If a real estate developer/investor were to write down what he considered to be the ideal market conditions for his business, he may very well list the conditions that exist in Iraq today. Iraq is in desperate need for new housing. Oil dollars are pouring into the country driving up the cost of existing housing and rental properties. The Iraqi government is desperate for foreign expertise and technology in the construction industry and is offering generous incentives to attract foreign investment and development. What else could a real estate investor ask for?
Conditions Driving the Opportunities Even before the Gulf War there was a significant shortage of housing in Iraq. An analysis sponsored by UN-HABITAT and the World Bank predicts a housing shortfall of 1.2 million units by 2016 if current housing production remains constant. Partly driving this deficit is an annual domestic population growth of 2.3% and an increasing number of refugees, mostly professionals and businessmen, returning to the country. The Government of Iraq (GoI) is keenly aware for the need to satisfy all segments of the housing market with emphasis on affordable housing if long term political stability is to be achieved. It’s also painfully aware that the domestic construction industry is incapable of providing modern, efficient housing in numbers large enough to meet the needs of the population. As a result the government has authorized generous tax treatment for foreign real estate development and allows developers to repatriate earnings from their projects. Significant new revenue from oil and gas operations is fueling the economy in general and the consumer economy specifically. As it applies to housing, there are now more dollars chasing the limited housing inventory creating a higher sale price both for private homes and rental properties. This inflation in housing prices is deepening the class divide between the wealthy and the poor and this is a condition that the GoI wants to correct. To accomplish this, the government has made efforts to make foreign development easier and less expensive to initiate. In short, the need is massive and the official line from the central government is that foreign real estate investors/developers are welcome and encouraged to do business in Iraq.
The Challenges Like most every investment in Iraq, the principal challenge to doing business is the government of Iraq itself and it applies doubly to the real estate development industry. The idea of transparency in government operations is still a foreign concept to both the central government and the provincial and municipal governments. Corruption and inefficiency is an everyday fact of life when dealing with any level of the Iraqi government and the World Bank now ranks Iraq at 166 of 183 countries in its “Doing Business” report (Iraq ranks just above Afghanistan). At least the oil industry only has to deal with the central government in winning licenses to do business. Real estate developers have to obtain “investment licenses” from local municipal investment committees. This of course requires a physical presence and developing relationships with the municipal committees in the markets that a developer is interested in. Then there’s land…a key component for any real estate investor. Foreigners cannot own Iraqi land. They can rent it or lease it, sometimes for up to 50 years, but they can’t hold the deed to it. And speaking of deeds, property records in Iraq are sketchy at best. A prominent Turkish investor obtained a license to build a $18 million hotel in Basrah only to be thwarted when a local citizen claimed he owned the land and the Investment Committee had no authority to lease it to the Turk. There is an exception to the prohibition of foreign ownership of land and that exception is in the North in Kurdistan. The Kurdistan Regional Government (KRG) has a constitutional right to make its own laws and they have decided to allow foreign ownership. Needless to say, they have attracted a number of extremely successful real estate developments…and Kurdistan doesn’t have the dire need for housing that the rest of the country has.
Real Estate Development in Iraq – A Cottage Industry? With the challenges being what they are you may find it surprising that hundreds of foreign real estate developments have already taken place. The one common characteristic of these projects is that they are all small dollar deals as real estate development goes. In Kurdistan Sigma International, a Chantilly, VA based developer has built 300 homes in the $200K to $600K range and has sold out. Jim Kovert, Sigma’s man in Kurdistan says “People have money here and they have nothing nice to spend it on.” Sigma also benefited from being able to bring in Bangladeshi laborers, a strategy that is much more difficult to achieve in the South. In May of 2012 a Lebanese company, a nation with its own security problems, opened a $214 million 5 star hotel in Erbil, Kurdistan. In Baghdad the Iraqi – Jordanian joint venture company Almco broke ground on Baghdad Gate, a $250 million condo/office complex in the nation’s capital. And then there are the three 23 year olds who are listing and selling Iraqi real estate principally online. Two former University of Minnesota students, one American and one Iraqi recruited a third 23 year old in Baghdad who does the showings and appraisals and opened a real estate company. They’ve had several sales and currently have 35 listings and market principally to Iraqis living in the U.S. What all of these entrepreneurs agree on is that the Iraqi real estate market is a freewheeling version of America’s old Wild, Wild West era. Companies who are light on their feet and who can quickly adapt can make huge profits. They also all share the fear that the “big boys” will finally realize the opportunity that exists and will squeeze them out with their superior financial and technical resources.
Intersted? The Iraqi real estate development industry is full of land mines that can derail even the most sophisticated investor if they aren’t familiar with conditions on the ground. There is a huge opportunity here and tremendous profit potential if, like the smaller investors have learned, you are light on your feet and adapt easily. We can help with that. We understand how business is done in Iraq and we’d be happy to assist you in investigating the opportunities and developing strategies to mitigate risk. Please contact us and we’d be happy to discuss your objectives.