Does the economy lose to housing? – Tejarat News
According to Tejarat News, imagine two brothers who had 100 million tomans each in 1980. One of these people entered into economic activities and profited as much as inflation and economic growth. The value of his property has now reached 7.9 billion tomans. But the other brother preferred to buy a property in Tehran and rent it without the hassle of production and economic activity. The total value of the house and rents received by this person in these two decades has now reached 18.2 billion tomans. In other words, a person who has worked less hard and has not taken the risk of production, now has more than 2.3 times the assets of his brother.
But is the higher growth of property prices compared to inflation and economic growth common in the whole world, or is it the result of Iran’s economic illness?
Examining the property price trend in America as a country with an almost healthy economy and based on market rules indicates that the property price growth has been in step with inflation and economic growth. So that if a person invested 100 million dollars in the housing market of this country in 2000, the value of his property would be about 227 million dollars now (not including rent). But if he made this investment in other sectors and received an average profit according to inflation and economic growth, his property would now be around 235 million dollars; It means about 4% more profit than real estate. But this happened in the opposite way in Iran, and during the same period, the profit of real estate (without considering the rent received) was 93% higher than the average of other economic activities.
Normally, in a healthy economy, markets and assets have a certain share of the economy and in comparison with each other, their ratios usually change less over time. But what has happened in Iran’s economy is that the share of housing in the economic cake has increased. In other words, when housing in Iran has a real efficiency of about 100%, it means that the share of housing in Iran’s economy has doubled and has actually swallowed the share of other sectors. An event that can be called “the failure of the economy from property gambling”.
The secret of real estate boom in Iran
The reason for this can be found in the structure of Iran’s economy. Three basic features have caused the money to be directed in this direction: the Dutch disease and oil windfall dollars, the instability and chronic inflation of the economy and the lack of sufficient tools to invest in other markets can be considered the main reasons that have formed the housing bubble in Iran.
Dutch disease usually occurs when the government receives a large part of its income not from taxes and Rial revenues, but from the sale of national assets in dollars. In this situation, the amount of government dollars and their injection in the economy is not proportional to the level of demand, and this causes the exchange rate to be artificially low. What happened during the burst of foreign exchange earnings was going on in Iran and the policy makers not only did not intend to deal with it, but also had a great motivation to suppress the currency even more to control inflation. This makes domestic products unable to compete with foreign ones. Because domestic inflation is increasing for the producer and the cost of production is constantly rising, but due to currency suppression and exchange rate stabilization, the price of imported goods does not change and after a while the producer is forcibly removed from the market. In such a situation, the best investment option is to buy assets that cannot be transferred and traded; It means something like housing.
The third factor of the historical housing bubble can be considered the lack of investment options. In a country like America, more than 50% of household assets are in the capital market. A big, deep market with various tools for investment by people with different moods and preferences. But the capital market in Iran has always been neglected and not very developed. The rest of the markets, like currency and gold, have not developed much and have remained in a primitive state. Of course, add to this that the policy maker from time to time declares investment in these markets as a ban, and by criminalizing the activity in these markets, he disturbs the balance of the economy even more. In this situation, the investor practically has no more options, buying a property or investing in a bank with a low mandated interest rate.
The failure of the economy from real estate
All of these events together make liquidity go to the housing market rather than to production. A market that is directly related to people’s livelihood and accounts for the largest part of household budgets. But the policy makers unbelievably, instead of moving towards the improvement of mechanisms and the economic environment, define mega-projects such as Mehr Housing and National Housing, which eventually become Inflation and instability increase. This is a cycle that has been repeated over the past 4 decades in the housing sector policy and has constantly blown the housing bubble.