Residential/Non- Residential: Much In The Pipeline, Little On The Ground
BMI View: Despite sanctions and a falling currency Iran's Residential/Non- Residential construction sector sees newer and grander announcements. Unable to verify this data we remain cautious and have not incorporated them into our still bearish forecast of -3% year-on-year real growth in 2013. We believe the residential and non-residential sub-sector will fair particularly poorly, underperforming infrastructure as a constituent of total construction, as domestic purchasing power slumps and the costs of inputs into the building process rise incrementally in the face of a collapse of the Iranian Rial.
Demand for housing stock has traditionally been a key driver for the construction sector in Iran, but now, on the back of an intensification of international sanctions in response to the country's nuclear programme, the sector is falling behind. In January 2011, the country was facing a housing deficit of 1.5mn housing units. However, despite a dire economic outlook, state media continues to announce newer and grander projects (similar announcements seen in all construction sub-sectors).
|Nominal GDP (US$bn), Real Growth (%)|
A potent example being the statement by then Minister of Housing and Urban Development, Ali Nikzad, (who has now become the Minister of Transportation and Housing) who claimed that a total of 1.7mn units were in the pipeline or under construction, with two Turkey-based firms carrying out a project to build 25,000 units. We have been unable to confirm this data. Yet questions should be raised as to how this flagship development is being financed. As a result we have not incorporated this into our overall construction forecast, that remains weighed down by heavy sanctions.
|Sanctions Weigh Heavy|
|Construction Industry Value (US$bn), Real Growth (%)|
Similarly, Iran's north-eastern Razavi Khorasan Province reportedly saw the delivery of 3,030 residential units in 2010/11, while a total of 440,000 units were delivered nationwide over the 12-month period. The Iranian government seemingly continues to ramp up residential construction to narrow the country's housing deficit, with 800,000 units planned to be built in rural villages. Iran's housing and urban development ministry issued 700,000 building permits in the year to March 2011.
Following a government announcement in February 2011, Turkish construction firm Kusadasi is to build 20,000 new housing units in Parand near Tehran. The project is part of an expansion of cooperation between the two countries in residential construction. The planned units will be completed in a period of 18 months. The two countries are also reportedly considering developing industrial towns along their shared border to boost trade.
Yet despite these ambitious announcements the residential sector is still dominated by the massive Mehr housing project. In July 2010, deputy housing minister Jamshid Noorsalehi announced that five foreign companies had concluded contracts to build 40,000 houses for the project. Land was prepared for building 1mn residential housing units in Q310, and in September 2011, it was reported that the scheme will see the construction of 430,000 urban residential units in early 2013; again, we have been unable to verify this data. Around 20,000 housing units will be built by a Turkish company and 5,000 housing units by a South Korean firm in the new city of Parand.
However, a project that does appear to see the light of day is the US$830mn Fars Shopping Complex in Shiraz (though still unclear what retailers will fill the vast space) where UAE developer Royal Star International has recently completed extensive work. Construction Week reports that the 420,000m2 centre houses 2,500 shops - more than any other mall in the world. The mall, opened in September 2011, is also said to include a five-star hotel, an exhibition and a conference centre as well as an amusement park.
Finally, the latest census figures indicate that Iran has more than 730 hospitals and clinics. Around 10% of this capacity is operated by the private sector or organisations such as the Social Security Organisation of Iran. However, the imposition of trade sanctions on Iran is reported to be significantly affecting the care, due to constant lack of supply.