Market in Depth

Iran: A society in flux

July 29, 2008

Iran is not the closed society some would believe. It is working through major changes, and is not inhospitable to foreigners.

Foreigners may own or lease property if the property is for commercial or industrial use, or for a personal residence. In the latter case, the foreigner must normally be resident in Iran. Foreigners may not own agricultural lands.

Iran inflation rateFor non-residents, the Council of Ministers may grant the right to own a dwelling to a foreigner who lacks a permanent residence permit, but travels regularly to Iran for tourism and/or seasonal recreation.

The election of hardline President Mahmoud Ahmadinejad in June 2005 renewed tension between Iran and the West. Ahmadinejad's anti-Israel remarks and his open espousal of nuclear technology have already brought invasion threats from the U.S.

Analysis of Iran Residential Property Market »

Rental Yields

Yields - no GPG view on yields in Iran yet

We have too little information to form a view on yields.

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Taxes and Costs

Rental income tax in Iran is moderate to high

Rental Income: Net income under IRR30 million (US$923) is taxed at 15%. The rate rises progressively to 35%.

Capital Gains: There is no capital gains tax.

Inheritance: Inheritance taxes are levied at progressive rates from 5% to 65%.

Residents: Non-Iranian individuals are subject to tax only on income earned in Iran.

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Buying Guide

High costs for new constructions in Iran

Round-trip transaction costs, i.e., the total cost of buying and selling a property, are around 3.60% to 5.60%. The main costs are stamp duty and the registration fee.

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Landlord and Tenant

Iran's law and practice are pro-landlord

Iran traditional stone housesIran’s legal system allows landlord and tenant to contract freely, and enforces landlord’s rights.

Rent: The rent can be freely agreed, as may the deposit.

Tenant Eviction: The court must order an eviction within seven days tf an application is made to the court for an eviction order after the lease expires.

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The Iranian Revolution: A failure?

Iran housesThe Islamic Republic of Iran (pop. 71 million; GDP per capita US$3,400) stands as the bulwark of Shia Islam in contrast to other predominantly Sunni Muslim states such as Saudi Arabia.

Whatever else may be said about the Iranian revolution, as an economic model it has been a failure. During 1960-1976 Iran enjoyed one of the fastest rates of growth in the world, with an average 9.8% real GDP growth. Today Iran’s per capita income is lower than before the 1979 revolution.

Iranian suffers from high inflation, at 19%, and routine currency depreciation. The financial sector is state-controlled and inefficient. Parliament, which sets interest rates, legislates unrealistically low rates, so people are reluctant to deposit money in banks.

Iran GDP per capitaAn associated problem is capital flight. More than 400,000 Iranians are estimated to have moved up to US$200 billion to Dubai recently, to invest in the UAE’s burgeoning real estate sector.

Recently, economic growth has picked up. Almost all trade protection has been eradicated, and the exchange rate regime was removed in March 2002.

The oil sector’s share of GDP has declined from 30%-40% in the 1970s to 10%-20% today, but oil revenue sill provides 80% of export earnings and 40% of government revenue.

Iran real GDP growth grapht“Many domestic investors have decided to pull out their money and invest in the production sector abroad, especially in the UAE, simply because they don’t feel safe to invest in Iran," says the English-language Iran Daily. "Such decisions can be attributed to the high inflation rate, high taxes and tariffs and absence of an effective pricing mechanism.”

There is a severe housing shortage. Every year 800,000 new families are formed, but only around 450,000 housing units are built. Iran needs needs to build over one million housing units annually, but is failing to do so.