This is a guest blog post covering some topics on Iranian housing, it was contributed by MNA.
The norm in Iran for valuing any real estate is by location and meterage of that location so for any individual trying to see what the market is for buying or renting, all you need is to look at any particular area and there are plenty of ways of cross checking and seeing if the price is right.
Looking at pricing via advertisements helps, as does speaking with the local estate agents who will tell you the going rate before you start your search so that you would have a good idea of what you can afford and where you can live.
The Local currency is very volatile and everyone is worried of that, but in reality all the trading is conducted with USD or Euro so no matter what happens, when you are trying to price an item it is always reflected on the FX rate, as all expensive ticket items would have an important role in the economy.
The Banks were giving huge Interests on Deposit holders and now that economy is slowing down in other sectors, banks have reduced their interest rates as this is a mechanism to stimulate the economy again. The Iranian central bank is not linked to any other Central bank because of the sanctions that it was imposed on Iran but since more of the frozen assets and cash which had been held with the western powers is freed up it will flow back into the economy making it even more expensive to buy or rent in Tehran.
Again when we look at what has been happening in the last 10 years with the news and the sanctions , it added more reason for the Iranians to look for a secure place to invest their money and where better than real estate.
As mentioned previously right now for purchasing a property in Tehran, Farmaniyeh is one of the most sought after locations to own your own property, prices are even as high as $15,000 per square meter and when you multiply that into apartments of 750 sq. meter the price is beyond belief. It is purely driven of the fact that cash is available, and leaving the cash in the bank and the uncertainty of the currency pushes the buyers to invest and spend their cash.
The fact of uncertainty and security issues in the region makes the relative stability of Iran a more desireable place to live in, as we can see from the situations in neighbouring countries, like Afghanistan, Pakistan, Turkey, Syria, Iraq and so.
Wealth not being distributed evenly:
The system of borrowing from a bank to purchase a home like what we are used to in the west is something of non-existence in Iran as most properties are just purchased cash not with borrowed money. Therefore is you are one of the lucky people to be born in a family that has been owning a home from generation to generation, then you are very lucky and if you are not able to be part of that system, you will always have problem as there is no easy fixes.
Iran is not a socialist country even though after the revolution they claim to be one but in reality it is a capitalist country like the United States of America.
Under the previous presidency’s government, they tried to build these massive high scrapers which were allocated outside of the greater Tehran and they were built as satellite cities and looking back now we can see all the problem that were never forecasted, like hospital and school and all major amenities which would have been provided with these but it meant that even as people are pushed out of the city because of the high prices, they still they need to commute to Tehran to source their needs and wants, all the major universities are based in the heart of Tehran making it even more difficult for people to live in suburbs where it’s cheaper.
Size of the new accommodation:
As prices are rising so the cost and therefore developers are coming up with smaller accommodation which is making a newly-wed couples live in a very small and confined accommodation which is not suitable for bringing up your kids and having a big family.
Local Currency and Gold:
After real Estate the second biggest thing on Iranian people is Gold as historically, culturally and so on generation after generation, everyone is always given a gold coin when you get married or when you are graduating from college or some important date is to celebrate, knowing that you money is always depreciating and the price of gold is always either set or it will rise and you have nothing to worry about and also the fact that when you need to cash the gold it is as simple as walking into any gold shop which always around a corner and they will buy it off you for the daily price rate and of you go with your business of the day.
As the house prices are increasing year on year and people are being forced to sell their home and developers turn them into apartments, if you are an investor and would like to get a good return from your rental investment, you value your property with a local auctioneer and usually a rule of thumb is that fifth of the full property value is used for the security deposit towards the rent, and if the tenant cannot afford that amount, then he pays a lesser amount of the deposit but has to pay the balance in rent per month to make up the shortfall,
So if the full deposit is paid the investor uses that capital to purchase another business, property or place it in bank Deposit with a high interest rate as an income and whatever is the shortfall and the tenant cannot pay the full deposit, then the formula is calculated by the negotiating auctioneer who is letting the property so that an agreement is made up for the duration of the 12 month calendar and such amount of rent is payable which is not going to be less that the bank interest rate of the day.