continue

Iranians buy houses with easy loans, but some are still priced out of market

 

(TEHERAN) Negar Ehteshami just paid the equivalent of US$6 million in rials in cash for a luxurious apartment. But it is not in New York or London. It is in the capital of the Islamic Republic of Iran.

 

‘I am a millionaire because of this 300 square metre apartment,’ said Ms Ehteshami, a 56-year-old interior designer from a rich Iranian family who has always lived in an affluent northern Teheran neighbourhood.

 

‘But nothing else in my life resembles the life of a millionaire,’ she said, moving her Hermes handbag out of the way as she closed the window of her apartment. ‘Here I feel (as though) I am inside a helicopter. I can see the whole city.’

 

Hers is a tale with echoes in much of the West: a house price surge fuelled partly by easy lending. In Iran, however, people are still being priced out of the market.

 

A property boom in the world’s fourth-largest oil producer has been powered by President Mahmoud Ahmadinejad’s economic policies since he was elected in 2005, economic analysts say.

 

Property prices surged by more than 100 per cent in 2007, after rising by about 65 per cent in 2006 and more than 50 per cent in 2005. Some economists see a huge scope for the market to keep rising as, with interest rates below inflation, Iranians seek a store of value in property.

 

‘The high prices might be a bubble,’ said economist Reza Abdizadeh. ‘It might be fake and not logical. But it is a fact. Historically, housing prices have never dropped in Iran. The government might be able to stop prices from rising but will not succeed in lowering them.’

 

Shortly after Mr Ahmadinejad was elected, his government came up with a plan for ‘quick-impact loans’, handing out substantial sums to individuals and companies with plans to create jobs in Iran where the official unemployment rate is above 10 per cent.

 

This stimulus is also a textbook trigger for inflation and alarmed many, including the head of Iran’s Central Bank, Tahmasb Mazaheri.

 

The government has said those who have used the money to invest in property and not for creating jobs will be banned from obtaining loans for five years.

 

Criticised by politicians and economists for his populist economic policies, Mr Ahmadinejad cut bank interest rates despite strong liquidity growth last year. They are now well below inflation, currently above 20 per cent a year.

 

‘When there is no other opportunity to invest, and interest rates of banks are around 16 per cent, naturally money flows to real estate,’ said Ali Afshari, a real estate agent.

 

The government has tried unsuccessfully to rein in prices. With one million prospective owners coming on to the market each year and Iran capable of building only 600,000 new homes a year, conservative politician Mohammad Khoshchehreh said there was a shortage of 1.6 million homes.

 

Hamid Taghavi, a government employee with two children, sold his 60 square metre apartment in Teheran to pay for his son’s wedding in 2007. It has since become difficult for him even to rent a smaller apartment.

 

‘I wanted to buy a smaller apartment with the rest of the money, but it seems at the age of 55 I will be homeless in less than two years,’ he said.Stoking the fire, some real estate brokers and analysts forecast a ‘super jump’ in prices in the coming months amid mounting international pressure on Iran to suspend its nuclear work. The UN has imposed three sets of sanctions on Iran over its disputed nuclear programme. In addition, Washington has blacklisted three of Iran’s main state banks and, under US pressure, European banks have also pulled out.

 

Foreign capital has played a large role in the market’s success, because of money repatriated by Iranians living abroad, which analysts believe has increased since Iran was first hit by UN sanctions in 2006. — Reuters

 

Source: Business Times

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