As demand picks up, so will productivity; and boosting bank lending is the best policy to stimulate demand in the housing sector hit hard by the recession in the past couple of years — that was an argument raised by Iran’s Ministry of Roads and Urban Development 18 months ago when it proposed a hike in mortgage loans. The Money and Credit Council, the highest policymaking body of the central bank, eventually agreed May 19 to almost double the borrowing limit for first-time buyers in Tehran to 800 million rials ($24,000 at the market exchange rate).

Another significant decision made by the council was the de-monopolization of the mortgage market. Since 2008, Bank Maskan had been the only commercial bank authorized to give housing loans. Now 21 other lenders are free to join the club. However, as proposed by the ministry and confirmed by the council last week, a fund dedicated to helping home buyers — "housing deposit fund" — must first be created in banks. Under the second approval, non-first-time buyers would receive maximum 600 million rials ($18,000) in loan from any commercial bank in Tehran. If applicants live elsewhere, in the cities categorized as "large" or in "other urban areas," they may receive 500 million or 400 million rials ($15,000 or $12,000), respectively.

Despite the rise in mortgage ceilings, observers believe serious challenges are still on the way of potential applicants. Under the new approvals, first-time buyers living in Tehran, large cities (with population of more than 200,000) and “other urban areas” (towns) need to make a deposit of 400 million, 300 million and 200 million rials ($12,000, $9,000 and $6,000), respectively, in Bank Maskan for at least a year to become eligible for receiving the maximum amount of loans. That is a distressing condition for low- and middle-income households and additionally would mean that applicants should wait for as long as 12 months even if they decide to open a deposit right away. The new policy, therefore, cannot lead to immediate demand stimulation as expected by advocates.

According to Ali Asghar Mir Mohammad Sadeghi, credit deputy at the central bank, the resources needed for first-time buyers’ mortgage loans are to be provided from the repayment of loans to the applicants of Maskan-e Mehr Project, a housing scheme started in 2011 aimed at building around 2 million housing units for low-income people across the country. Sadeghi noted that the resources will only be enough for 84,000 applicants during the seven-year period, while 5.3 million tenants across the country can potentially apply for the loans, with 2.5 million being categorized as low-income.