When will the bubble burst?
21/07/2012 16:15
by: Judit Neurink *
,,Why don't you buy a house in
Kurdistan, in stead of paying such a high rent'', people have asked me. A
good question, with rents in Erbil as high as 2000 dollars a month for a
3 bedroom apartment and 3000 and more for a villa. Yet buying might
mean getting caught up in the bubble of Kurdistan's housing business.
Kurdistan
is booming. There is hardly a neighborhood in the main Kurdish towns
and cities without building activities going on. Housing, industry,
hotels, shopping malls - Kurdistan is building at a speed that is hardly
imaginable. Compounds of luxurious apartments are being filled, and I
have been told that at the moment some 62.000 units are still in the
process of being build in Erbil alone.
At the same time, in the
Kurdish capital Erbil the prices of housing have gone up enormously. In a
society where an average government wage is around 600 dollars, the
rent of apartments and family houses has gone up to between 1800 and
4000 dollars. That is partly because there is a lack of good offices,
and (international) companies have taken over many of the family houses.
Most of the houses in English Village and Italian Village, two
neighbourhoods originally built for upper class families, have been
taken over by companies. With investors and oil industries arriving,
there is a lot of request. These companies can pay more than a family,
so the rents have gone up to highs that hardly any family will be able
to afford any more.
This seems to be a process that repeats
itself.A process that starts with the sale of housing before it is
built, and the reselling of it before it is even finished. Before anyone
can move in, most apartments have been sold twice or three time to new
owners. I know of apartments that cost around 100.000 dollars when they
were still on paper, and are now doing around 250.000. Most owners are
not interested in the property to live in it; they see it as an
investment. For that reason, many owners do not even bother to rent the
place out, and many apartments remain empty.
Those who do rent
their property out, ask high rents. They only need to look at the
market, which is dominated by companies, to decide on a slightly lower
rent than the one asked in other neighborhoods. This starts the move,
as it did from Italian to English Village, and now to the newer
apartments of for instance Royal City.
What happens to the older
houses, that are left in this game? That is where the bubble comes in.
It might be a profitable game to buy and sell housing, but there is
always someone who in the end pays the bill. At the moment that is the
latest owner of the house that is no longer sell able, as other, newer
buildings are more interesting. He is stuck with a building for which he
paid a price that was already far too high. He was the poor guy who did
not realise he was at the end of the game - as I am sure there are many
like him.
Yet the game continues, and housing prices and rents
in Erbil are still on the rise. Who can afford a rent like that, you
wonder. And: should the government not interfere, as those who the
housing projects were planned for, do not at all profit from them. Which
means that there is a huge demand for affordable housing, and that in
itself again pushes up the prices.
However in Sulaymaniya, where
building is going on on a bit slower rate, the prices are on the way
back down. Here owners still need the rent, it seems, and renters have
been clever enough to use the lower rate elsewhere in town to start the
descent down to more decent prices. That will probably also be the way
out for those who got stuck with unsellable houses in Erbil. Bring down
the rent, and many will move back into the slightly older areas.
This
makes you wonder when this balloon is going to burst. And who is going
to suffer - and who to profit. I'd rather be at the side looking in,
than in the middle. So if I buy a house, preferably not in Kurdistan,
however much this country has got under my skin.
* Independent Journalist.
