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Iran: Open for Business

April 2016

After being off the international radar for decades, the lifting of sanctions has opened the floodgates for MENA region’s second largest economy.

Even before the sanctions on Iran were lifted by the international community in January this year, realty consultancy JLL named capital Tehran among the top 10 cities in the world with maximum potential for the real estate sector this year – and with good reason. True to the forecast, in less than two months after the sanctions have been lifted, the Iranian government has already engaged with more than a dozen big economies, laying out the red carpet for investors and business partners. State visits and deals have been lined up in a tight calendar, newer countries are lifting the sanctions on Iran by the week and the country is in a hurry to make up for the lost decades.

The reach out

Iran’s 400 billion dollar economy is already among the top 30 in the world – and the second largest in the Middle East & North Africa (MENA) region, after Saudi Arabia. After reporting negative growth during the worst years of the sanctions, Iran’s economic fortunes turned with a change in regime in 2013 and the country is on course for a steady 4 percent GDP growth over the next few years. Inflation, the big indicator of economic health, has already come down sharply from 45 percent in June 2013 when the current President Hassan Rouhani was elected to succeed former President Mahmoud Ahmadinejad, to less than double digits now.

Despite being the world’s seventh largest oil producer, revenues from oil account for just 15 percent of Iran’s GDP, and with a share of 51 percent, the services sector is the biggest contributor to the country’s GDP. “The Iranian government is serious about inviting foreign participation in terms of capital, technology and expertise to give a much-needed boost to key sectors like aviation, manufacturing and tourism. The government’s leaders are personally reaching out to potential international partners to instil confidence in investors, companies and countries,” says Shahin S Shamsabadi, Head of Business Intelligence for MENA region at The Risk Advisory Group consultancy.

A big majority of the country’s 78 million population is aged under 30, with a sizeable, educated and globally-aware middle class that drives its local consumption – and the economy. “Iran is a fresh opportunity in a saturated global business environment, especially for the European and Asian players who have been engaging with Iran in a limited way even during the sanctions,” says Shamsabadi, adding that it will be some time before American business warms up to Iran after being totally cut off for decades.

Rush for realty

Thanks to improved economic conditions and favourable policy decisions, the Iranian real estate sector has been gaining momentum over the past couple of years and now the lifting of sanctions comes as a big boost. “Iran’s property market needs cash. While renewed buyer interest and falling interest rates will improve the residential market, the arrival of foreign investors and kicking off of major commercial projects will give a huge fillip to the country’s real estate sector,” says Emad Honarparvar, a Tehran-based industry observer, adding that it will be a while before the impact of lifting the sanctions is felt and the market should pick up by the end of this year.

Besides the economic factors, there are other political and social issues in Iran that foreign investors have to contend with. “While projects with a medium-term timeline will attract foreign investors, the government will have to show stability and policy resolve for the big players to come with a long-term plan for Iran,” says Honarparvar.

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