In a Turbulent Tehran, It's Hard to Buy a Home at Any Price
In a Turbulent Tehran, It's Hard to Buy a Home at Any Price
(Bloomberg) -- After a year of trying, Iranian real-estate agent Javad Baratloo had finally found a buyer for a large home and garden in central Tehran. A price was agreed and contracts prepared -- the only thing missing was the seller, who wasn’t answering his phone.
When he did get in touch, it was to raise the price tag 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. It’s all largely a reflection of accumulating bad news in Iran, where a season of protests, the threat of further sanctions from the Trump administration and warring domestic political factions are taking their toll on economic sentiment.
Iran’s economy is “very speculative in nature,” said Parham Gohari, co-founder of Frontier Partners, a firm advising multinationals on doing business in Iran. 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-Eghtesad, 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 successfully sold in the month to Feb. 19 rose an average of 5 percent from the previous period, it said. They 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.
While the official rate is 37,440 to the dollar, the rial fell to a record low of 50,000 during unregulated trading last month, prompting authorities to shut a dozen currency-exchange offices and arrest traders they accused of “stirring” the market. In an effort to attract deposits and halt the rial’s drop, the central bank authorized lenders to temporarily offer 20 percent interest on long-term accounts.
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 house 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 in a deepening standoff with populist President Mahmoud Ahmadinejad.
The 2015 nuclear deal was supposed to spark the Iranian economy into life. Oil exports have recovered. But many investors remain wary of infringing sanctions not lifted under the accord, while President Donald Trump has added new ones and threatened to exit the agreement entirely by May unless what he calls flaws are fixed. Iran had its eye on $50 billion in foreign investment each year, but has received $25 billion over the past four.
Iran has rejected any renegotiation of the accord, and says its missile program -- a point of controversy with some European nations as well as the U.S. -- is necessary for self defense. French Foreign Minister Jean-Yves Le Drian was in Tehran last week to hear his Iranian counterpart warn darkly against “pointless” attempts at pleasing Trump.
The economic uncertainty has emboldened conservative opponents of Iranian President Hassan Rouhani, and helped fuel sustained anti-government protests from late December. The rial has been feeling the pressure, too.
It strengthened to 47,800 late last week, but that’s still about 24 percent weaker than this time in 2017. Amid efforts to keep it from slipping again, some currency-exchange houses are limiting transactions to a few hundred dollars, and at those offering more attractive rates buyers often have to queue for hours.
Baratloo, the property agent, said that 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,” he said.
To contact the reporter on this story: Ladane Nasseri in Dubai at lnasseri@bloomberg.net.
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Ben Holland
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