The rent ceiling broke? – Tejarat News

According to Tejarat News, although the cancellation of the rent ceiling has not been officially announced, there is no news of it in the markets anymore.

With the silent filing of the ordinance in the rental market, the period of fear and confidence of the participants of this market in relation to the allowed ceiling of rent growth has practically ended. The field research of “Economic World” regarding the autumn conditions of the housing market in the last days of this season shows that while the approval of the ceiling allowed to increase rents up to 25% in Tehran and 20% in other cities has not been successful, the investigations indicate the cancellation of this approval in the market and among the participants of the rental market, i.e. landlords. , tenants and real estate agents. Although this cancellation has not been officially announced, but unofficially, it is observed in the market and no more signs of it can be seen in the housing rental market transactions.
This is despite the fact that in the early days of the notification of this decree, some tenants, citing the decree, wanted to comply with the approved ceiling for rent increase, although in some cases, this request remained mere words and the amount of rent increase was based on the agreement between the landlord and The tenant is determined according to the reality of the market and close to the price offered by the landlords. Investigations by “Dunya Ekotsat” show that this decree has now been unofficially canceled and even the tenants, observing the realities of the market, while requesting the lessors to increase the rent as little as possible in new contracts based on the agreement, do not mention this decree and do not refer to it; In fact, the tenants are trying to adjust the rent level with their purchasing power or bring it closer to it while agreeing with the landlords.

Why was the decree imposed?

At the same time as the corona pandemic crisis was peaking, in 2019, the National Headquarters for Dealing with Corona approved a resolution in which, with the intention of supporting tenants as one of the most vulnerable sections of society, two important requirements were determined that landlords had to comply with. The first requirement set in this resolution was related to the determination of a 25% allowed ceiling for rent increases for the city of Tehran, 20% in the centers of provinces and large cities (with a population of more than 200,000 people), and 15% in other cities (small towns). On the other hand, in this resolution, it was stated that the landlords do not have the right to evacuate the rental unit and evict the tenant, except for justified reasons, such as the need for the property for their personal residence and their children. This resolution was extended in 1400 for another year in the market.

However, in 1401, this resolution was changed from the instructions issued by the National Corona Headquarters to the resolution of the heads of the three powers, and the mandatory ceiling for the rent increase for the city of Tehran up to 25% and for other cities up to 20% was determined in it, and it was also announced that landlords have the right to receive an eviction order. And they do not have the right to evict the tenant from the rented unit.

From the very beginning and looking at the realities of the housing market, it was clear that this resolution was not enforceable, and the market’s view of it was simply a kind of ineffective intervention and no guarantee of implementation in practice; In fact, the market’s perception of this resolution from the beginning was not that this ceiling is compatible with the market realities and can lead to curbing the jump in rents in a situation where all the factors affecting this market have grown much more than the ceiling set for rent increases. . This expectation and view of the market towards this resolution was finally reflected in the official statistics and these statistics can be presented as a document of its failure in curbing the extreme and unbridled growth of rent. In this resolution, as explained, two important restrictions were set, i.e. the restriction on determining the amount of rent increase and also the prohibition of receiving an eviction order. This resolution also had adverse effects on the rental market and according to the middlemen active in the rental market of different areas of Tehran city, especially the high demand areas, it prevented the supply of a part of files that can be offered to tenants for living. In the past three years, due to the restrictions and prohibitions set in this decree for landlords, a group of first-time landlords (people who had purchased capital from the housing market and their unit had the potential to be offered to the housing market) on the one hand, and even a group of experienced landlords in On the other hand, this market has acted cautiously in supplying its units to this market and some of them even preferred to keep their units empty. From this point of view, although the housing rent was supposed to be controlled with a mandated ceiling, due to the decrease in the supply of files and the increase in the gap between supply and demand, it faced a sharp growth in the proposed rental rates and finally high inflation in this market. In fact, this resolution, which was initially approved by the legislator with the intention of protecting tenants, was not only not taken seriously by the market and could not control the jump in rent prices, which, on the other hand, had a hidden and negative effect in the area of ​​reducing the supply of files to the market. with it, which finally showed itself in the form of an increase in rent inflation in the capital and the country. Point-to-point inflation of housing rent in Tehran city and also in the country reached 40% in 2019 and crossed 40% in 1400 and 1401. Even in some parts of last year, rent inflation exceeded 50% in Tehran and the country, and the record of historical rent growth was recorded.

It can be said that this resolution ultimately remained in the form of a paper decree, and on the other hand, it became a kind of intervention and reaction in the form of ending the lease of some landlords and reducing the number of the first landlords in this part of the real estate market. Also, the volume of underground contracts increased due to the fear of some lessors about the consequences.

Roofing deposit at the end of autumn

However, the field research of “Duniya Ekhtsot” shows that, in the third year of the implementation of the ordinance in the rental market, in the last days of autumn, this ordinance has been unofficially canceled by the participants of the rental market; In fact, there is a kind of silent submission for mandatory capping in the rental market on the one hand and the ban on receiving eviction orders on the other hand. However, in the past three years, the inflation of housing rents has increased by a significant distance from the set ceilings, and the rents in the whole country have grown up to twice the set ceiling.

The narrative of the brokers of the housing rental market transactions in Tehran city from the last autumn days of this market in 1401 shows that the resolution to comply with the ceiling of 25% rent increase is no longer even in the words and requests of the tenants. Also, orders for the evacuation of residential units are issued to the applicants as per the normal procedure, and the restrictions and prohibitions of the corona virus in the rental market have been silently removed.

Although it was announced in this resolution that what has been determined will continue and be in place until the end of the Corona period. Now, not only Iran, but the whole world has gone through the epidemic stage and the difficult and critical period of the Corona pandemic, so although it has not been officially announced that the period of this decree has ended, the market has silently canceled it and the normal routine of determining the rent and receiving Evacuation orders have returned to it.

The incompatibility of the rent ceiling with its drivers

The investigations of “Duniya Ekotsat” show that the most important and the main reason for the failure of this resolution in the past three years, which finally led to its complete deposit and unofficial expulsion from the rental market in the last days of autumn, is due to its incompatibility with the economic realities of this market. Rent prices in Iran are determined and increased mainly under the influence of two important factors. The first is general inflation and the second is housing inflation. In a situation where the country is facing high general inflation and jump in housing prices, it is impossible to expect the effectiveness of an order in the rental market, and it is not possible to control the jump in rent due to the jump in drivers affecting this market with any decree or order. This is despite the fact that in recent years, in addition to general inflation and housing inflation, other factors such as currency jumps, etc. have also affected this market and intensified its fluctuations, so since this resolution could not and could not deal with the drivers affecting the rental market And the realities of this market to communicate practically remained at the same level as the paper ceiling (order on paper), and even now it has been completely expelled from the market.

Of course, in all the past years, regardless of setting a mandated ceiling for the rental market, some landlords, for various reasons, such as lack of financial need, satisfaction with the tenant, fairness in pricing, etc., extended the contracts with rates even lower than 20 to 25 percent or so. have limited and this matter has practically nothing to do with this resolution, however, the investigations of “Duniya Ekosat” show that this fall, two types of contracts with two different rates of inflation were concluded in this market, all of which are based on an agreement between the lessor and the lessee and not on anything else. There has been another!

Autumn rent inflation in the capital

The field research of “Economic World” shows the latest situation of rent inflation in the consumption areas of the capital, such as areas 4 to 10 of Tehran, the autumn housing rental contracts in these areas have been extended or written, mostly and on average, with two levels of inflation. In the extension contracts, on average, the tenants have accepted an increase of 35-45% and in some limited cases higher than this amount and agreed with the landlord. In the new contracts, an increase of around 50% has been considered compared to the previous year. Although there are exceptions and some renewals or new contracts have been written with lower or higher rates than what was announced, these figures are the average rent increase in the autumn housing rental contracts according to the market.

Tenants have also accepted

The field research of “Economic World” shows that the tenants have also accepted the reality of the rental market and no longer talk about the 25% extension of the contracts in accordance with the decree.

However, they are still affected by the pressure of renting and severe inflation in this market, they request to extend the contracts with the lowest possible figures. Meanwhile, there are also landlords who renew contracts at rates lower than the market, for this reason, the renewal rates are much lower in terms of the rate of rent growth in extended contracts compared to new contracts, but still, as it was announced, the average rent increase in Compared to last year’s contracts, the new contracts are significantly higher than the 25% ceiling.

Entry of waiting suppliers to the market

But under the influence of the loss of trust and reliance of some tenants on the decree on the one hand and the loss of fear and concern of landlords who had refused to sell their units to the rental market due to restrictions and prohibitions, there are signs of the disappearance of this fear and the increase in the supply of files from their side. And the landlord of the first ones is observed in the market; In fact, there are signs of an increase in the supply of files to the rental market, and it is expected that in the coming months, especially in the spring and summer of next year, the volume of the supply of files to the rental market will grow compared to recent months. It is also predicted that since most of the purchases made in the housing market in recent months were related to capital demand and that a large number of these units are still empty, a part of these units will also be offered to the rental market, but that housing rent inflation will continue. At what level it is, increase or decrease, etc., depends directly on the state of inflation expectations, general inflation and housing inflation and other factors affecting this market (as well as the conditions of other markets, especially the currency market).