Tremors in Tehran's Rental Market: Why Do Landlords Want Their Money Upfront?

Tehran's rental financial structure this autumn points to a shift in priorities. Deposits now account for a larger share, and the payment pattern for housing costs has entered a new phase for both landlords and tenants.

Sefir Arjan-Economic Group: In the housing market, changes are not always revealed by an increase in the rental price or a jump in the purchase price. Sometimes a more important sign is the transfer of money between the beginning of the contract and the monthly payments; A change that can change the housing financing conditions for households without changing the appearance of the house. The information related to Tehran rental files in the fall paints such a picture: the role of the initial amount of the contract has become more prominent and the rental financing pattern has changed compared to the previous months.

In order to understand this shift, one should pay attention to two numbers. In mid-summer, about 25% of landlords offering apartments preferred a contract without monthly rent; But in the fall, this ratio has reached about 33%. Simply put, now almost one out of every three files offered is dedicated to the full mortgage method; A model where the tenant pays an agreed amount as a deposit and monthly rent payments are eliminated.

This change is not only about the type of contract; The main issue is the time and form of payment. In a contract with monthly rent, a part of the housing cost is paid over time; But in full mortgage, the financial burden is transferred to the beginning of the period. Therefore, a tenant may face a monthly payment waiver, but have to provide additional cash resources to move into the home. On the other hand, instead of receiving gradual amounts, the lessor takes the entire agreed deposit at the beginning of the contract.

The general picture of the autumn files also shows the same shift from another angle. The share of Pulpish in the composition of contract amounts has reached about 65%; The figure presented in the published information is the highest level in recent years. This number indicates the increase in the weight of the deposit in the financial structure of rental files; However, it should not be equated with the share of full mortgage contracts. The first index shows the share of money advance in the financial composition of files, and the second index is related to contracts that do not have monthly rent.

Four variables behind new decisions

Why might the owner prefer receiving money at the beginning of the contract to monthly income? The answer cannot be narrowed down to a definite cause; However, four variables can play a role in explaining this behavior.

First, investment opportunities. A landlord who is deciding between receiving incremental rent and holding a larger amount may also consider the possibility of using that money in other property markets. In such a situation, the comparison between financial options can affect the type of contract; However, the available information does not show how much of the observed change is directly caused by the returns of these markets.

Second, the uncertainty of the war's prospects. Continuing to worry about the future can make financial planning more difficult for some households and affect the way cash resources are managed. However, the relationship of this situation with the increase of full mortgage is an analytical possibility and to prove it, direct data about the motivation of lessors is needed.

Third, the timing of the financial needs of the owners. Some landlords may need a significant amount of money at one point in time to make a purchase, settle an obligation, or cover certain expenses. Receiving a higher deposit can be more compatible with such a need; However, the true motivation of each owner cannot be determined solely from the type of contract.

Fourth, the financial power of tenants and the possibility of agreement. The structure of the contract is not determined only by the will of the lessor. The amount of the tenant's savings, his access to cash resources and the ability to pay monthly are effective in choosing between a higher deposit and continuous rent. Therefore, increasing the supply of complete mortgage files does not necessarily mean the possibility of choosing this contract for all applicants.

Changing payment methods, not necessarily cost reductions

The important consequence of this trend should be found in the distance between the ability to provide initial money and the cost of continued living. A household that has a limited monthly income but does not have significant savings may face more restrictions against files with high deposits. On the other hand, a renter who has enough cash can consider eliminating the monthly payment as a viable option.

However, from the increase in the share of the deposit, it cannot be concluded that the real cost of rent has decreased. For such a judgment, the amount of advance payment, the equivalent monthly rent, the duration of the contract and the terms of the agreement must be checked simultaneously. Also, the information of the supplied files alone does not provide a complete picture of the final contracts and all market transactions.

What emerges from the available figures is the change in the way the rental cost is divided between the beginning of the contract and the length of the residence period: the share of full mortgage files has increased from about a quarter to a third, and the weight of the advance payment has reached about 65 percent. This shift highlights the necessity of a more detailed examination of households' liquidity and the difference between the initial amount of the contract and the final cost of housing.