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Housing Market Revival Appears Short-Lived

by KAMAL ATHARIE in Tehran

29 Jun 2011 19:11Comments

Price bubble unlikely.

0_Page_04_Image_0001.jpg[ business ] When economic conditions are uncertain and unpredictable, most ordinary investors focus on markets that, although they may involve some risk, have the potential for short-term profits. For this reason, people turn to bullion, currency, and numismatics when prices in general start to fluctuate wildly.

In recent months, we have also witnessed a resurgence in the real estate market, which had been stagnant for two years. Although many are worried that the continuation of the current level of activity will lead to price increases, the unsettled economic conditions suggest that the surge in activity will be short-lived. Housing prices are reacting to the recent implementation of the targeted subsidies law, which has affected the price of building materials, as well as wages.

Housing sector authorities, such as the Ministry of Housing and Urban Development, have focused on the Mehr Housing Plan, a massive national project with no prospect of short-term results. The government, after struggling with the project for two years, and a brush with bankruptcy, has yet to prove its viability. Responsible authorities should announce the number of units completed and delivered to the public.

It is very doubtful that current asset bubbles will extend into the real estate market. When the price of gold is rising, the chance of a bubble in housing prices is remote. For the moment, the public seems to be keen on converting their tomans to other currencies, purchasing bullion, and investing in numismatics for short-term safety; there is little interest in long-term investment. This tendency is being impelled by trends both domestic and international, both economic and political. Though housing prices may climb for a short period, it is difficult to foresee any substantial rise in investment in the market.

The market went through an unusually long dormancy, and the targeted subsidy law and the housing authorities' ineffectiveness have jolted it into a temporary resurgence. But with interest in short-term profits driving investors to other markets, soon only those who need housing will be shopping for it, in all likelihood. Meanwhile, prices have reached levels unaffordable to many, and when few can buy, few can sell.

Translated from the Farsi version which appeared in Etemad.

Copyright © 2011

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