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Majid Mohammed Amin appears frustrated, waiting for a “miracle” to rescue him from the stress of his life. Although he uses his muscles to build houses for other people, Amin and his four-member family do not have a home of their own.
As a day laborer, Amin has a limited and unreliable income. If he is lucky, he might make around 500,000 Iraqi dinars (approximately US$400) a month; he has to pay around 70 percent of that to rent.
He has not been able to pay his rent for the past two months, leading his landlord to threaten to kick him out. This has brought him a lot of worry.
“He now wants me to move out,” said Amin. “If I can’t pay this month’s rent, I will have to leave.”
For some, it was a dream come true, but Kurdistan’s staggering rise in real estate prices over the past several years has been a nightmare for people like Amin and his family.
It started suddenly. A few years after the fall of Saddam Hussein’s regime in 2003, the pillars of Kurdistan’s real estate market started to rise unexpectedly.
“The sudden influx of petrodollars is one reason that led to an inflation of property prices,” said Shwan Zulal. Zulal has written on Kurdistan’s real estate market and currently works with a British consulting firm.
“However, the main reason is that property became almost the only form of investment and saving for individuals and, to some extent, businesses. This has led to the unsustainable inflation in prices, which can only be described as a bubble,” he said.
In economics, the concept “real estate bubble” is used to describe a situation where property prices experience a considerable increase in a short time. As a result, the rise in real estate prices reaches a point that it is not sustainable, leading the bubble to burst and causing the market to collapse.
Zulal believes the disparity between income levels and real estate prices in Kurdistan is a sign of a real estate bubble. In fact, the disparity is significant.
According to the figures from the Kurdistan Region’s Ministry of Finance, the monthly income of a newly-employed college graduate is between 300,000 to 400,000 Iraqi dinars (approximately $240 to $320).
In a city like Erbil, the capital of the Kurdistan Region, the lowest rent is around 300,000 dinars a month.
Real estate agents say that less than a decade ago, a plot of land in Erbil’s Bakhtiyari neighborhood cost only around $3,000. Now, that same lot is worth around $230,000, illustrating an increase of almost 75 times.
This might be a rare or unheard of in real estate sectors across the world. When Britain experienced a real estate bubble, experts say, an increase of prices by 115 percent was witnessed between 1996 and 2010. In Australia, which experienced its own property bubble, prices increased by 85 percent between 2002 and 2009.
Anwar Anaid, a professor of political economy at the University of Kurdistan – Hawler, attributes the rise in real estate prices in Kurdistan to a “herd mentality.”
“As soon as there is rise in prices, large numbers of people enter the market. And normally the cultural tendency is that people think the price increase will go on forever. So people come in and this has a major impact on the rise in prices,” said Anaid.
Nowhere in Kurdistan is the real estate bubble more visible than Kalar, a town in the southernmost part of the region.
For example, a worn-out 350-square-meter house inside Kalar’s bazaar is worth at least $3.5 million, real estate agents say. Another 150-square meter home near the bazaar is worth $800,000.
Jamal Saeed is a real estate agent in Kalar. He asserts that housing prices in his town are “really unnatural and surprising.”
“Prices have reached a level where people cannot easily buy or sell,” he said.
Kalar is on the trade route between the Kurdistan Region, Iran and southern Iraq. There is a considerable amount of capital circulating in Kalar. But it is still in the early stages of its development and quality of life and living standards here are lower than in the major Kurdish cities such as Erbil and Sulaimani.
Yet, real estate prices in Kalar are not only more expensive than Erbil and Sulaimani, but higher than in many parts of the U.S. state of California.
For instance, a 345-square-meter palatial house in Sacramento, California, is worth around $700,000; a 177-square-meter home is $109,000. The relatively higher real estate prices in Kalar come despite the fact that the living standards and quality of life in the U.S. are far above Kalar or Kurdistan in general.
The relative stability and security of the Kurdistan Region has played an important role in the economic boom and creating confidence on the part of investors.
Experts say that for a region like Kurdistan, which regularly faces threats and uncertainty, investment in real estate is more profitable and reliable than other sectors.
Kurdistan’s economy, despite its shortcomings, is a success story.
According to figures from the Kurdistan Investment Board (KIB), since the passage of an investment law in 2006, around $20 billion has been invested in Kurdistan. More than half of that, or $11.1 billion, has gone into the housing sector. In total, around 150,000 housing units have been built by investors over the past six years.
The influx of refugees, workers and businesspeople from other parts of Iraq and abroad to the Kurdistan Region has created a lot of demand for housing and property.
Amid all this activity, some warn that the lack of monitoring over the financial and business sector in Kurdistan has led to people using housing as a way to cover up “illegitimate” revenues.
“Many people have made lots of money. I can say some of that money has been earned through political influence. Some want to launder money and the property sector is the easiest way to do that,” said Kardo Mohammed, head of the Gorran parliamentary bloc, the largest Kurdish opposition group.
He believes the construction of housing complexes and towers around Kurdistan is not a sign of “real” growth, but of a “superficial” one.
Kurdistan’s urban centers now have dozens of housing complexes built by investors. They have names such as Italian City and English, German or American Village to attract customers.
But many complain that prices in such complexes are beyond their means and that, in terms of construction, the houses are not of high quality.
Bafrin City is located on a small hill on the road between Erbil and the nearby town of Salahaddin, and contains dozens of villas and several apartment towers. Parviz Hanara, Bafrin’s owner, says the structures here can withstand an earthquake of up to 8 on the Richter scale; the walls have an insulation system and solar energy is used to heat water.
The price for a villa here is $400,000. Hanara says that, given the quality of the buildings, that is not high. He makes around 30 percent profit after the actual cost of building each unit.
Unlike many, Hanara believes the real estate market in Kurdistan has not been saturated and that prices still have room to go up.
“I have experience from many countries where I have seen bubbles. In Kurdistan, it is not like there is a bubble or that the situation has reached an alarming level. Because the price of property used to be so low, now people think the rates are really high,” Hanara told Rudaw.
Although Hanara’s remarks about real estate being undervalued in the past are correct, there is no indication that prices will increase in the future.
To the contrary, prices have plummeted in the past several months and signs indicate this downward trajectory might continue.
Although it is too early to say with certainty, signs of a bubble burst are appearing.
Since the deepening political crisis between the Kurdistan Region and the Iraqi government in March 2012, the real estate market in Kurdistan has experienced stagnation and relative decline.
Real estate agents say that land and home prices have decreased between $30,000 and 50,000 in some neighborhoods of Erbil.
Experts and even some government officials are starting to believe that the real estate market in Kurdistan has now hit the ceiling and the downward trajectory might have begun.
Haidar Mustafa, the director of studies and information at the KIB, says the real estate market in Kurdistan has been “saturated.”
“We are currently experiencing stagnation in the property market,” said Mustafa. “Maybe prices have already hit their peak and perhaps people will be mostly sellers and not buyers from now on. This will push prices down.”
Despite various attempts, no solution to the disputes between Baghdad and Erbil is on the horizon. This has created fear and uncertainty in the housing market which is the main pillar of investment and economic activity in Kurdistan.
Bubble bursts in other parts of the world have harmed the overall economy of countries, as evident in the latest crisis in America or in the markets of Southeast Asia late last century.
“It is hard to predict house prices, but recent stagnation in the market is a sign that it has reached a point where it is vulnerable to events and any loss of confidence, whether due to political or economic uncertainty, will lead to further reduction in prices,” said Zulal.
Zulal criticized the government and business people for not acknowledging the existence of the bubble and said there is no easy way to resolve the current state of Kurdistan’s real estate market. He warned that a bubble burst might inflict heavy losses on the overall economy of Kurdistan and its citizens.
“Restricting development through taxation and a planning process is one idea, but that will inevitably stall growth,” Zulal argued.
Zulal suggested that the government take measures “to slow down the pace of residential property development” to give the market “a chance to have a soft landing.”
Whether or not the skyrocketing real estate prices in Kurdistan are signs of real growth or a “bubble,” many agree that despite the constructions of tens of thousands of homes, the chronic housing problem in Kurdistan is far from resolved.
If the reason behind granting licenses to all the housing projects in Kurdistan was to help provide homes for citizens, then the ensuing rise in prices has only made it more difficult for many to own a home.
Now the government seems to have realized the negative consequences of its housing policy and says it is attempting to resolve it.
The Kurdistan Regional Government (KRG) has now started a campaign to build 7,000 low-cost homes that will be given free of interest to low-income citizens living in rental properties.
Government agencies, however, do not seem to have reliable figures on the number of tenants in Kurdistan.
The KIB estimates there are around 76,000 families who live in rental properties. But officials at Kurdistan’s Ministry of Housing and Reconstruction say that to resolve the housing problem, 300,000 homes are needed.
Observers believe the housing problem has furthered the sense of disgruntlement many people have toward the government.
Speaking of the greater political and economic consequences, Professor Anaid said, “I feel there will be sharp differences between classes -- people who have and people who have not.”
“Part of that is this quick money that has come into the economy. It is not without its social and political consequences that can destabilize a whole society,” he said, adding that the resulting disparity between classes is a recipe for both political and social instability.
Although billions of dollars have been invested in Kurdistan’s housing sector, there are still many like Amin, sadly waiting. His only hope is that one day things will change so that he can be spared the “embarrassment” of not having a home of his own.
“I would be grateful if I could even have a room. I am not asking for an apartment or a nice house,” says Amin. “I will be grateful for just a couple of rooms or a room that my children can fit in, just to no longer live as a tenant.”
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As a day laborer, Amin has a limited and unreliable income. If he is lucky, he might make around 500,000 Iraqi dinars (approximately US$400) a month; he has to pay around 70 percent of that to rent.
He has not been able to pay his rent for the past two months, leading his landlord to threaten to kick him out. This has brought him a lot of worry.
“He now wants me to move out,” said Amin. “If I can’t pay this month’s rent, I will have to leave.”
For some, it was a dream come true, but Kurdistan’s staggering rise in real estate prices over the past several years has been a nightmare for people like Amin and his family.
It started suddenly. A few years after the fall of Saddam Hussein’s regime in 2003, the pillars of Kurdistan’s real estate market started to rise unexpectedly.
“The sudden influx of petrodollars is one reason that led to an inflation of property prices,” said Shwan Zulal. Zulal has written on Kurdistan’s real estate market and currently works with a British consulting firm.
“However, the main reason is that property became almost the only form of investment and saving for individuals and, to some extent, businesses. This has led to the unsustainable inflation in prices, which can only be described as a bubble,” he said.
In economics, the concept “real estate bubble” is used to describe a situation where property prices experience a considerable increase in a short time. As a result, the rise in real estate prices reaches a point that it is not sustainable, leading the bubble to burst and causing the market to collapse.
Zulal believes the disparity between income levels and real estate prices in Kurdistan is a sign of a real estate bubble. In fact, the disparity is significant.
According to the figures from the Kurdistan Region’s Ministry of Finance, the monthly income of a newly-employed college graduate is between 300,000 to 400,000 Iraqi dinars (approximately $240 to $320).
In a city like Erbil, the capital of the Kurdistan Region, the lowest rent is around 300,000 dinars a month.
Real estate agents say that less than a decade ago, a plot of land in Erbil’s Bakhtiyari neighborhood cost only around $3,000. Now, that same lot is worth around $230,000, illustrating an increase of almost 75 times.
This might be a rare or unheard of in real estate sectors across the world. When Britain experienced a real estate bubble, experts say, an increase of prices by 115 percent was witnessed between 1996 and 2010. In Australia, which experienced its own property bubble, prices increased by 85 percent between 2002 and 2009.
Anwar Anaid, a professor of political economy at the University of Kurdistan – Hawler, attributes the rise in real estate prices in Kurdistan to a “herd mentality.”
“As soon as there is rise in prices, large numbers of people enter the market. And normally the cultural tendency is that people think the price increase will go on forever. So people come in and this has a major impact on the rise in prices,” said Anaid.
Nowhere in Kurdistan is the real estate bubble more visible than Kalar, a town in the southernmost part of the region.
For example, a worn-out 350-square-meter house inside Kalar’s bazaar is worth at least $3.5 million, real estate agents say. Another 150-square meter home near the bazaar is worth $800,000.
Jamal Saeed is a real estate agent in Kalar. He asserts that housing prices in his town are “really unnatural and surprising.”
“Prices have reached a level where people cannot easily buy or sell,” he said.
Kalar is on the trade route between the Kurdistan Region, Iran and southern Iraq. There is a considerable amount of capital circulating in Kalar. But it is still in the early stages of its development and quality of life and living standards here are lower than in the major Kurdish cities such as Erbil and Sulaimani.
Yet, real estate prices in Kalar are not only more expensive than Erbil and Sulaimani, but higher than in many parts of the U.S. state of California.
For instance, a 345-square-meter palatial house in Sacramento, California, is worth around $700,000; a 177-square-meter home is $109,000. The relatively higher real estate prices in Kalar come despite the fact that the living standards and quality of life in the U.S. are far above Kalar or Kurdistan in general.
The relative stability and security of the Kurdistan Region has played an important role in the economic boom and creating confidence on the part of investors.
Experts say that for a region like Kurdistan, which regularly faces threats and uncertainty, investment in real estate is more profitable and reliable than other sectors.
Kurdistan’s economy, despite its shortcomings, is a success story.
According to figures from the Kurdistan Investment Board (KIB), since the passage of an investment law in 2006, around $20 billion has been invested in Kurdistan. More than half of that, or $11.1 billion, has gone into the housing sector. In total, around 150,000 housing units have been built by investors over the past six years.
The influx of refugees, workers and businesspeople from other parts of Iraq and abroad to the Kurdistan Region has created a lot of demand for housing and property.
Amid all this activity, some warn that the lack of monitoring over the financial and business sector in Kurdistan has led to people using housing as a way to cover up “illegitimate” revenues.
“Many people have made lots of money. I can say some of that money has been earned through political influence. Some want to launder money and the property sector is the easiest way to do that,” said Kardo Mohammed, head of the Gorran parliamentary bloc, the largest Kurdish opposition group.
He believes the construction of housing complexes and towers around Kurdistan is not a sign of “real” growth, but of a “superficial” one.
Kurdistan’s urban centers now have dozens of housing complexes built by investors. They have names such as Italian City and English, German or American Village to attract customers.
But many complain that prices in such complexes are beyond their means and that, in terms of construction, the houses are not of high quality.
Bafrin City is located on a small hill on the road between Erbil and the nearby town of Salahaddin, and contains dozens of villas and several apartment towers. Parviz Hanara, Bafrin’s owner, says the structures here can withstand an earthquake of up to 8 on the Richter scale; the walls have an insulation system and solar energy is used to heat water.
The price for a villa here is $400,000. Hanara says that, given the quality of the buildings, that is not high. He makes around 30 percent profit after the actual cost of building each unit.
Unlike many, Hanara believes the real estate market in Kurdistan has not been saturated and that prices still have room to go up.
“I have experience from many countries where I have seen bubbles. In Kurdistan, it is not like there is a bubble or that the situation has reached an alarming level. Because the price of property used to be so low, now people think the rates are really high,” Hanara told Rudaw.
Although Hanara’s remarks about real estate being undervalued in the past are correct, there is no indication that prices will increase in the future.
To the contrary, prices have plummeted in the past several months and signs indicate this downward trajectory might continue.
Although it is too early to say with certainty, signs of a bubble burst are appearing.
Since the deepening political crisis between the Kurdistan Region and the Iraqi government in March 2012, the real estate market in Kurdistan has experienced stagnation and relative decline.
Real estate agents say that land and home prices have decreased between $30,000 and 50,000 in some neighborhoods of Erbil.
Experts and even some government officials are starting to believe that the real estate market in Kurdistan has now hit the ceiling and the downward trajectory might have begun.
Haidar Mustafa, the director of studies and information at the KIB, says the real estate market in Kurdistan has been “saturated.”
“We are currently experiencing stagnation in the property market,” said Mustafa. “Maybe prices have already hit their peak and perhaps people will be mostly sellers and not buyers from now on. This will push prices down.”
Despite various attempts, no solution to the disputes between Baghdad and Erbil is on the horizon. This has created fear and uncertainty in the housing market which is the main pillar of investment and economic activity in Kurdistan.
Bubble bursts in other parts of the world have harmed the overall economy of countries, as evident in the latest crisis in America or in the markets of Southeast Asia late last century.
“It is hard to predict house prices, but recent stagnation in the market is a sign that it has reached a point where it is vulnerable to events and any loss of confidence, whether due to political or economic uncertainty, will lead to further reduction in prices,” said Zulal.
Zulal criticized the government and business people for not acknowledging the existence of the bubble and said there is no easy way to resolve the current state of Kurdistan’s real estate market. He warned that a bubble burst might inflict heavy losses on the overall economy of Kurdistan and its citizens.
“Restricting development through taxation and a planning process is one idea, but that will inevitably stall growth,” Zulal argued.
Zulal suggested that the government take measures “to slow down the pace of residential property development” to give the market “a chance to have a soft landing.”
Whether or not the skyrocketing real estate prices in Kurdistan are signs of real growth or a “bubble,” many agree that despite the constructions of tens of thousands of homes, the chronic housing problem in Kurdistan is far from resolved.
If the reason behind granting licenses to all the housing projects in Kurdistan was to help provide homes for citizens, then the ensuing rise in prices has only made it more difficult for many to own a home.
Now the government seems to have realized the negative consequences of its housing policy and says it is attempting to resolve it.
The Kurdistan Regional Government (KRG) has now started a campaign to build 7,000 low-cost homes that will be given free of interest to low-income citizens living in rental properties.
Government agencies, however, do not seem to have reliable figures on the number of tenants in Kurdistan.
The KIB estimates there are around 76,000 families who live in rental properties. But officials at Kurdistan’s Ministry of Housing and Reconstruction say that to resolve the housing problem, 300,000 homes are needed.
Observers believe the housing problem has furthered the sense of disgruntlement many people have toward the government.
Speaking of the greater political and economic consequences, Professor Anaid said, “I feel there will be sharp differences between classes -- people who have and people who have not.”
“Part of that is this quick money that has come into the economy. It is not without its social and political consequences that can destabilize a whole society,” he said, adding that the resulting disparity between classes is a recipe for both political and social instability.
Although billions of dollars have been invested in Kurdistan’s housing sector, there are still many like Amin, sadly waiting. His only hope is that one day things will change so that he can be spared the “embarrassment” of not having a home of his own.
“I would be grateful if I could even have a room. I am not asking for an apartment or a nice house,” says Amin. “I will be grateful for just a couple of rooms or a room that my children can fit in, just to no longer live as a tenant.”
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