Real Estate & Construction

Land Is Gold

Real Estate

With property values exceeding those of similar-sized cities such as Istanbul, Tehran has seen a recent boom in the real estate market over 2012. Encouraged by the country’s youthful demographic […]

With property values exceeding those of similar-sized cities such as Istanbul, Tehran has seen a recent boom in the real estate market over 2012. Encouraged by the country’s youthful demographic trends, investors are increasingly putting their faith in real estate, which has stood the test of time as a safe, fixed asset.

Sourced from long-term buyers seeking to shore up their wealth as opposed to short-term speculators, recent demand for real estate has driven prices and property values up more solidly than back in 2008, when the market plunged as a result of the global economic crisis. Iran’s young demographic profile, which is growing at 1.24% per year, has justified increased construction activity, while access to financing options when purchasing and investing in real estate have improved markedly.

Considering growing demand coming from all segments and income levels, contractors have looked to develop mass housing in the form of buildings with apartment units outside of the major cities, rather than urban villas and single-family homes. To meet demand, 4 million units should be built over the next two to three years. As reported by the Ministry of Housing and Urban Development, over $20 billion has been invested in the real estate and construction sector to build and revitalize both residential and commercial spaces. Private sector investments have also been marked by 40% growth in 2011. Increased activity has led the government to implement strict transparency regulations that allow for the registration and tracking of real estate transactions, with 97% already recorded as of 2011.

WHAT GOES UP

The Central Bank of Iran (CBI) had allowed the local currency to devalue by early 2012, leaving many investors to seek investments in foreign accounts or gold as a form of savings. This has led to residential real estate prices surging 15% in 1Q2012. In parallel, the government issued 87% more building permits in the summer of 2012, compared to the same period in 2011.

As of mid-2012, the average price of real estate per sqm in Tehran is about IR20 million, or $1,600. However, prices can rise as high as IR150 million in the northern districts of the city, demonstrating an increase of 20% in real terms year-on-year. Meanwhile, the cost of materials—from ceramics to concrete—has also registered steady increases. As contractors struggle to find locally sourced building materials, some have looked to China for more affordable options of a much lower quality, illustrating a distinct gap in the domestic supply chain.

GOVERNMENT SCHEMES

State-owned lender Bank Maskan specializes in providing housing loans to the local market, accounting for currently 28% of credit in the banking system. However, the bank caps such funds at $15,000, leading analysts to believe that a large majority of real estate buyers are paying cash up front or borrowing money from friends and families to afford property. With growing construction activity, many real estate experts expect the market to suffer saturation as demand declines in the coming years and prices continue on an upward growth trend.

As of January 2011, Bank Maskan has provided loans totaling $10.2 billion to applicants for the Mehr housing project, which includes the construction of 634,000 residential units. Foreign investors are financing an additional 30% of the project, with interested parties mainly from Malaysia, Turkey, and South Korea. Potential homeowners in 17 cities will benefit from the initiative, which was 30% complete by end-2011. In addition, real estate developers are offered free land under this scheme, in exchange for building affordable residential units for first-time buyers that are expected to sign 99-year lease contracts.

In 2008, the government commissioned agent banks to offer loans to real estate developers so that they can prepare properties and begin construction as part of the Mehr housing project, which will support equilibrium in the supply and demand curve. To date, about 3.7 million people have registered for the plan, with applicants paying about 20% of the cost of construction. Increased activity in the real estate sector may also accelerate the government’s plan to restore 14,000 hectares of older and historical commercial and residential buildings, a project that requires a total investment of about $143 billion over a period of 10 years. The authorities are seeking to attract FDI that can support its goals to establish environmentally friendly and energy-efficient buildings. Furthermore, new buildings will be designed bearing in mind the threat of seismic activity in the region.

MORE FOR THE MASSES

Contractors and consultants have spotted opportunities throughout the country in terms of catering to both tourists and local residents seeking modern and convenient new homes. Investors are also eager to invest in these projects, which will satisfy growing demand and guarantee returns for years to come.

In 2010, 10,000 residential units were built on a monthly basis. In 2011, that number had reached an average of 19,000, with 229,000 new houses available on the market by the beginning of 2012. However, new waves of demand and innovation are expected to further push growth and development during the year 2013. Approximately one-quarter of new real estate projects were carried out in underdeveloped and dilapidated neighborhoods, where residents that had lacked infrastructure are now enjoying significant upgrades.

Focusing on building all-encompassing spaces that cater to the needs of residents, TSI Group is pioneering the next generation of housing in Iran. “A large country like Iran needs more residential housing, sports and leisure complexes, and commercial activities,” S. J. Mousavi, President of TSI Group, told TBY. Identifying the need to establish property outside of capital city Tehran, the company is dedicated to providing work and play within large residential housing projects. “By binding all of these aspects together, we meet the needs of many kinds of people and all types of families,” he added. One of four residential “towns” to be built outside of Tehran, TSI Group’s latest project will sit upon 1,400 hectares of land and be located approximately 30 kilometers from the capital. Closer to the Caspian coast, Sazeh Pardazi Consulting’s Ramsar City is currently under construction, designed to resemble the Palm of Dubai. “In about seven years, it is going to be a touristic area with hotels and residential areas… the value of the project is about $2.5 billion. It is on the waterfront and hydro energy is a great benefit,” Aliakbar Hafezi Manshadi, Managing Director & Member of the Board of Sazeh Pardazi Consulting, told TBY. This, and similar projects designed to attract tourists as well as long-term residents, are establishing the foundations of the bright future of local real estate.

You may also be interested in...

Transport

4 Maritime Bottlenecks

Logistics Chokepoints of Global Trade

View More

Tourism

Taste of Cherry

Iran’s Film Industry

View More

Diplomacy

Iran Sanctions Return

US Pressure Affects Trade

View More

Finance

Iran’s Cautious Growth

Capital Markets Trading On

View More
Nuts & Bolts

Economy

Nuts & Bolts

Doing Business

View More
20 by 2025

Tourism

20 by 2025

International Tourism

View More
Reforms Under Fire

Health & Education

Reforms Under Fire

Women in Education

View More
Back to School

Health & Education

Back to School

Education

View More
Won’t You Take Me to… Barkat Town

Health & Education

Won’t You Take Me to… Barkat Town

Pharmaceuticals

View More
View All Articles