Iran’s property market: investment potential and risks
In 2015, global powers signed an agreement to restrict
The country also is also hoping to attract investors to its property market to finance the construction of 2,700 neighbourhoods in 495 cities with a total population of 19 million. Securities and Exchange High Council member Hossein Abdoh Tabrizi said the total value of infrastructure projects the investors might be interested in is estimated at US$300 billion, Iranian newspaper Financial Tribune reported.
The End of the Iranian Property Bubble
In the past decade,
In 2007, the Iranian government launched the Mehr housing programme under which developers were offered free land in return for the construction of cheap residential units
Over the next five years, almost 2 million residential units were built. From 2011 to 2012, 14,000 property purchases took place in the country each day. Between 2011 and 2013, when oil cost US$100 per barrel, prime property investors were the most active: 600,000 construction permits, valued at US$300 billion in total, were issued during this period.
Booming construction led to a rise in inflation and excess liquidity. In 2010, international sanctions against Iran were strengthened, the rial plummeted, and property prices in foreign currency doubled over the next two years. The real estate market entered a recession and private investors left. In 2014, the Mehr housing scheme was taken off the balance sheet of the Central Bank of Iran.
After the Iranian property market bubble burst, many properties, especially prime ones (those valued over IRR 80 million or US$2,500 per square metre in value) fell out of demand. According to the Financial Tribune, the number of vacant flats in Iran grew from 620,000
Property market potential
With an oversaturated Iranian prime residential property market, investments in construction and mid-priced rental property redevelopment are promising. Almost half of all property transactions in Tehran are below IRR 3 billion (US$80,000) in value.
According to the Central Bank of Iran, in the 11 months leading up to February 18, 2017 (the end of the fiscal year), the number of property transactions increased by 6.5% compared to the same period the year before. More than a half (54%) of them involve flats constructed in the last five years. The average price per square metre in Tehran during that period reached IRR 43.6 million (US$1,200), 5.4% higher compared to the same period of the previous year.
A number of factors are fuelling further price increases: Iran needs 1.5 million residential units per annum, while the market is currently only able to offer 700,000. At the same time, the construction volume is shrinking. According to the Central Bank of Iran, in comparison
Another promising market is the hotel segment. According to the World Travel and Tourism
In addition, the retail property market still shows potential. According to the Retail Week website, Iran lacks sufficient grocery retailers for a country with 80 million people. the largest chains (Proma, Refah, Shahrvand and Hyperstar) have only 700 outlets in total.
Developers find it more profitable to build shopping centres than housing in the most populous Iranian cities: Tehran (15 million residents), Mashhad (3.3 million) and Isfahan (2.2 million). Together, these three cities account for a quarter
Iran is developing actively, but there are a number of risks investors need to consider, for instance, the instability of the local economy.
Apart from Saudi Arabia, the country has the largest economy in the Middle East and North Africa. However,
The actions taken by the government in recent years have begun to show results. For example, with the lifting of sanctions, inflation fell from 40% in 2013 to 12.6% in 2017. According to the forecasts by Trading Economics, this will decline further to 5.9% by 2020. However, the figure still remains high, especially in contrast to euro zone countries, where inflation typically ranges from 0% and 2% per annum.
Unemployment in Iran also remains high. The unemployment rate stood at 12.7% (3.3 million people) in the middle of 2016, though this is expected to fall to 10.8% by 2020, according to Trading Economics.
Another risk is
In general, Iran offers interesting investment opportunities, particularly in the construction of affordable rental property, shopping centres and tourist infrastructure. However, investors should carefully consider the risks relating to the local economy and its dependence on the oil industry.
Yulia Kozhevnikova, Tranio