Monday , 29 November 2021

One Million Chinese-Built Housing Units in Iran? Don’t Bet on It

Iranwire – Are the Chinese coming to Iran to build housing? This was the question raised on Tuesday, October 12 after in a series of interviews conducted by Iranian media with members of the Parliamentary Development Committee.

Iqbal Shakeri, a member of the Iranian parliament’s Civic Commission, announced that talks on a proposed mass housing project had opened between Iran’s Ministry of Roads and Urban Development and Chinese contractors. The Ministry, he said, was “negotiating with Chinese companies to bring their housebuilding expertise to our country” but nothing was yet set in stone.

The MP for Jahrom, Mohammad Reza Rezaei Kouchi, had a slightly different take. “The Ministry of Roads and Urban Development has entered into negotiations with some countries, including China,” he clarified. “Of course, I don’t think there’s any need for this, because with our domestic capacity – in terms of engineering capabilities and manpower – we could build one million homes in the country a year.”

A 12-Year-Old Promise

This is not the first time there has been talk of negotiating with the Chinese to build housing in Iran, or of Iran borrowing Chinese construction equipment. Twelve and a half years ago, Iranian media reported extensively on Chinese firms’ apparent readiness to take on the now-infamous Mehr Housing Project, a flagship policy of Mahmoud Ahmadinejad that ended in disaster due to corruption and mismanagement.

Then in 2016, shortly after the JCPOA was signed, the heavy presence of Chinese representatives at the Tehran International Exhibition prompted some media outlets to speculate on Chinese intentions to make inroads in construction in Iran. Last year, it was also reported that Iranian firms were looking to buy some $50 million worth of industrial-scale rapid housebuilding technology from China. The new systems, it was said, would allow for a 19-storey building to be completed in just 15 days.

In the end, however, neither did the Chinese come to Iran to engage with Mehr Housing Project, nor did they rise up to conquer the post-JCPOA Iranian construction industry, and nor has there been any news of the mass installation of prefabricated homes in Iranian cities. With Ebrahim Raisi’s recent promise to build “one million housing units” under his “revolutionary” government, the political stakes are high. But is there any hope?

Why Should the Chinese Come to Iran?

Chinese companies will only invest time and resources in development in Iran if it is economically viable to do so. It also can’t jeopardize their or the Chinese state’s interests in other parts of the world.  

Up until now, the Chinese have not had a large or serious presence in the Iranian housing market. In the past Chinese firms were heavily involved in oil and gas projects, but they left as soon as their international interests were placed in jeopardy by renewed sanctions. Becoming the target of US ire, and the hassle of transferring money, is likely to keep most Chinese housebuilders away.

True, some smaller firms – or larger ones making use of shell entities – might take the risk if a decent profit was on the cards. At best, it’s likely the Ministry of Roads is dealing with second-hand intermediaries and subsidiaries. Even then, what’s the incentive for them? If the Iranian housing market is somehow attractive, it’s definitely not from an investment point of view, given the current social and economic crisis in the country. No reputable company would involve itself in housing in Iran for profit at the moment. The motive, therefore, could well be political.

Responsible Chinese firms have their pick of client countries in the region. Securing a project in the design, supervision and construction of housing would be a much simpler matter in one of the Arab states and would guarantee a better return – unless the Iranian government loosens the public purse strings and makes an especially reckless, tempting offer. Even then, though, where would that money come from?

Who’d Pay for Chinese Housebuilding Services?

The short answer is: nobody knows. Raisi’s original suggestion – that his government was capable of delivering a million housing units – was risible enough in a country in dire economic straits that has seen three consecutive years of 40 percent inflation. To bring in external Chinese contractors would only increase the cost.

As IranWire previously reported, the secretary of Iran’s Society of Mass Housing Builders recently put the cost of a single square meter of land at five million tomans [$1,207]. Assuming an average housing unit is 75 square meters, it would then cost around 375 trillion tomans, or close to $91 billion at today’s official rate, to build a million of them.

The government simply does not have the resources at its disposal to shoehorn such an expansive project into the budget. Foreign currency reserves are running low and the National Development Fund is out of cash after three years of sanctions. The banks will never be willing to lend such a sum at a time when inflation in the housing sector alone is over 100 percent.

That said, in Iran the government – aligned now as it is with the rest of the Iranian regime architecture – might be able to force the banks’ hand over specific projects. The same happened with Mehr Housing. This, too, would spell disaster: money that has no external backing, and exists only on paper for a temporary period, manifests later in the form of ever-higher inflation waves. With or without the Chinese, if the government presses ahead with this project, it could spell the total collapse of the Iranian economy.