How does the banking system increase property prices? / The footprint of banks in housing inflation

According to Tejarat News, the entry of banks into the housing market and the accumulation of property by them has been one of the main drivers of the increase in housing prices in recent years. These institutions increase housing prices in an area by refusing to sell their surplus properties and setting high prices for them. But basically, what is the reason for banks to enter the housing market and accumulate property?

The reason for the entry of banks into the real estate market

Banks often buy land and real estate to provide support to the central bank, but now it can be said that the issue of earning profit is also important for them.

Banks buy properties, and with the increase in the price of the property, the amount of their assets also increases; The increasing housing inflation in Iran is also the reason for this action and increases the attractiveness of entering the real estate sector with the aim of earning profit.

Banks, on the other hand, can purchase land with different uses and in the process of building commercial, residential or recreational complexes, the owner has added value, and in this way they can also profit through the built properties of the owner.

The investment of thousands of billions by banks in the real estate market has always been criticized by economic experts; They believe that instead of spending their resources to provide facilities to the production sector, the banks have entered into the volatility of the housing market.

In general, it can be said that the performance of banks is mostly in the field of carrying out financial activities, but following the economic crises in Iran over the past few years, banks have turned to investing in the real estate market in order to avoid their own disharmony and provide sources of interest for depositors. An approach that has been involved in increasing housing prices. But how do banks encourage price increases and speculation in the housing market?

The history of banks entering the housing market

Mansour Ghaibi, an expert on the housing market, told Tejarat News about the entry of banks into the real estate sector: “The root of this issue goes back to the previous years and it became more widespread during Mahmoud Ahmadinejad’s government. At that time, we saw the entry of banks with different names and suffixes and prefixes in the country’s economy.

He continued in this regard: “I remember about 600 banks or pseudo-banks were established at that time, and in order to get the license of the central bank, they needed financial support. The best financial and credit support, unfortunately, according to Maymelk Central Bank, is the apartment. And it was the earth.”

Converting property into commercial goods

Ghaibi also explained about the impact of banks’ entry into the real estate market: “These financial and credit institutions were forced to buy property and land, this factor caused high prices and speculation and property became a commercial commodity. The person who turned a consumer product into a commercial product is a part of the government body that values ​​a commercial value and gives commercial support to banks based on this value.

This housing expert continued regarding the accumulation of property by banks: “In this way, banks started to accumulate property and land, as well as purchase and participate in the construction and production of housing. Meanwhile, different companies with different names were created and it is interesting that after that, the banks themselves denied the connection with some of these companies; But later it became clear that a bank with different names participated in the construction and, for example, built a passageway.”

Bank hoarding liberalization plan

This housing market expert said about the release of the accumulated properties of the banks: “These issues have caused these accumulated and hoarded properties not to be released until now. In 2013, the parliament notified the government in a resolution that in the next four years, this accumulation and hoarding of land and housing should be freed from the hands of the banks, and every year 25% of real estate resources should be freed and sold.

He continued: “Based on this, heavy fines and taxes were considered for banks; “As far as the high and main managers of these banks have been notified, if they cannot fulfill their obligations in the country, a sentence will be issued for them.”

Ghibi said about the process of this release: “Perhaps even 20% of these resources have not been released until today, neither the law has been implemented nor the force of the government reaches them, and the interesting thing is that sometimes they accumulate them under various pretexts.” Based on the wrongly implemented policies, banks have tied their credit and life to property, apartments and land.

Profit of banks in the field of real estate

This housing market expert also explained about the profitability of accumulated properties for banks: “In a series of banks, the properties that were guaranteed and seized by the bank are saturated, and when it is said that these properties are returned, they see a profit in this field.” They have also done so and for this reason they refuse to release these properties. For example, the value of a property was 1 billion a few years ago, and the bank seized it due to the non-implementation of the guarantee of a natural or legal person, and now that it sees its value increasing every day, it no longer sells it.

He continued: “Is it possible to withdraw these funds from such an institution and system? That is, a law with this power and strength could not do this work, several ministers of economy were changed, several governments were changed and they were not able to do this work.

Ghaibi also stated: “The problem is that a sovereign vote and a special kind of power is needed to compel the banks to release the assets, in which case it will benefit the people one hundred percent.”

As mentioned, every year the government asks the banks to sell their surplus property and land, but they evade this task every time and indirectly prevent them from selling especially by raising the rate of these assets.

This action can raise the price level of housing in an area by increasing the expectations of the owners and also face a decrease in housing supply on the other hand. In this regard, experts believe that the majority of vacant residential units in the country are owned by banks.

Also, experts in this field say that such an entry into the field of housing and speculation in the real estate market by banks, which in general have other duties in addition to the housing market, will have a negative impact on other financial markets.

Read the latest housing news on Tejaratnews housing page.