Although the Board of Investment (BOI) suspended the issuance of housing licenses in 2012, the real estate sector remains an attractive industry for both local and foreign investment. As a result of demographic shifts and increased urbanization, a variety of different developments are required to meet the growing need for both residential and commercial real estate. As indicated by the Ministry of Planning (MOP) Regional Development Strategy, the large demand necessitates engaging a variety of influential entities in housing production to ensure that the diverse needs of the local population are met. Residents of urban areas require multi-story buildings capable of accommodating significant numbers of people. These facilities are more likely to be completed by construction companies with significant investment capital. At the same time, there is still need for single-family units that can be implemented by a wider range of construction companies. Thus, opportunities in the real estate sector are numerous. The reforms and new practices that have been implemented have made the industry more competitive than ever.

Changing Demographics

Since 2003, the housing sector has developed significantly in Kurdistan. Housing prices have risen anywhere from 400% to 1,000% in the last decade. The vast majority of the population of the Kurdistan Region lives in their own homes: in total, 79% of the Region’s residents live in houses. From a demographic standpoint, this number is higher (89%) in rural areas than it is in urban areas (77%).

Despite these indicators, the housing sector remained strong through 2011. A major reason for this was the shift in local preference towards single-family homes. As indicated by KRSO reports, household sizes in the Kurdistan Region at that time were fairly large. 29% of all households surveyed reported having four or more children, but 61% of respondents indicated that they lived in households of six or more total residents. Moreover, high birth rates and the large-scale return of the Kurdish diaspora fueled a dramatic population increase. As such, expansion in the housing market was necessary.

Developing the Sector

From the creation of the BOI in 2006 until housing licenses were suspended in 2012, nearly $30.5 billion of investment flowed into the Kurdistan Region, with a significant majority of that total destined for the real estate sector. In that six-year period, 166 housing projects were licensed for a total investment expenditure of $13.7 billion (approximately 65% of all investment capital at that time). Since the suspension of housing licensing, that percentage has dipped considerably. Currently, a total of 594 projects have been authorized by the BOI. The total land allocated for those projects totals 11,489 acres. By comparison, 6,057 acres were allocated for housing projects. Thus, nearly 53% of all land authorized for investment projects was intended for housing projects alone. On a governorate level, Erbil was clearly the epicenter of housing construction, with 81 projects totaling $8.89 billion. In contrast, Slemani implemented 45 projects totaling $2.25 billion in investment and Duhok executed 40 projects totaling $2.55 billion. In addition, the amount of land allocated for housing projects in Erbil (3,804 acres) was more than that of Slemani (1,353 acres) and Duhok (899 acres) combined. This rapid expansion of the sector across the entire Region energized the market, provided job opportunities, and allowed for further development of the commercial sector.

Price Increases

The vast majority of the licensed housing projects were designed as luxury villas or expensive apartment complexes. These projects satisfied the expanding demand for such facilities, but did not assist in the problem of low- and middle-income families. Thus, effective solutions were needed to insure that limited income families were provided with the opportunity to attain modern living facilities. In July 2012, the MOP established a new, affordable housing strategy for the Region. The strategy was predicated on an earlier housing program implemented in Erbil which met with success. The new strategy included measures relating to land allocation, financing, housing provisions, building materials, and social infrastructure. In addition, the Ministry of Housing and Reconstruction (MOHR) sought to find an effective solution to this issue. After 2011, the MOHR began to set aside approximately $250 million to finance the construction of 5,000 housing units for underserved income levels. In addition, construction standards were implemented to ensure that such facilities would be completed to a high level of quality. However, a housing shortage for limited income families remains. According to MOHR sources, the Kurdistan Region must invest a minimum of $172 million per year and construct at least 50,000 housing units annually if it hopes to resolve the current housing crunch within the next decade.

Falcon Construction
Falcon Construction
Park View Construction
Park View Construction

Limited Financing Options

If the banking sector were further established, the burden of this housing shortage might be reduced and additional projects could be financed. However, the absence of a strong financial institution, and subsequent lack of a credit system, has hampered further development in the real estate sector. In countries with more established banking systems, financial institutions are able to offer competitive loans to both individual homebuyers as well as companies seeking to fund development projects. However, with no such market in existence, locals are generally forced to make up-front payments in cash. In addition, large-scale companies are required to look outside the Region for financing, a process that can slow or even cancel potential projects. In an effort to improve this deficiency, the MOP has prioritized establishing a modern housing finance system. As indicated by MOP reports, “The KRG will review and improve the laws and regulations related to our financial system to make possible the widespread provision of long-term housing finance, such as mortgages, by NGOs or private financial institutions.”

Competitive Bidding

Early on in the development process, the KRG was eager for foreign companies to increase their involvement in the Region. International expertise and overall knowhow were needed, and foreign technical knowhow was prioritized in order to help modernize an outdated infrastructure system. However, this system did not allow for the creation of a structured bidding process that weeded out companies that were unsuitable for the larger, more strategically significant projects. As a result, multiple investment or infrastructure development projects were delayed or canceled altogether.

In an effort to improve the system, the MOP promoted the implementation of select standards to ensure a more efficient, regulated system: “The KRG will make sure to select qualified companies based on competition to ensure that we get the highest quality for the best price. We will also make sure that this involvement is transparent, with precise data being collected and shared, and that the results of government involvement are monitored and evaluated.” This shift in policy has also impacted the tendering process. For example, the MOHR implemented a pre-qualification stage for any project with a budget in excess of $5 million, which automatically qualifies it as “strategically significant”. Companies now wishing to pursue such projects are graded according to their technical and financial capabilities, as well as by the similarity of the projects they have completed in the past five years. “We have been able to eliminate some companies that were not capable of completing these projects successfully,” notes Minister Kamaran Abdullah. “We recently began the tendering process for a new tunnel project. 91 companies expressed an interest the project. In the second stage, after the pre-qualification process, only 19 companies remained, and we sent invitations to bid to those 19 companies. So, the process has been improved,” Minister Abdullah adds. Steps such as these have helped to streamline both the licensing and bidding processes, and have ensured that all companies entering the Region are both qualified and capable.

Construction Materials

Generally speaking, a burgeoning construction sector allows for the development of additional fields, thereby fueling further economic growth; a key area that is often positively impacted by development is the production of construction materials. Although local production of construction materials is ideal, in the Kurdistan Region this is not the case. “Most of the construction materials utilized in the Kurdistan Region are imported from abroad,” explains Minister Herish Muharam, the Chairman of the BOI. This reliance on imported products has weakened the economy of the Region, as it prevents a potentially lucrative sector from properly developing. Moreover, because construction companies have been forced to import the majority of their products from abroad, their schedules can be impacted and numerous delays can occur as a result.

To combat this issue, the KRG prioritized local production of the materials that were below the required levels, including cement, bricks, concrete blocks, gypsum, ceramic, and cobble, as well as manufactured goods such as windows, plumbing supplies, and electrical appliances. As stated in an MOP report on the subject, “…It is necessary to stimulate the manufacture of these materials, develop their quality, reduce the cost of production and make them more environment-friendly in order to back the housing program and contribute to its success through supporting the private sector factories, encouraging them to increase production and productivity and improving product quality, privatizing the public enterprises producing construction materials, and completing their rehabilitation.” There have since been signs that the necessary development is occurring.

Local plants are now producing approximately 3,000 tons of steel per day, with plans in place to increase that number to 1.5 million tons by 2016. Local production of concrete has seen similar advances, with the Region now having a capacity of 35,000 tons per day. Officials at the Ministry of Trade and Industry have targeted an increase in that number to 150,000 tons per day, which would allow for export to neighboring countries that are also in need of high-quality construction materials. “So, in contrast with the socialist system of the past, today 99% of these facilities are owned by the private sector,” points out Sinan Çelebi, the KRG Minister of Trade and Industry. Nearly 90% of the buildings currently under construction in the Region are primarily being completed with local materials produced by the private sector.

Standards of Success

Despite these obstacles, the housing and construction market in the Kurdistan Region remains highly attractive and in need of further investment. The signs that the sector is on the right track are evident, with numerous large-scale, highly successful projects either under construction or already completed. Empire World, one of the Region’s largest real estate project, boasts a budget of $2.3 billion and is perhaps the best model of this growth. Slated to be completed in 2017, the project includes 88 high-rise towers, 300 luxury villas, a five-star Marriott Hotel, and numerous commercial structures. By utilizing a local workforce and, whenever possible, local materials, the development has charted consistent growth since construction first began in 2007, and is expected to become one of the most eye-catching areas in all of Kurdistan.

Real Estate – Limited Income Housing Demands

KurdistanErbilSlemaniDuhok
Total Existing Housing Units1,131,700478,600473,800179,300
Total Existing Limited-Income Housing Units 113,170 47,860 47,380 17,930
Existing Houses To Be Replaced Annually 2,829 1,197 1,185 448
New Housing Required Annually 3,039 1,285 1,272 481
Annual Provision for Gov. Supported Housing 5,869 2,386 2,393 1,091

Similar models of development can be seen in the Park View project, which consists of 12 multi-story luxury apartment buildings situated above a shopping facility and numerous restaurant options, and The Atlantic, a combination apartment and luxury villa complex that has already been met with praise from the local community.

Moreover, in Slemani, Faruk Group Holding has partnered with Dubai’s Emaar Properties, the largest real estate developer in the Gulf, to create a $2 billion resort that will feature hotels, restaurants, and shopping centers. Projects such as these support the idea that the future of the construction sector is bright in the Kurdistan Region. Indeed, at present, there are 78 major projects active in the sector, which register a combined total of $5.8 billion in investment.

FOCUS: Downtown Erbil

Downtown Erbil Project
Downtown Erbil Construction
Emaar Downtown Erbil
Emaar Downtown Erbil Project

Among Erbil’s mega projects, Downtown Erbil plainly stands apart from the crowd. The $3 billion, 5 to 7 year project is being undertaken by Emaar, the developer of Downtown Dubai, home of the Burj Khalifa, the world’s tallest building. Covering 541,000 square meters (roughly 133 acres), the fully integrated Downtown Erbil will include 15,000 homes, world-class luxury hotels, a central business district, a major shopping mall, restaurants, and cafes. Downtown Erbil is designed to be pedestrian friendly, with 40% of the development’s area dedicated to green space, pools, and fountains. It is estimated that the project will create 35-45,000 new jobs within the Kurdistan Region. The project’s two high-rise towers promise to reshape the city’s skyline, and the massive investment promises to energize Erbil. The project seeks to further improve Erbil’s global outlook and dynamism by providing improved options for its residents and visitors, attracting additional foreign investment, and increasing local private sector employment.