Iran's Property Market Prospects for Foreign Investors – by Financial Tribune – Part I

Iran's Property Market Prospects for Foreign Investors – by Financial Tribune – Part I


Iran's real-estate sector is in the doldrums, thanks largely to overcapacity in luxury housing and the wider economic downturn that ensued since the 2014 oil price crash threw the economy into a tailspin.

Sporadic reports pointing to an uptick in home sales notwithstanding, most experts agree that a full recovery is far from certain and perhaps way into the future. But the real conundrum–with possibly more dire consequences than the property downturn itself–is the double whammy of shortage of affordable housing and the glut in luxury apartments complicating government efforts to provide housing to young people.

Hossein Abdoh-Tabrizi, a member of the Securities and Exchange High Council, is a senior expert who sees a major opportunity for foreigners to fill the current gap by entering Iran's real-estate and construction market.

Abdoh-Tabrizi—whose council has been sought by successive governments in post-Islamic Revolution, except unsurprisingly by the administration of Mahmoud Ahmadinejad whom he blames for many of the current woes–is currently an advisor to the Minister of Roads and Urban Development Abbas Akhoundi.

In an interview with Financial Tribune, Abdoh-Tabrizi called attention to the gloomy state of the key housing market: In the year ending March 2016, the sector registered a negative 12% growth, which trend is likely to have continued into the current year as well–albeit with less severity.

He pointed to overinvestment in construction during the go-go years of $100-a-barrel oil and subsequently the growing interest of banks in the real-estate bubble that led to the current oversupply. And since that overinvestment was mostly in the form of luxury apartments, it did nothing to increase homeownership among lower and middle classes.

"While there were 620,000 vacant flats in the country in 2006-07, that figure increased to 1,650,000 in 2011 and currently there are approximately 2,000,000 vacant homes throughout the country," Abdoh-Tabrizi said.

"Only in the three years of high oil prices [2011-13], 600,000 building permits were issued, which are roughly 30% of the housing stock in the capital Tehran."

That puts the total spending bill in the construction sector during those three years at $300 billion which, according to Abdoh-Tabrizi, was a total "waste of money".

"For a country that needs every penny and is desperately looking for investment, this is a heavy cost that is a legacy of the former administration," he said.