March 16, 2018
With the rial bouncing around like a loose basketball, its is hard to buy housing as property owners want to hold onto real estate as a safer home for their money.
Bloomberg News last week reported that real estate agent Javad Baratloo recently found a buyer for a large home and garden in central Tehran. A price was agreed and contracts prepared.
But when he got in touch with the owner, the price jumped to 235 million rials a square meter. The purchaser agreed, but that wasn’t the end of it. “Now he’s asking for 250 million,” said an exasperated Baratloo, who’s employed by the Khaneh Bartar, or Superior Home, agency. “Until two to three months ago, sellers were chasing buyers. Now it’s the exact opposite.” Six other deals have fallen apart in a similar way this year, he said.
In hard-currency terms, prices aren’t really rising — it’s just that the Iranian rial has shed a fifth of its value against the dollar in a year, and Tehranis are looking for ways to protect their savings.
Iran’s economy is “very speculative in nature,” Parham Gohari, co-founder of Frontier Partners, a firm advising multinationals on doing business in Iran, told Bloomberg. At times of economic strain, “Iranians don’t generally hold on to cash, they buy assets — a car, gold, or real estate.” Volatility at home and abroad means the rial could fall further, he said.
Iran’s leading business newspaper, Donya-e-Eqtesad, has coined a phrase for the times — “flight from contract signing.” In a recent article, it pointed to property holders’ “fear of selling their flat at a lower price than market demand.”
Prices for real estate sold in the Persian month that ended February 19 were up 21 percent from a year ago, a marked shift from five years of flat-lining, and in line with the rial’s losses in the period. Apartments changed hands for an average of 55 million rials per square meter, according to another daily, Hamshahri, a 22.3 percent annual rise.
The rial’s depreciation is “forming inflation expectations” in the property market, said Amir-Reza Kahedi, chief executive officer of Tehran-based Arya Sahm Economic Research Co. The last time the city witnessed a similar spike in housing prices was in the first half of 2013, he said. Back then, inflation was nearly 40 percent and the rial shed a third of its value, as major nations added sanctions.
The 2015 nuclear deal was supposed to spark the Iranian economy into life. Oil exports have recovered. But many investors remain wary of Iran, especially since President Trump took office and now that Iran is not fulfilling its pledges on banking reform made to the Financial Action Task Force (FATF).
Baratloo said some potential buyers have given up on a market where few at the moment want to sell.
“I had a realty investor who was looking to buy and he couldn’t get any properties so he took that money and went to the bank,” Baratloo said.