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Buying property in Iran: scams and pitfalls

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Everything you need to know is included in our Iran Property Pack

Iran is gaining attention from foreigners interested in real estate, driven by its affordability and potential for investment.

However, keep in mind that the local real estate market can be tricky for non-residents.

Both our property-buying clientele and our local partners have raised several common concerns with us. We've listed them all in our Iran Property Pack.

We’re going to take a closer look at a few of these in this article.

Is it safe or risky to invest in real estate in Iran?

Iran's reputation for safety is generally sound when it comes to the physical security of residential properties.

However, what can catch unsuspecting foreign buyers off guard are the devious tactics employed by certain individuals or agencies. A common scam involves the misrepresentation of property titles, often involving fraudulent documents.

For instance, a prospective foreign buyer may encounter a property with a seemingly clear title, only to discover later that it is entangled in a web of legal disputes, putting their investment in jeopardy.

One of the foremost pitfalls that foreign investors must grapple with in Iran is the country's economic instability. The Iranian Rial has been subject to wild fluctuations due to inflation and international sanctions.

These fluctuations can significantly impact property values and the potential for return on investment.

An illustrative example would be an investor who purchases a property during a period of relative economic stability only to find themselves facing substantial losses if the Rial's value plummets.

While Iranian property laws offer some protections to buyers, they tend to favour Iranian citizens over foreign investors. This can manifest in various ways, such as restrictions on the types of properties foreigners can purchase or limitations on the locations where they can invest.

An example could be a foreign investor seeking to buy prime beach front property, only to discover that such properties are reserved exclusively for Iranian nationals.

Transparency in the Iranian property market, though present, may not meet the standards expected by foreign investors.

Access to comprehensive property records and documentation may be hindered, particularly for foreigners. A concrete illustration might involve a foreign buyer struggling to obtain accurate information on a property's history, ownership, or potential encumbrances due to bureaucratic hurdles or a lack of accessible records.

Navigating property disputes in Iran can be akin to traversing a maze with no end in sight.

The Iranian legal system, while functional, is often perceived as neither efficient nor particularly fair, especially for foreign investors.

A notable case in point is an expatriate who becomes embroiled in a property dispute and finds themselves ensnared in a lengthy and convoluted legal process, leading to frustration and financial losses.

Government regulations in Iran exert substantial influence over the real estate market. Policies can have a direct impact on property prices, ownership restrictions, and tax obligations.

A recent example would be the government's decision to impose additional taxes on certain types of residential properties, causing a significant shift in the market dynamics and affecting the bottom line for foreign investors.

Foreign investors who have ventured into the Iranian property market have shared their experiences, highlighting challenges such as currency exchange restrictions, difficulties in transferring funds, and unpredictable delays in property transactions.

For instance, a foreign buyer may encounter obstacles when trying to repatriate the proceeds from a property sale due to stringent currency controls, resulting in unexpected financial complications.

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Potential real estate buying mistakes in Iran

The concept of "PishForoush" agreements

When buying residential property in Iran, a common pitfall that you might not be aware of, especially as a foreigner, involves the concept of "Pre-Sales Contracts" or "PishForoush" agreements.

This practice is somewhat unique to Iran's real estate market.

In a PishForoush agreement, you essentially agree to purchase a property that is not yet constructed or is under construction. This can be risky because the final product might differ significantly from what was promised or expected.

The frequency of issues arising from PishForoush agreements is notable, given the prevalence of this practice in Iran, especially in cities experiencing rapid development like Tehran or Mashhad.

You should be particularly cautious with these agreements for several reasons. Firstly, the terms of the contract may not be as binding on the developer as you would expect, leading to potential deviations from promised specifications or timelines.

Secondly, there have been instances where the legal status of the land or the permits for construction were not clear or were disputed, which could lead to significant legal and financial complications for you as the buyer.

To mitigate these risks, you are advised to conduct thorough due diligence.

This involves verifying the developer's track record, ensuring all necessary permits and legal documents are in order, and clearly understanding the terms of the contract, including what happens if the developer fails to deliver as promised.

Consulting with a local lawyer who is well-versed in Iranian property law and the unique aspects of PishForoush contracts can be invaluable in this process.

The risk "Sehme Eghtesadi"

Another specific and less known pitfall when buying residential property in Iran, especially for foreigners, is related to the concept of "Sehme Eghtesadi" (Economic Share).

In Iran, particularly in major cities like Tehran or Isfahan, some properties are part of complexes or developments where the ownership of common spaces or amenities is not straightforward.

In these cases, each property owner has a "Sehme Eghtesadi" – a share of the economic value of the common spaces or amenities. This concept is crucial because it can significantly affect your rights and responsibilities as a property owner. For instance, you might be responsible for a proportion of maintenance costs for common areas or have a say in decisions regarding these spaces.

However, the exact details of what "Sehme Eghtesadi" entails can vary greatly and might not be clearly outlined in property documents.

You should be especially vigilant in understanding how "Sehme Eghtesadi" is determined and what it implies for your specific property. This is because discrepancies or misunderstandings about these shares can lead to disputes with neighbors or the property management, especially regarding maintenance costs or the use of common facilities.

Moreover, the concept of "Sehme Eghtesadi" can also impact the resale value of your property.

Properties with a higher economic share in desirable amenities or common spaces might be more valuable, but this also might come with higher ongoing costs.

To navigate this, you are advised to seek clarification on the specifics of "Sehme Eghtesadi" for any property you are considering.

This should include how it is calculated, what rights and responsibilities it entails, and how it might affect both your day-to-day living and the long-term financial aspects of owning the property.

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"Melk-e-Mosta'jer" or leased land

Another specific pitfall in the Iranian residential property market, particularly relevant to foreign buyers, revolves around "Melk-e-Mosta'jer" or "Leased Land" properties.

This concept is quite unique to Iran and can be especially prevalent in cities with historical or governmental significance, such as Tehran, Qom, or Mashhad.

In the case of Melk-e-Mosta'jer, the land on which the property is built is not owned outright by the property owner but is instead leased from the original landowner or a governmental body. This arrangement can have significant implications for your rights as a property owner. The lease terms for the land can vary greatly – some may be for a few decades, while others could be longer.

The critical point here is that once the lease expires, the ownership of the land and potentially the property on it reverts to the landowner.

As a buyer, you need to be acutely aware of the lease terms of the land associated with the property. Understanding when the lease expires and what happens upon expiration is crucial.

There can be situations where the property value depreciates significantly as the lease end approaches, or you might be required to renegotiate the lease, often at a higher cost.

To avoid complications, you should conduct a thorough investigation into the lease terms of any property built on leased land. This includes understanding the duration of the lease, any conditions or clauses regarding lease renewal, and how the property's value might be affected as the lease term nears its end.

Consulting with a local real estate expert or a legal advisor who specializes in Iranian property law is strongly recommended to navigate these complexities.

"Bonyad Mostazafan" or Foundation of the Oppressed properties

A unique and often overlooked pitfall when buying residential property in Iran, especially as a foreigner, is related to "Bonyad Mostazafan" (Foundation of the Oppressed) properties.

This foundation, one of the largest in Iran, owns a significant amount of real estate across the country, including in major cities like Tehran, Shiraz, and Tabriz.

The challenge with Bonyad Mostazafan properties is that they were often acquired or redistributed following the 1979 Islamic Revolution, and their ownership status can be complex and sometimes contested. When you purchase a property that is or was once part of the Bonyad Mostazafan's portfolio, there could be unresolved legal issues or claims against the property that are not immediately apparent.

This can lead to legal disputes or complications in establishing clear title to the property.

You should be particularly careful to verify the ownership history of any property you are interested in. This includes ensuring that there are no outstanding legal issues or claims from the Bonyad Mostazafan or other entities.

In some cases, properties that were redistributed by the Bonyad Mostazafan may still be subject to legal challenges, which can resurface even after several years.

Due to the potential complexity of these situations, you are strongly advised to engage with a local legal expert who has experience dealing with Bonyad Mostazafan-related property issues.

This expert can help you navigate the legal landscape, conduct thorough due diligence, and ensure that the property's title is clear and unencumbered.

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The risk related to "Shari'a Inheritance Laws”

Yet another unique and often unexpected pitfall in the Iranian residential property market, particularly for foreign buyers, is related to "Shari'a Inheritance Laws".

In Iran, property ownership and inheritance are significantly influenced by Islamic Shari'a law, which can be quite different from inheritance laws in other countries.

Under Shari'a law, property inheritance is distributed among family members in specific shares, which can be quite complex.

For instance, if you purchase a property in Iran and it becomes part of your estate, the way it will be divided among your heirs can be vastly different from what is customary in Western legal systems. Daughters, sons, spouses, and other relatives each receive predetermined shares of an estate, which may not align with your personal wishes or estate planning done in your home country.

As a foreign buyer, you need to be aware of how these laws may affect your property in the event of your passing. The distribution of your property under Shari'a law might lead to unexpected outcomes for your heirs.

This can be particularly significant if your family structure or your wishes for your estate differ from the traditional allocations prescribed by Shari'a law.

To mitigate this issue, you should consider setting up appropriate legal structures or arrangements that align with your intentions for the property. This may include forming a company to hold the property or other legal mechanisms that can provide more control over the future distribution of the property.

Consultation with a legal expert in Iranian law, particularly one who understands the nuances of property law and Islamic inheritance laws, is crucial.

They can help you understand how Shari'a inheritance laws apply to your situation and assist in structuring your property ownership in a way that respects both Iranian law and your personal estate planning goals.

"Majmueh-ha-ye Maskuni" or residential complexes

Another unique aspect to consider when purchasing residential property in Iran, particularly for a foreign buyer, is the issue related to "Majmueh-ha-ye Maskuni" or "Residential Complexes" and their management.

This is especially prevalent in larger cities like Tehran, Karaj, or Shiraz, where modern residential complexes with shared amenities are common.

In Iran, these residential complexes often have their own management committees ("Hey'at-e Modiriyeh") and specific regulations governing the shared spaces and facilities.

These committees are responsible for decisions regarding maintenance, security, communal facilities, and sometimes even enforce certain community rules or standards.

As a foreign buyer, it's crucial to understand the dynamics of these committees and the rules of the residential complex you are considering. The regulations and decisions made by these committees can have a significant impact on your living experience and responsibilities as a property owner.

For example, there may be monthly or annual fees for maintenance and upkeep of common areas, and you might have to adhere to certain rules regarding the use of these areas.

You should take the time to familiarize yourself with the management structure of the complex, the existing rules and regulations, and any regular fees or charges. It's also important to gauge the general atmosphere and governance style of the complex's committee. Some committees might be more rigid or active in enforcing rules, which could impact your lifestyle or future plans for the property.

Consulting with current residents or a real estate agent with experience in these complexes can provide valuable insights.

Additionally, seeking legal advice to understand your rights and obligations within these residential communities is advisable.

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"Sanad-e-Melkiyat" or property title deed

A unique and less commonly known issue in the Iranian residential property market, particularly relevant for foreigners, involves the "Sanad-e-Melkiyat" or "Property Title Deed" discrepancies.

In Iran, the accuracy and validity of property title deeds are crucial, and discrepancies in these documents can lead to significant legal issues.

The Sanad-e-Melkiyat is the official document that proves ownership of a property. However, due to various reasons such as bureaucratic errors, outdated records, or unauthorized modifications to the property, there can be mismatches between the actual state of the property and what is recorded in the title deed.

For example, the size of the property, its boundaries, or even the number of rooms might be inaccurately represented in the title deed.

As a foreign buyer, you need to be extremely cautious about verifying that the Sanad-e-Melkiyat accurately reflects the current state of the property. Discrepancies in the title deed can lead to legal complications, disputes with neighbors, or issues with local authorities. This is particularly important in older neighborhoods or in cities with a mix of new and historical developments, like Tehran, Yazd, or Isfahan.

You are advised to conduct a thorough due diligence process, which should include a physical inspection of the property and a detailed examination of the title deed. Comparing the physical aspects of the property with the descriptions in the title deed is essential.

Additionally, it's important to ensure that any modifications made to the property have been properly authorized and documented.

Engaging a local legal expert or a property surveyor who is familiar with the Iranian property registration system is a wise step.

They can help you navigate these complexities and ensure that the property you are interested in has a clear and accurate title.

The awareness of the "Sarresid-e Ejareh" risk

A more specific and often overlooked challenge in the Iranian residential property market, particularly for foreigners, is the issue of "Sarresid-e Ejareh" or the expiry of rental agreements on properties with historical or trust ownership.

This is particularly relevant in cities like Tehran, Isfahan, and Shiraz, where numerous properties are held under historical trusts or awqaf (religious endowments).

In these cases, the property you are interested in purchasing might currently be under a rental agreement or lease that was established by the previous owner under the awqaf system. These rental agreements, often set for very long durations and at below-market rates, can significantly impact your rights as a new property owner.

For example, if you purchase a property with an existing Sarresid-e Ejareh, you might find that you are legally bound to honor the existing rental terms until their expiry, which could be decades away.

This means you might not be able to occupy, renovate, or rent out the property under normal market conditions for a considerable period.

As a foreign buyer, you should thoroughly investigate whether the property you are considering is subject to any such long-term rental agreements. This involves examining the property's legal documents and history, and understanding the terms and duration of any existing leases.

You are advised to consult with a legal expert in Iranian property law to navigate these complexities. They can help you understand the implications of Sarresid-e Ejareh and how it might affect your ownership rights.

Additionally, a local real estate agent familiar with properties under awqaf or historical trusts can provide valuable insights.

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"Nam-e-Melk" or undocumented properties

In the Iranian residential property market, a specific and potentially complex issue for foreigners is the "Nam-e-Melk" or "Undocumented Properties."

Particularly in rural areas or older districts of cities like Tehran, Mashhad, or Qom, many properties have been occupied and used for generations without formal documentation or a clear title deed.

For these Nam-e-Melk properties, establishing legal ownership can be challenging. They may have been passed down through families or informally sold, without the official transfer of ownership being recorded in government registries.

This situation leads to uncertainties, such as unclear ownership with potentially multiple claimants or family members having a stake in the property.

Additionally, the process of legalizing such properties to obtain a clear and official title deed is often lengthy, bureaucratic, and filled with uncertainties. It typically involves dealing with local municipalities, land registries, and sometimes courts.

Another concern is the reluctance of banks and financial institutions to provide loans or mortgages for such properties.

This issue also extends to the resale market, where selling a Nam-e-Melk property in the future could pose challenges due to the lack of formal documentation.

As a foreign buyer, it's crucial to ensure that any property you are considering has a clear and official title deed, known as "Sanad-e-Melkiyat" in Iran. Purchasing a property without this documentation can lead to significant legal and financial risks.

"Moqoofeh" or endowment properties

In Iran's residential property market, a unique and potentially challenging issue for foreigners is the concept of "Moqoofeh" or "Endowment Properties."

These properties are particularly common in cities with historical significance like Isfahan, Yazd, or Shiraz.

Moqoofeh properties are those that have been dedicated to religious or charitable purposes, managed under a Waqf (Islamic trust). The original owners have endowed these properties for specific uses, such as religious, educational, or social services. This endowment status can significantly impact your rights and potential usage of the property.

The main challenge with Moqoofeh properties is the restrictions placed on their sale, renovation, and use.

Since these properties are meant for public or religious welfare, there are often stringent rules governing any changes to the property or its use. For instance, converting such a property for purely commercial or residential purposes might be restricted or require special permissions.

When considering the purchase of a property in Iran, it's important to ascertain whether it's a Moqoofeh property.

This involves a careful review of the property's history and current status, including any endowment conditions attached to it.

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