China's Housing Project In Tehran Stirs Legal, Economic Concerns

Tehran’s municipality has announced that China will soon start building housing units in the capital, raising question about surrendering public land to foreign companies and other issues.

Mayor Alireza Zakani, who has recently visited China, announced earlier in February that several contracts have been signed with Chinese companies to revamp the capital’s infrastructure, including construction and transportation projects.

The Iranian capital grapples with severe housing and transportation challenges, characterized by exorbitant real estate prices that are beyond the means of ordinary Iranians, who can barely afford rent. Daily congestion on Tehran's main streets and highways often transforms short journeys into hours-long ordeals.

Zakani announced plans for the construction of hotels, buildings, amusement parks, and water parks within Tehran, adding, "We have finalized agreements to develop five five-star hotels in collaboration with Chinese companies, building 200,000 housing units, and establish two amusement parks and two water parks in Tehran." In January, Hamidreza Saremi, Zakani’s deputy, said that parcels of land exceeding one hectare in size in the southern regions of Tehran have been allocated to Chinese firms. In December, Hassan Tizmaghz, an advisor to the Minister of Roads and Urban Development, said that Chinese and Belgian companies have presented housing construction proposals, ranging from $200 to $300 per sq meter across Iran, well below construction costs in neighboring Turkey, where the minimum rate is $500 per sq meter.

Of course, some observers take the news with a grain of salt. First, there has been no word from the Chinese side confirming such a deal. Second, building affordable housing has always been an election season promise in Iran, with incumbent Ebrahim Raisi promising in 2021 that he would build one million units. Now, parliamentary elections will take place on March 1, a good time to renew housing promises.

Economic journalist Reza Gheibi told Iran International that Chinese encroachment into Iran's construction sector would have adverse effects related to opacity in the financial details of the scheme and its impact on local companies.

It is not clear what concessions the Iranian government will offer the Chinese and how it is planning to pay for their services, given that it faces a financial crunch.

Gheibi explained that the Chinese housing project is in line with the 25-year cooperation agreement between Tehran and Beijing. The pact, signed in 2021, has been very controversial in Iran because its details have never been disclosed. A leaked copy of the final text is very general, but Tehran officials, beleaguered by economic crisis they cannot solve, hope it will bring $400 billion in investment.

According to Gheibi, even without a strategic and long-term agreement, the Islamic Republic would welcome the Chinese housing scheme because it faces serious economic issues, especially attracting foreign investment, with no solutions in sight. He believes that Iran seeks to export oil and other products to China in return for construction projects, characterized by “a barter of oil for technical, engineering and construction services.” There is a catch, however, Gheibi says, highlighting that China has the upper hand in such deals, therefore it will impose its prices and terms, including more discounts on Iran’s crude and higher prices for its contractors.

With over $390 billion in debt in total, according to a New York Times report in 2023, Chinese construction companies' entry into the Iranian housing sector bears the risk that these companies announce bankruptcy after launching projects in the country, creating myriads of legal issues. Iran, of course, offers opportunities for Chinese firms. According to Tejarat news website in Tehran, most of Iranian construction companies are in slump or went bankrupt due to rising costs, inflation and a lack of demand in the country’s housing sector. Geibi said, “The Iranian market is a golden opportunity to reduce the accumulated debt of some of these companies.”

He also expressed concern about the “allocation” of public lands in Tehran to Chinese companies, pointing out that according to the Iranian constitution no foreign entity is allowed to own land in Iran. Gheibi said the Iranian authorities have not elaborated what they mean by allocating land to Chinese firms, underlining that the Islamic Republic prefers to have China as a stake holder in Iran. “Some analysts have said that the Iranian regime would like China to own assets in Iran, particularly in Tehran, so that in sensitive situations, such as a possible war, backs the Islamic Republic to protect its own properties.”