Home Vacancy Tax Revisions Approved

Under the new decision, empty homes in cities with a population of over 100,000 will be taxed after four months based on their assessed rental income tax on a monthly basis.

The owners of these properties will have to pay six times more than the rental income tax in the first year, 12 times more than the rental income tax in the second year and 18 times more than the rental income tax in the third year and the following years, IRNA reported.

New homes will be subject to vacancy tax after 12 months since the end of the construction project (as per the date printed in their construction permit). The proposal also pushes the deadline for vacancy tax of new homes built as part of mass construction projects; they will be taxed 18 months after the end of their construction project.

The parliament required the Iranian National Taxation Administration to notify property owners of empty homes one month prior to the deadline, in cooperation with the Ministry of Information and Communications Technology.

Householders are required to register the main residence of the family in the nationwide online database of all residential properties across the country, the so-called National Property and Housing Database within two months of the publication of this legislation’s guidelines.

Unregistered homes, owners of which have failed to log on their postal code and ID number in the database, will be accounted as empty homes.

Clause II of the new proposal says each household is allowed to name one more of property as the second home, provided it is located in a city other than their primary residence.

Second homes will enjoy exemption from vacancy tax.

University students studying in cities other than their own hometowns are allowed to register another property besides their principal residence and second homes, and enjoy exemption from vacancy tax.

Residential properties used lawfully by businesses, institutes and companies would be exempt from vacancy tax, provided they have been registered in the National Property and Housing Database.

All persons subject to the code are required to update their new information in the database within a month, in the event of any change in their place of residence as a result of the home sale.

Executive bodies are only required to provide services, including opening bank accounts, welfare programs, selling electricity, water, landline and natural gas subscriptions, school registration, etc. to residents based on their postal code and address uploaded on the National Property and Housing Database.

According to Mehdi Toghyani, the spokesperson of Majlis Economic Commission, the government and parliament are of the same opinion regarding the taxation of empty homes and that the new reforms to the legislation have been sent to the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws—for final approval.

A motion to consider the adoption of a vacancy tax was originally passed in the Iranian year ending March 2016. It is stipulated that if a home remains vacant for more than one year, it would be subjected to Vacancy Tax.

Homes with a floor area of 150-odd square meters would be subjected to tax at the rate of 20% of the property’s rent value.

The Ministry of Roads and Urban Development was then tasked with designing, in cooperation with a number of other affiliated organizations and entities inside and outside of the administration, a database containing information on all residential units and homeowners across the country and handing it over to the tax administration.

Three months ago, Minister of Roads and Urban Development Mohammad Eslami said the nationwide online database of all residential properties across the country had finally been completed and submitted to the Iranian National Tax Administration; the tax authority would issue tax statements as of the beginning of summer. Summer began on June 21, 2020.

Implications Under Scrutiny

A prominent housing expert says vacancy tax would hardly push down rents or home prices in the short run.

Fardin Yazdani, who is the author of the Comprehensive Housing Plan of the Ministry of Roads and Urban Development, added that from the get-go, he approved of taxing empty homes in principle.

However, “it can’t be a powerful tool in the effort to curtail home prices and rent levels in the short term, given the fact that most empty residential properties are located in the luxurious, expensive northern districts of the capital city,” he was quoted as saying by Hibna.

“These under-used housing units have been built as a means of investment as opposed to a place of living. Therefore, they will have little effect in bringing the housing market back to equilibrium. The same is true about tenancy market. Demand for such homes is low among renters.”

He noted that it is important to set tax rates with acceptable deterrence level that spur property owners to use vacant homes either by renting them out or selling the properties off to someone else who actually plans to use it.

Yazdani said that in the long run, however, vacancy tax would lead to a shift in investment preferences in the housing sector.

“Investors will put their money into mainstream housing units rather than high-end homes with high-maintenance cost. Policymakers also need to work out an appropriate mechanism of calculating and applying vacancy tax if they wish to see meaningful results,” he concluded.

Demographic Projections

According to the Housing Comprehensive Plan (March 2017-27) drafted by the Ministry of Roads and Urban Development, the Iranian population will reach 88.2 million in the year ending March 2027.

Projections show 68.2 million would be living in urban areas and 20 million in rural areas by then. The number of households will hit 28.7 million, of whom 22.1 million will inhabit cities and 6.15 million villages.

Newly-formed families will need 4,076,000 homes over 10 years to March 2027 (including 3,997,000 urban households and 79,000 rural households). The country will be short of 1,370,000 homes (including 673,000 units in cities and 697,000 in villages). A total of 5,313,000 homes, including 3,003,000 in cities and 2,310,000 in villages, have to be repaired or rebuilt by then.

From the Iranian year ending March 2007 to the year ending March 2017, close to 590,000 residential units were produced and supplied to the market. The highest and lowest number of homes constructed over these years were registered for the year ending March 2013 with 820,000 and the year ending March 2017 with 390,000, respectively.

About 2.5 million homes in the country are empty. The optimal ratio of vacant house is considered to be 5% in urban areas and 2.5% in rural areas whereas it is 10.3% in Iran’s urban areas and 8.5% in rural areas. The Housing Comprehensive Plan says the number of vacant homes must decline to 1.4 million (1.1 million in urban areas and 300,000 in rural areas.)