Sanctions’ Payoff: Hot Real Estate in Tehran

Buying gold, dollars, and euros is out. The only option is to build | “They want to switch to something that is a fixed asset”

Ladane Nasseri

Contractor Mehdi Eslamipour stands amid piles of bricks and abandoned furniture at a Tehran building site where his company just knocked down a three-story villa to build a nine-story apartment building. “Everyone’s looking to build,” he says, pointing to three similar projects on the same street.

Iranians are turning to real estate to protect their savings as beefed-up international sanctions weaken the rial. The first reaction of Iranians to the new sanctions was to buy more gold, dollars, and euros as a hedge. Then the government restricted currency trades to government-run exchange bureaus, which offered unfavorable rates. Officials also made investors wait months to buy gold.

That leaves real estate. Building permits issued in Tehran jumped 87 percent in the June-August period from a year earlier, statistics from the mayor’s office show. Residential prices have risen at least 15 percent in the past three months, according to three real estate brokers. An apartment in Tehran is now more than twice as expensive as one in wealthier Istanbul.

“People feel the value of their money is dropping, so they want to switch to something that is a fixed asset,” says Mousa Ghaninejad, an independent economist in Tehran. The average cost of residential property per square meter in Tehran is about 20 million rials ($1,600), according to the Donya-e-Eqtesad newspaper, citing official data. In northern Tehran, prices can rise to about 150 million rials per square meter, an increase of almost 20 percent over the last 12 months.

The central bank has allowed the rial to depreciate by 8.5 percent against the dollar. That’s pushed prices higher, adding to the impact of the government’s phasing out of subsidies on fuel and food. Inflation is now above 20 percent, according to central bank figures. “Raw material, labor, transport, the cost of everything has increased,” says Raymond Vartanian, director of the Robinson real estate agency in the suburb of Mirdamad. The result, he says: “Owners of property are revising their prices upward. They’re afraid that if they sell today for the purpose of getting a bigger space tomorrow, they may still be short of cash in their next transactions because of inflation.”

Tehran’s last housing boom was in 2007 and early 2008, when high oil prices spread money through the economy and banks offered cheap loans, according to Ramin Rabii, the managing director of Turquoise Partners, a Tehran investment firm. Then real estate prices plunged more than 30 percent from the summer of 2008, when the global economic crisis drove oil prices down, to mid-2009, according to the International Monetary Fund.

The state-owned lender, Bank Maskan, specializes in housing loans, which are capped at about 180 million rials ($15,000), so Iranians use savings and money borrowed from friends and family to pay for homes mostly in cash, Rabii says. Eslamipour forecasts that in two years, when the residential towers under construction are on the market, supply may exceed demand. Yet Iran’s youthful population, growing at 1.24 percent a year according to Iran’s statistics office, justifies the construction surge. The government has also moved to prevent speculation, barring the resale of homes within a year. Demand is now coming from long-term buyers instead of speculators, who pushed prices up before 2008, according to the Delta Group real estate agency, one of Tehran’s largest. Still, expectations that prices will continue to rise are rooted in the culture, economist Ghaninejad says. “When it comes to property, there’s always been a saying that land is gold.”

The bottom line Residential property prices will likely continue to rise as the rial is devalued and Iranians seek alternatives to gold and dollars.


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