What’s the real cause of the house price rise in Iran?

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Property, something you’re told as a child will only ever go up in price in Iran. Unlike the rest of the world this has indeed been true in Iran specially in the last 15-20 years with steep rise in prices of property as Iran’s economy was ever expanding.

Why has it become such a hot topic now?

In the past property was something most Iranians could afford with savings and loans from family and the bank, however these days it’s very difficult to get your foot on the property ladder.

Iran income to property price ratio:

The below average property in Tehran costs 2 milliard Toman, by current open exchange USD rate that’s about $75,000 to buy a property in Iran. The average income of a working individual in Tehran is roughly 3.5-4 million Toman per month, that’s almost $150 per month with the open exchange rates today. It will take the average person 41 years of none stop saving and not spending any of their income in order to buy a average size property in an average or below neighborhood of Tehran.

Compare this to some top capitals in the world.

London, Average house price is 530,000 GBP, with an average salary of 37-40,000 GBP. The Average Londoner can buy a property in 13 years if they did nothing but save up their income.

In New York the average house price is 600,000 USD, with the average salary of 50-58,000 USD. The Average New yorker can buy a property in 11 years if they did nothing but save up their income.

In Tokyo the average house price is 610,000 USD, with the average salary of 40,000 USD. The average Tokyo resident can buy a property in 15 years if they did nothing but save up their income.

Why have Iran house prices gone up so dramatically?

This narrows down to several factors:

Banks

Unlike most of the world where banks hold their assets and reserves in gold, Iranian banks hold property, land and business shares. Iranian banks are in fact Iran’s largest commercial land owners grabbing land whenever they see the opportunity of profits or forecast upcoming high inflation. It’s in the banks interest not to lose money on their assets so keeping prices forever rising, makes commercial sense these entities. Tying this rise to the price of USD vs Iranian Rial again appears to have been a banking strategy in 2018.

This means property values automatically increased as the USD increased in value vs the local currency, however the property prices never decreased in value despite Iran’s hard work and effort to control the currency market and reduce the value of the USD vs Rial in 2018/2019. This roulette wheel property market in Iran where property prices at one point where being valued from $50,000 to $125,000 for the same property in the matter of 6 months depending on the exchange rate of the USD going up and down, still persists today.

Iranian people themselves

In Iran you’re told as a child, buy a house, the price always goes up! Naturally when sanctions hit Iran in 2018, the property prices began to rise as Iranians were seeking to invest in safe assets which were gold, foreign currency and property. The sudden rush to buy property and land in Iran took everyone by surprise and soon many people were jumping on the hype and band wagon, thus began the hyper inflation of the Iranian property bubble.

It was common for homeowners to check the price of the USD before giving you a price for their property, no one wanted to lose money, if your property was worth $100,000 pre sanctions you wanted to maintain that USD value so slapped on the Iranian Rial equivalent of that price on your house advert or more. Prices started becoming dream like with some luxury properties in Tehran being put for sale for upwards of $10,000,000 in Iranian rials.

Government policies

The Rouhani government was clearly surprised by the Trump sanctions, and started to implement policies in the housing sector for example banning import of many housing related equipment’s from abroad such as tiles etc. This suddenly increased the value of any Iranian homes furnished with foreign accessories or build with foreign goods. Builders and developers stalled work building new homes which meant there was a shortage of houses and demand outpaced new homes built in Tehran.

Many in Tehran were left with little hope of ever owning a property while under the current sanctions regime and turned to rental and leasing. During 2018 the rental market remained fairly stable, then in 2019 things started to change, rents started increasing above inflation rates, tenants were being asked for more than they could afford and banks wouldn’t lend enough to cover the demand from the landlords in deposits or extra rental yield.

Then 2020 happened, with the government encouraging Iranians to take their bank savings and invest in the Iranian stock market, we saw a huge rise in stocks while the rest of the world was licking its wounds from the corona stock market crash. Then a group of shady Iranian businessmen (dalals) decided to pull their huge gains they made from stock trading (some people became millionaires from stock trading over a period of just few months!) and put the money into property. This saw another huge sharp rise in prices, this time it really hit the property rental market so bad that the government was forced to come up with legislation to ban rental price hikes by more than a set percentage per year per region of Iran.

Unfortunately as with most other things, Iranians aren’t very law abiding when it comes to profit and money, therefore these legislation while made very public hasn’t done much to settle property prices and rents. Many have decided they rather leave their properties empty than earn a $100-200 per month rent yield from it, thus forcing the government to start talking about forcing Iranians to rent empty properties as well as potentially taxing property owners for third or fourth homes. It’s an unlikely policy to be approved despite it being a right move for Iran, as the shady business lobby group in Iran remains very strong it will be very difficult to get a majority on such property bills.

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