Iraq is suffering from a shortfall in the number of houses in the market and a construction programme to address rising public needs for good standard accommodation means that investment opportunities now exist in Iraq’s housing sector.
Under current housing building plans approved by the Iraqi government in June, the country aims to build 3.5 million new homes within the next ten years to meet the housing crisis that it is facing. This means to the construction of 350,000 units every year.
A $70 billion reconstruction package announced recently by government spokesman Ali al-Dabbagh included the allocation of $25bn investment for housing, which is another indication of the scale of the housing requirements in Iraq today. This proposal is currently awaiting the approval of the country’s parliament.
Demand for new houses is running at an insatiable rate, with a substantial deficit in the number of properties available to the Iraqi public. The Under Secretary at the Ministry of Construction and Housing, Estabraq Ebrahim Al-Shok pointed out that the government would be supporting the construction of 15 per cent of the house building while the remaining 85 per cent would be carried out by the private sector.
As Iraqi population growth rates increase, housing needs are expected to escalate further, especially in the largest cities. In addition, there is the need to accommodate the many internally displaced persons and others returning from abroad as the security situation settles down.
There is also the movement of peoples from country to city with rural households seeking economic opportunities outside their villages. All these factors are putting pressure on the country’s housing stock.
The housing market has faced some severe challenges and constraints over recent years, including limited access to formal sector finance, a slow down in private sector–led developments, complicated procedures, inefficient land management and services, and weak institutional support.
Public sector government-supported housing only ever met around 15 percent of the housing needs with the remainder provider by a private sector dominated by small building firms. According to a joint report from the Iraq Housing Ministry, UN and IFC published in December 2006 most government house building projects took place in the 1960 and 1970s, when the government constructed multi-story public housing and some ministries, universities and state-owned construction companies built housing for their staff.
The real backbone of the construction industry has been and remains the small-scale builders who have proven to be flexible to work on the construction of new housing, extensions and renovations at the same time, meeting the various needs of their clients. Since the early 1980s, the private sector has been providing 80-90 percent of housing through small-scale private contractors working for individual landowners who were households that purchased or were allocated a piece of land by the state.
The major challenge is to reach the necessary scale of operations to meet housing demand with greater efficiency.
Traditionally, there have been virtually no large-scale, built-for-sale housing developers in Iraq. By offering highly subsidised housing in the past, the state-led housing delivery system effectively discouraged the entry of speculative housing developers into the low and moderate income housing market and kept them from the developing the necessary experience and confidence to work under today’s difficult conditions.
Until recently, the participation of housing developers has in addition been hampered by the weakness of effective demand, the lack of security and risks involved in the unstable political situation, the lack of housing finance for both construction and mortgages, and the high and unpredictable costs of construction. It can be added, that the building industry has been developing at a different pace in northern Iraq
The huge demand for properties in Iraq is giving rise to many opportunities in the building materials sector. A wide range of public, private and state-owned industries have produced the basic building materials used in residential construction. This includes cement, brick, ceramics, PVC piping, glass and plumbing fixtures. Nevertheless, the production of local building materials is only partially developed and lacks incentives for investment. There remains the need to import many materials used in the building industry. Domestic cement demand is high and growing. At present the need is largely being met by imported cement from countries such as Turkey, Lebanon, Egypt, Iran, Kuwait and China.
Although the house building programme is still at an early stage, demand for bricks is already exceeding the supply by four times, the National Investment Commission said in a recent briefing.
Brick is one of the most popular and traditional building materials in Iraq and the country is renowned for its production of quality bricks. Brick-making dates back many thousands of years to the ancient cities of the country. At present a large proportion of the demand for bricks is met by imports.
There are a number of state-owned or operated brick-making plants in locations such as Baghdad, Diyala and Al-Kut. There plants are all in need of investment to modernise their production processes, improve their management and to switch to a more market orientation.
One example where the local brick-making industry has taken off is the city of Nahrwan, 40 miles east of Baghdad. This is the home of the Brick Factory Association and one factory there is already producing around 40,000 bricks per day.
The Ministry of Industry and the Wasit Investment Commission have been promoting an opportunity to build a brick factory on a greenfield site near the Tigris River at Al-Kut, the capital of Wasit province.
This proposed factory would have an initial capacity of 500,000 bricks per day. Iraqi officials have estimated that the project would require investment of around £12 million, delegates to the recent Invest Iraq conference held in London were told.
The Iraq government is commitment to the promotion of clean production methods so the use of new technologies is now an essential prerequisite for any investment licence issued in the sector.
The basic raw materials for brick making, clay and sand, are readily available locally.
The Ministry of Industry has indicated that it is prepared to provide the land and services for any new plant that is established. Foreign investors are permitted to lease land for a period of 50 years, in accordance with the investment law of 2006.
Global Arab Network
This report first appeared in “Arab-British Business”, the bulletin of the Arab-British Chamber of Commerce.