IRAN: REAL ESTATE MARKET CCONTINUES TO THRIVE (C-NE7-01996)

C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000023 SIPDIS SIPDIS E.O. 12958: DECL: 4/24/2018 TAGS: ECON PGOV PREL SOCI IR SUBJECT: IRAN: REAL ESTATE MARKET CCONTINUES TO THRIVE (C-NE7-01996) REF: RPO DUBAI 0006 RPO DUBAI 00000023 001.2 OF 002 CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional Presence Office, Department of State. REASON: 1.4 (b),(d) 1.(C) Summary: According to several Iranians working in the construction business, real estate prices in Tehran have almost tripled in the past 3 years, and continue to grow with no signs of abating. Urbanization is one of the factors attributing to the rise in property prices, as demand outstrips supply. Additionally, wealthy Iranians view real estate as one of the few sound investments inside the country in an uncertain economy; as property prices went up a growing number of wealthy Iranian shifted their assets to real estate, say Iranian contacts. According to two Iranian developers many home buyers cannot afford the steep prices and have few choices, especially as rents have also increased as a direct consequence of higher real estate costs. Property prices in Tehran and other main cities to be provided septel. End summary. Housing Prices and construction cost on the rise -------------- --- 2.(C) According to two Iranian real estate developers and several visa applicants, the Iranian housing market has experienced a price hike over the past three years that has almost tripled home prices in Tehran, and continues with no signs of abating. Though real estate prices have been rising incrementally in Tehran on an annual basis for decades, they affirmed that prices in Tehran climbed exponentially over the past three years, particularly shooting up in 2007, during which property prices essentially doubled. Real estate prices in other parts of the country have also increased significantly, however in a more gradual manner, according to visa applicants. A young couple from Tehran described to ECONOff that the one bedroom apartment they bought for 78 million tomans ($78,000) in 2006 was valued at 170 million tomans ($170,000) in late 2007. (Property prices in Tehran and other major cities to be provided septel.) 3.(C) A long-time IRPO contact who owns a construction company in Tehran said in early April that the real estate market is still thriving despite his personal expectation of a slow down. He said in January he was able to sell his newly constructed apartment building in northeastern Tehran for about 400 dollars per square foot to one of Tehran's biggest real estate firms, who expect to resell the property at a higher price. He indicated though that price increases make sense in terms of the recent rise in construction material costs; during the past three months he said steel prices went up 25 percent and cement went up by 50 percent despite the fact that Iran produces 60 million tons of cement a year, using 50 million tons internally and exporting the rest to Iraq and Afghanistan. He added that these commodities are in the hands of government mafia types, without elaborating. 4.(C) An Iranian steel industry insider told ECONOff that another factor that has contributed to the cost of building construction is the increase in labor charges, as a result of the Iranian government crackdown on illegal immigrants, mainly Afghans. According to him, many illegal Afghans immigrants worked in construction for low wages, as little as 2 dollars a day. But since the crackdown only legal immigrants apply for work, and they want about 20 dollars a day (reftel). 5.(C) According to the Tehran-based developer, to obtain construction permits, one must get through plenty of government red tape, and bribes are often required in order to get things done. An NGO worker visiting from Iran told ECONOFF that construction permits have been easier to acquire since Qalibaf became mayor of Tehran, apparently on the grounds that new construction brings in revenue for the municipality. Main reasons behind the rise in house prices and rents -------------- -------------- 6.(C) According to one Iranian developer who owns and manages construction businesses in various Iranian cities, the sudden RPO DUBAI 00000023 002.2 OF 002 rise in real estate prices started simply because of the high demand for housing; demand for housing have been increasing as a result of population growth, particularly the vast population of young Iranians who are reaching their mid twenties, the age where many get married and try to shift to independent living. Furthermore there has been a population surge from rural to urban areas, particularly to Tehran, where people go to find work, attend universities, or move for a better lifestyle and better social services, mainly schools and healthcare. According to the developer, the real estate market will continue to grow for years to satisfy existing shortages and the upcoming demands. 7.(C) Iran's construction market has also been thriving due to an increase in investment in this sector. According to an Iranian contact who owns an aluminum company, a great amount of money entered the real estate market over the past few years, particularly the excess oil revenue that is in the hands of certain connected government individuals. In fact, he said many nice high rises are owned by members of the IRGC, illustrating economic corruption. And he said the high rate of inflation in the past few years has also encouraged people to invest in property. He planned on doing the same, complaining that there is no money in manufacturing anymore. 8.(C) Also, a Dubai-based Iranian who is a former economics analyst, told ECONOff that since last year affluent Iranians are increasingly opting to invest in the highly-profitable real estate sector. He explained that prosperous Iranians who held on to liquid assets out of concern about international economic and political pressures on Iran can no longer ignore/resist the current opportunities in real estate and are shifting their money accordingly. 9.(C) A young couple, doctoral students at Tehran University, suggested that president Ahmadinejad's lowering interest rates from 17-18% to 11-12% also caused some individuals to buy real estate instead of saving cash. Unaffordable housing a source of frustration -------------- 10.(C) Many families are now facing housing problems, particularly in Tehran and other large cities. According to one visa applicant from Tehran, a high school principal, many people simply cannot afford the current home prices, and young people are particularly suffering. She explained that only wealthy Iranians can afford to buy homes, leaving most Iranians with no choice but to pay high rents. Also, according to the young couple from Tehran University, many young families like them now spend one entire salary on rent; their parents recently helped them buy an apartment in Karaj where prices are low (about 150 dollars per square foot),but they are one hour away by metro to Tehran university. 11.(C) The Iranian developer, who has projects in multiple cities, also emphasized that many home buyers cannot afford the steep prices and have few options. He said rents have increased as a direct consequence of real estate prices, and the absence of a mechanism for controlling rents has exacerbated the situation. The developer said that the government is obligated to provide decent housing to meet the needs of ordinary citizens and is building more housing in city outskirts and in the provinces to encourage urban migrants to move back to provinces. At this point, however, he surmised that at best this plan can only meet about half of the housing demand. 12.(C) According to the Tehran-based developer, a longtime IRPO contact, the housing issue gets discussed in the Majles, but nothing significant happens to alleviate the problem. He said in the past two years the government has started a program that leases land to government workers for 99 years under the conditions that they build their own home on it. He said this program is unsuccessful because the lands are in undesirable locations on the outskirts of the city, and moreover, the people who need housing assistance often cannot afford builders' prices. There are home loans available through Maskan bank (a government housing bank),but only in small amounts that are inadequate for buying or building a house, the contact said. ASGARD