33 per cent: Proportion of foreign commercial activity in Iraq related to residential real estate in 2010
35 per cent: Amount of foreign commercial activity in Iraq contributed by Turkish companies in 2010
Sources: Dunia Frontier Consultants; MEED
Iraq’s newly released draft national budget for 2012 should make for interesting reading for regional developers. The government is planning a one-third increase in capital spending to $35bn, potentially yielding a host of new projects on which to bid.
Much of the state spending is being directed into housing schemes, a sector experiencing strong demand as a result of population growth and families seeking better and larger accommodation. The government estimates 2 million houses need to be built, with the Baghdad area alone said to require up to 1 million new homes.
The housing sector is also proving a magnet for foreign investors. Residential real estate accounted for 33 per cent of all reported foreign commercial activity in Iraq during 2010, according to research by Washington-headquartered Dunia Frontier Consultants.
Turkish dominance in Iraq
Besides the occasional hotel, shopping mall and real-estate development built by Gulf developers, it is Turkish investors who are the most active. When it comes to foreign investment in Iraq’s construction sector, it is largely a two-horse race: Turkey and the rest of the world.
Social housing is where the demand is, especially in the absence of any kind of end-user finance or mortgage financing
Deepak Jain, Jones Lang Lasalle
Turkish firms have demonstrated a heightened risk appetite for Iraqi opportunities compared with other Middle East firms, accounting for an estimated 35 per cent of foreign commercial activity in Iraq in 2010. The next highest was Italy, with a 12 per cent share, says Dunia.
Despite the huge demand for construction expertise and capital generated by Iraq’s reconstruction efforts, this requirement is largely not being serviced by big Gulf developers. Mirroring their governments’ increasingly frosty political discourse with Baghdad, many Gulf firms have preferred to avoid a market that, nonetheless, promises to be one of the most valuable construction sectors in the region.
“There is a tremendous amount of liquidity in Iraq and people do want to buy homes, but [developers] also want the security situation to be clearer before they invest money,” says Sam Michael, a manager at Irbil-based investment firm Atconz, which is backing real-estate projects in Iraq and the UAE.
Another possible disincentive is that Arab companies that have sought to tap Iraqi construction opportunities have experienced mixed results in recent years. Iraq’s real-estate sector has suffered with the regional downturn.
Dubai developer Damac Properties had problems with its $15bn Tarin Hills project near Irbil, following the Dubai financial crisis in 2009. As a result, the Kurdistan Regional Government cancelled the project as Damac had failed to start work on the scheme by an agreed date.
|Foreign commercial activity in Iraq, by origin, 2010|
|Source: Dunia Frontier Connsultants|
In 2008, UAE real-estate firm Al-Maabar announced plans for a $10bn residential and commercial development at Baghdad’s Rashid Barracks, building more than 70,000 homes on former Iraqi army facilities. Three years on, ground has not been broken and some have questioned the scheme’s future.
Iraq’s government has not given up on the Al-Maabar project. In early November, reports from Baghdad indicated that the project had been approved by the authorities and that the final contract will be signed by the end of 2011. Al-Maabar did not confirm the reports when contacted by MEED.
Despite these obstacles, Gulf developers still have some appetite for Iraqi projects. The Dubai office of international real-estate developer Jones Lang Lasalle says it has received enquiries from Gulf-based developers seeking to invest in Iraqi housing projects.
Iraq: High-risk construction market
Dubai Holdings is planning a major development near the holy city of Karbala with 39,000 housing units, 70 schools and several hotels. Another UAE developer is negotiating to roll out social housing across Iraq, with 150,000 units to be built, which will be bought by the government on completion.
For some, Iraq’s attraction may outweigh the security difficulties, given sluggish markets at home. “It’s high risk, but high return in Iraq,” says Deepak Jain, head of strategic consulting at Jones Lang Lasalle. “The UAE market is highly depressed in terms of new projects, so there isn’t much choice for developers other than to look for opportunities in places such as Iraq.”
Senior Iraqi officials are eager to attract Gulf investors to Baghdad, Basra, Karbala and the Kurdish north of Iraq. “We’re looking carefully at the Gulf as it is very close to us – the culture, and the language,” Irbil governor, Nawzad Hadi, told MEED in an interview in the Kurdish capital. “We’re trying to use the same development style as the Gulf, using Dubai as a model. But it requires a huge change in mentality in how to deal with investment and how to deal with foreign companies.”
For Gulf real-estate developers, partnering Turkish firms may provide a viable entry route to Iraq. In October 2010, Abu Dhabi-based East Building for Construction joined Turkey’s Akkon steel frame construction firm in a joint venture that will invest $250m in Iraq’s housing sector, rolling out units using East Building’s lightweight house frames. That tie-up could provide a template for other Gulf companies to tap into Turkish construction firms’ local contacts.
Low-income focus for Iraqi real estate
Future activity in Iraq is likely to be geared towards the lower-income market, the source of the strongest housing needs. “Social housing is where the demand is, especially in the absence of any kind of end-user finance or mortgage financing. It’s very difficult for this segment to access financing,” says Jain.
Developers are increasingly optimistic about the opportunities in Iraq. Atconz’s New Azadi project, located five kilometres from Irbil International Airport, will consist of 3,000 housing units, with the first units completed late in 2011. To encourage low-income buyers, the company is offering house sales in installments.
The company’s message is a positive one for the whole of the country. “Overall, the security situation is stabilising in Iraq. It’s definitely much better than it used to be and that is why we are looking closely at serious investment opportunities, not just in the Kurdish region, but also in the rest of Iraq,” says Michael.
Irbil: A magnet for investment
Over the past 10 years, Irbil, the commercial capital of northern Iraq, has succeeded in erecting the infrastructure of a modern Middle Eastern metropolis. Ring-roads, amusement parks, high-end residential developments, shopping malls and five-star hotels – the latest of which is the Turkish-owned Divan Park Hotel near Sami-Abdul Rahman park – all feature as part of its cityscape.
What Iraq’s Kurds claim as one the Middle East’s oldest cities is also one of the fastest-growing. Irbil’s 1990s growth spurt under the “No Flyzone” protection of the allied forces was messy, as the north laboured under sanctions and an uncertain political climate.
Now established as the most stable city in Iraq, the provincial authorities are seeking to manage the growth of the city more effectively, as it emerges as the de facto headquarters for many firms looking to do business in the country.
“After 2003, we decided to focus on attracting investment into infrastructure and supporting the private sector. Those issues were new for us then as they were for the whole of Iraq,” says Irbil governor Nawzad Hadi, a senior figure in the Kurdistan Democratic Party.
“Irbil expanded chaotically in the 1990s, but now we have a masterplan and it is growing in a more organised way with funds allocated to enable the governorate to plan for growth,” says Hadi. “We also have to provide services and prepare land and solve problems with land owners so we have a team working day and night to manage the city’s expansion.”
The city is proving to be a magnet for real-estate investors, with large housing projects reshaping the cityscape. In the latest high-profile real-estate project, the US’ Claremont Group announced plans in October for a 1,600-unit, mixed-use gated community of apartments and villas to be built near the international airport.
The Kurdistan Regional Government estimates the region’s need for new housing at 135,000. In Irbil, a clutch of housing developments have been implemented, including American Village, Dream City, English Village, Ganjan City and Naz city, with total capital investment in excess of $1bn.
Hadi’s aim is to consolidate Irbil’s reputation as a platform from which to invest in the parts of Iraq where businesses are still hesitant to establish an on-the-ground presence. “They can set up their headquarters and warehouses here, then move to other provinces,” he says.
About 60 per cent of the foreign companies operating in the region are Turkish. In Irbil province alone, more than 740 Turkish firms maintain a presence. This investment is actively encouraged by the provincial authorities.
“There are many Turkish companies here and we have a very good relationship with them,” says Hadi. “They had the advantage of starting early back in 2003-4, so you find them everywhere, as investors, traders, contractors. They have a real desire to work here.”
Arab investors are also significant in the north. Lebanon is the second-largest investor in Iraqi Kurdistan, with $775m in capital investment in 2006-11.
Despite the hiccup with Damac’s Tarin Hills project, Hadi is keen to attract more Gulf investors to Irbil, pointing out the direct flight links to Qatar and Dubai, and the presence of UAE developers in the region. Tourism is a major draw. “The mountains and topography of Kurdistan are attractive, and we have significant oil and gas reserves, all of which is attractive to Gulf companies,” he says.