Iran Residential Real Estate Market Analysis Quarterly – Spring 2015
June, 2015
Table of Contents
1 Notes 4
2 Economic Cycles – Boom and Recession Cycles – in the Property Market in Iran 4
2.1 What Do a Recession and a Boom Mean in the Property Market? 4
2.2 What are the Quadruple Cycles of Boom-Recession? 5
3 Inflation; Major Parameter Influencing Economic Factors in the Housing Market 6
4 Strengths, Weaknesses, Opportunities, and Threats of the Real Estate Market 7
5 Property Market’s Ups and Downs in 1393 (started March 21, 2014) 8
5.1 How Much Did the Prices Drop? 8
5.2 Transaction Volume per Annum 10
6 Iran’s Property Market in 1393 10
7 House Rents in 1393 11
7.1 House Rent Growth, Half of the Growth Rate in Past Two Years 11
7.2 House Rents under the Influence of Inflation and Price Rise 13
8 Domestic Rental Market in 1393 14
9 Land Prices in Tehran 15
9.1 Dramatic Fluctuations in Land Prices 15
9.2 Land Prices in the Future 15
9.3 Parameters Pulling Land Prices Down 16
9.4 Land Market Controlled by an Enduring Variable 17
10 Domestic Land Market 17
10.1 Natural and Artificial Dearth of land 17
10.2 Impact of Demolition and Renovation on Land Prices 18
11 Unprecedented Loss of the Construction Market 18
11.1 Statistics of Withdrawal of Construction Activities in Tehran 18
11.2 Why Did the Construction Volume Reduce? 20
12 58% Drop in Construction 20
13 Housing Unit Prices in the Future 21
13.1 Property Market Emerging 21
13.2 Price-Determining Factors 22
14 Rental Market in the Future 24
15 Future of Investments in the Construction Sector 24
16 Small Stake of the Property Market in Banking Facilities 25
17 Construction Return Rate 26
18 Real Estate Market in 1393-1392; a Formal Analysis 27
18.1 House Prices 27
18.2 Rents 29
18.3 Transaction Volume 30
18.4 Number of construction permits 31
18.5 Building Materials Market 33
18.6 Competing Markets with the Property Market 34
18.7 Real Estate Market in 1394 35
19 Return on 5 Economic Market portfolios in 1393 36
20 ‘Lausanne’ Variable, Real Estate Market’s Uninvited Guest 37
21 A Review on Real Estate Market and Government’s Plans In 1394 41. 41
Studies on two major variables of the real estate market reveal that the housing market can be modeled by a sine function, i.e. when the market experiences a recession period, it steps into a boom phase afterwards. The variables of the property market wildly fluctuate throughout the boom and recession phases. Such fluctuations are called the “recession peak” and the “boom peak” in economic literature of housing markets.
A recession reaches its peak when the sine curve of price growth oscillates in its lowest level in the past 2.5 years while construction of new housing units drastically decelerates.
In a boom peak, prices skyrocket and the volume of housing projects stands at highest.
The recession phase in the housing market commences when purchase and sale prices soar through the roof. Under such circumstances, neither the buyers nor the investors (including brokers, middlemen and their minions) can afford to buy housing units; the widest possible gap exists between the offered prices and customers’ purchasing power.
In this situation, any decrease in demand is read as the primary sign of recession. In better words, before the recession phase and when the prices are rapidly increasing, homebuyers are physically present in the market and real estate agencies, although majority of them conduct no transactions. Their presence, however, pushes up the prices and keeps them at their highest level.
The off-peak period starts when the demand side recognizes the slump in the market. At this stage, the demand for new housing units as well as the price growth rate are reduced.
After a short while, at most within a month, the slashed housing prices pull down the rate of price growth. In other words, during the recession period, the bubble blown by soaring prices will be incrementally deflated. The deflation procedure continues till the prices reach the floor.
In par with the recession being formed and deepened and when the prices continue to plunge, the productive investments (construction of housing units) fall steeply. Mass builders commonly modify their behavior based on prices levels. They are extremely sensitive to price fluctuations, regarding the profit they earn. When the housing prices fall down, builders intentionally postpone undertaking new housing projects.
Recession usually lasts for two years during which the purchases volume reduces significantly since buyers, noticing the downward trend of prices, wait for more dramatic reductions. They prefer to stay on the margins of housing market and expect the gap between their purchasing power and prices be bridged.
After about two years, the aggregated demand for the housing units will be stimulated by lower prices and gradually grows in the market. The first visible signs of a boom phase appear, then.
The gradual return of demand sends a signal to sellers to reverse the downward trend of housing prices. At the beginning the prosperity phase, the housing prices remain fixed for a short time but start climbing afterwards. At this point of time, builders quickly enter the construction market and construction volume (the number of the issued construction permits) hikes gradually.
During the boom period, which lasts between three to four years, property prices rise annually; however, based on the demand part’s behavior and their rush on making purchases, the prices grow at a faster pace at the end of this period. This makes the prices jump and constructions and transactions end as well.
Throughout the past 20 years, the housing market has experienced at least four cycles of boom-recession. The market went through the first cycle from 1372 to 1377 (March 21, 1993-March 20, 1999). Prices rose to highest in 1375 (Started March 21, 1996). The bubble burst and prices slumped to lowest in 1376 (started March 21, 1997).
The recession-boom cycle repeated itself from 1378 to 1384 (March 21, 1999-March 20, 2006) while prices recorded highest in 1381 (started March 21, 2002) and their lowest in 1383 (started March 21, 2004).
The third cycle was completed from 1384 to 1388 (March 21, 2006-March 20, 2010). Housing prices grew up to 78 percent in 1386 (started March 21, 2007) and recession deepened in 1388 (started March 21, 2009).
The fourth cycle was produced in 1389 (started March 21, 2010) and the boom peak occurred in spring of 1392 (March 21 to June 22, 2013). The market slipped into recession in 1393 (stared March 21, 2014).
The experienced boom-recession cycles in Tehran are analyzed based on the changes of defined economic variables ...
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