Chinese Entry Into Iranian Construction Market Raises Concerns

The head of Iran's parliamentary construction commission has announced that Chinese companies are set to enter the Iranian housing market starting from April, raising fears of a resulting financial crisis.

The deal to bring in Chinese companies comes as the Iranian government seeks to gain access to Chinese technologies, but despite potential benefits, concerns arise regarding the substantial debt Chinese construction companies carry, totaling over $390 billion as reported by The New York Times in 2023.

The possibility of bankruptcy post-project launch could lead to heavy legal complications for Iran but amid global sanctions, the desire for foreign investment outweighs the potential risks.

According to Mohammad-Reza Rezaei Kouchi, “Chinese investment in Iran's construction industry will grant them a share in building projects and unit sales.” However, he added that the cooperation model solely involves investment, with Chinese funds entering the market and no plans for utilizing Chinese labor.

Experts say the Chinese housing initiative aligns with the 25-year cooperation agreement between Tehran and Beijing. Signed in 2021, a leaked version of the agreement's final text is quite broad, yet Tehran officials, grappling with an unsolved economic crisis, anticipate it will attract $400 billion in investment.

The Iranian housing sector already faces challenges, with many local companies struggling due to rising costs, inflation, and reduced demand. President Ebrahim Raisi's pledge to build one million housing units annually has failed, especially considering the high average housing prices in Tehran compared to the minimum wage.

The average cost for one square meter of housing in Tehran is roughly 600 million rials ($1,000), far exceeding the monthly minimum wage of about $100.