Kianoosh Heshmati, Managing Director of Sakht Ajand Real Estate Investment Company comments on the today and tomorrow of the Iranian real estate market.
Construction is one of the current needs in Iran. At the moment, government statistics suggest that we need more than 1 million housing units to be built every year due to the rapid growth of Iran’s young population. This young population is approaching marriageable age and they need homes. This is the first factor driving this industry. The second factor is that if you look at construction as an opportunity to invest in a field of production, then we feel that this field is, and will continue to be, very profitable in Iran. As far back as I can remember, for the last 50 years, it has always been a profitable field. People need new homes regardless of inflation.
The construction industry in Iran is the locomotive of the economy. I believe that 80% of our industries are related, in some way, to construction. If you want to put it in terms of who has the dominant role in construction, then, at the moment in Iran, it is the government with its mass housing program. The Mehr Housing Project consists of a number of very large projects. On the other hand, there are also private sector players whose activities are completely different from those of the government. We concentrate on more luxurious projects in order to create a quality living atmosphere, and this cannot be done cheaply. Therefore, in the luxury segment of the construction industry, the government is not the dominant player. Especially when you look at profitability, a greater percentage goes to the private sector.
At the moment, we may say there is a stagnating real estate market because, two years ago, we had a very fast rise in inflation in the real estate market. Since then, this rise in prices has stopped, but this doesn’t mean that the prices have come down. Now, how has this affected the cost of the square meter? It depends on the location. In the northern part of Tehran, the cost per square meter starts at about 4 million tomans, which is about $4,000 dollars. In other areas I’ve heard almost 12 million tomans. In this part of Tehran, you will find the most expensive residential and commercial areas, although prices have come down over the past two years.
This may be a classic case of a real estate bubble, but the effects of the bubble were not that severe because at the moment we have a very good market for cheap houses and raw materials for construction are cheap in Iran. As an example, when you look at prices and the cost of construction, the cost of construction for luxury units reaches a maximum of 30% of the sales price. This is very profitable, and this is the reason why I told you that the stagnation at the moment is due to the bubble. The bubble is broken, so we have stagnation, but I’m sure within the next year we are going to see a very good market again.
At the moment, the construction of commercial developments is the best opportunity, because more private firms are entering the market, and there is an increased need for quality shopping malls. More and more retail chains are arriving because there is a great demand for them in this country. So, as I’ve said before, there are a lot of opportunities in Iran.
In order for Iran to improve, I think it is a very good idea to introduce Iran to the international business community and to show that Iran is a good and safe place for investment.
© The Business Year