Skip to main content

Will Iran's new mortgage plan stimulate housing market?

New plans to increase the ceiling for mortgages in Iran creates unnecessary bureaucracies and is not enough to stimulate demand in the housing market.
EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to report, film or take pictures in Tehran. 

Construction cranes work on a high rise buildings in the foothills of the Alborz mountains in north Tehran April 15, 2010. President Mahmoud Ahmadinejad has asked 5 million Tehranis to evacuate the capital since they know their sprawling metropolis is due for a massive earthquake. When the last major earthquake hit, in 1831, Tehran was tiny compared to the metro

As demand picks up, so will productivity; and boosting bank lending is the best policy to stimulate demand in the housing sector hit hard by the recession in the past couple of years — that was an argument raised by Iran’s Ministry of Roads and Urban Development 18 months ago when it proposed a hike in mortgage loans. The Money and Credit Council, the highest policymaking body of the central bank, eventually agreed May 19 to almost double the borrowing limit for first-time buyers in Tehran to 800 million rials ($24,000 at the market exchange rate).

Another significant decision made by the council was the de-monopolization of the mortgage market. Since 2008, Bank Maskan had been the only commercial bank authorized to give housing loans. Now 21 other lenders are free to join the club. However, as proposed by the ministry and confirmed by the council last week, a fund dedicated to helping home buyers — "housing deposit fund" — must first be created in banks. Under the second approval, non-first-time buyers would receive maximum 600 million rials ($18,000) in loan from any commercial bank in Tehran. If applicants live elsewhere, in the cities categorized as "large" or in "other urban areas," they may receive 500 million or 400 million rials ($15,000 or $12,000), respectively.

Access the Middle East news and analysis you can trust

Join our community of Middle East readers to experience all of Al-Monitor, including 24/7 news, analyses, memos, reports and newsletters.

Subscribe

Only $100 per year.