VZCZCXRO6735
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0023/01 1151025
ZNY CCCCC ZZH
P 241025Z APR 08
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0264
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0257
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0228
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0196
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000023 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  4/24/2018 
TAGS: ECON PGOV PREL SOCI IR
SUBJECT: IRAN: REAL ESTATE MARKET CCONTINUES TO THRIVE (C-NE7-01996) 
 
REF: RPO DUBAI 0006 
 
RPO DUBAI 00000023  001.2 OF 002 
 
 
CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional 
Presence Office, Department of State. 
REASON: 1.4 (b), (d) 
 
 
 
1.(C) Summary:  According to several Iranians working in the 
construction business, real estate prices in Tehran have almost 
tripled in the past 3 years, and continue to grow with no signs 
of abating.  Urbanization is one of the factors attributing to 
the rise in property prices, as demand outstrips supply. 
Additionally, wealthy Iranians view real estate as one of the 
few sound investments inside the country in an uncertain 
economy; as property prices went up a growing number of wealthy 
Iranian shifted their assets to real estate, say Iranian 
contacts.  According to two Iranian developers many home buyers 
cannot afford the steep prices and have few choices, especially 
as rents have also increased as a direct consequence of higher 
real estate costs.  Property prices in Tehran and other main 
cities to be provided septel.  End summary. 
 
 
 
Housing Prices and construction cost on the rise 
 
--------------------------------------------- --- 
 
2.(C) According to two Iranian real estate developers and 
several visa applicants, the Iranian housing market has 
experienced a price hike over the past three years that has 
almost tripled home prices in Tehran, and continues with no 
signs of abating.  Though real estate prices have been rising 
incrementally in Tehran on an annual basis for decades, they 
affirmed that prices in Tehran climbed exponentially over the 
past three years, particularly shooting up in 2007, during which 
property prices essentially doubled.  Real estate prices in 
other parts of the country have also increased significantly, 
however in a more gradual manner, according to visa applicants. 
A young couple from Tehran described to ECONOff that the one 
bedroom apartment they bought for 78 million tomans ($78,000) in 
2006 was valued at 170 million tomans ($170,000) in late 2007. 
(Property prices in Tehran and other major cities to be provided 
septel.) 
 
3.(C) A long-time IRPO contact who owns a construction company 
in Tehran said in early April that the real estate market is 
still thriving despite his personal expectation of a slow down. 
He said in January he was able to sell his newly constructed 
apartment building in northeastern Tehran for about 400 dollars 
per square foot to one of Tehran's biggest real estate firms, 
who expect to resell the property at a higher price.  He 
indicated though that price increases make sense in terms of the 
recent rise in construction material costs; during the past 
three months he said steel prices went up 25 percent and cement 
went up by 50 percent despite the fact that Iran produces 60 
million tons of cement a year, using 50 million tons internally 
and exporting the rest to Iraq and Afghanistan.  He added that 
these commodities are in the hands of government mafia types, 
without elaborating. 
 
4.(C) An Iranian steel industry insider told ECONOff that 
another factor that has contributed to the cost of building 
construction is the increase in labor charges, as a result of 
the Iranian government crackdown on illegal immigrants, mainly 
Afghans.  According to him, many illegal Afghans immigrants 
worked in construction for low wages, as little as 2 dollars a 
day.  But since the crackdown only legal immigrants apply for 
work, and they want about 20 dollars a day (reftel). 
 
5.(C) According to the Tehran-based developer, to obtain 
construction permits, one must get through plenty of government 
red tape, and bribes are often required in order to get things 
done.  An NGO worker visiting from Iran told ECONOFF that 
construction permits have been easier to acquire since Qalibaf 
became mayor of Tehran, apparently on the grounds that new 
construction brings in revenue for the municipality. 
 
 
 
Main reasons behind the rise in house prices and rents 
 
--------------------------------------------- --------- 
 
6.(C) According to one Iranian developer who owns and manages 
construction businesses in various Iranian cities, the sudden 
 
RPO DUBAI 00000023  002.2 OF 002 
 
 
rise in real estate prices started simply because of the high 
demand for housing; demand for housing have been increasing as a 
result of population growth, particularly the vast population of 
young Iranians who are reaching their mid twenties, the age 
where many get married and try to shift to independent living. 
Furthermore there has been a population surge from rural to 
urban areas, particularly to Tehran, where people go to find 
work, attend universities, or move for a better lifestyle and 
better social services, mainly schools and healthcare. 
According to the developer, the real estate market will continue 
to grow for years to satisfy existing shortages and the upcoming 
demands. 
 
7.(C) Iran's construction market has also been thriving due to 
an increase in investment in this sector.  According to an 
Iranian contact who owns an aluminum company, a great amount of 
money entered the real estate market over the past few years, 
particularly the excess oil revenue that is in the hands of 
certain connected government individuals.  In fact, he said many 
nice high rises are owned by members of the IRGC, illustrating 
economic corruption.  And he said the high rate of inflation in 
the past few years has also encouraged people to invest in 
property.  He planned on doing the same, complaining that there 
is no money in manufacturing anymore. 
 
8.(C) Also, a Dubai-based Iranian who is a former economics 
analyst, told ECONOff that since last year affluent Iranians are 
increasingly opting to invest in the highly-profitable real 
estate sector.  He explained that prosperous Iranians who held 
on to liquid assets out of concern about international economic 
and political pressures on Iran can no longer ignore/resist the 
current opportunities in real estate and are shifting their 
money accordingly. 
 
9.(C) A young couple, doctoral students at Tehran University, 
suggested that president Ahmadinejad's lowering interest rates 
from 17-18% to 11-12% also caused some individuals to buy real 
estate instead of saving cash. 
 
Unaffordable housing a source of frustration 
 
-------------------------------------------- 
 
10.(C) Many families are now facing housing problems, 
particularly in Tehran and other large cities.  According to one 
visa applicant from Tehran, a high school principal, many people 
simply cannot afford the current home prices, and young people 
are particularly suffering.  She explained that only wealthy 
Iranians can afford to buy homes, leaving most Iranians with no 
choice but to pay high rents.  Also, according to the young 
couple from Tehran University, many young families like them now 
spend one entire salary on rent; their parents recently helped 
them buy an apartment in Karaj where prices are low (about 150 
dollars per square foot), but they are one hour away by metro to 
Tehran university. 
 
11.(C) The Iranian developer, who has projects in multiple 
cities, also emphasized that many home buyers cannot afford the 
steep prices and have few options.  He said rents have increased 
as a direct consequence of real estate prices, and the absence 
of a mechanism for controlling rents has exacerbated the 
situation.  The developer said that the government is obligated 
to provide decent housing to meet the needs of ordinary citizens 
and is building more housing in city outskirts and in the 
provinces to encourage urban migrants to move back to provinces. 
At this point, however, he surmised that at best this plan can 
only meet about half of the housing demand. 
 
12.(C) According to the Tehran-based developer, a longtime IRPO 
contact, the housing issue gets discussed in the Majles, but 
nothing significant happens to alleviate the problem.  He said 
in the past two years the government has started a program that 
leases land to government workers for 99 years under the 
conditions that they build their own home on it.  He said this 
program is unsuccessful because the lands are in undesirable 
locations on the outskirts of the city, and moreover, the people 
who need housing assistance often cannot afford builders' 
prices.  There are home loans available through Maskan bank (a 
government housing bank), but only in small amounts that are 
inadequate for buying or building a house, the contact said. 
ASGARD