Baghdad real estate…  “Money-laundering” machine for politicians, militias, and sanctions evaders

Baghdad / Muhammad al-Zaidi / September 2022

Thirty years ago, government employee Haidar Hussein (58 years) struggled to obtain adequate housing, which has become an elusive “dream” due to the huge rise in real estate prices in the Iraqi capital, Baghdad, some of its areas have become the most expensive in the world, driven by a lack of investment in the sector of housing, and the failure to fight corruption that produced a rich class whose owners are not asked about the sources of their money, amid money laundering operations that find a safe haven in real estate.

A decade passed, and real estate prices keep rising, in a city where security and social crises are ongoing. The city, drowning in chaos and overcrowding, suffering from poor services, power outages, and deteriorating infrastructure, is always ranked among the worst cities for living in the world. “The prices here are too costly for the majority of residents,” Hussein said.

Last year, Baghdad topped the list of cities with the worst living conditions, according to the Spanish magazine “Muy Negocios y Economía” due to “the low standard of living, security chaos, and poor services.” According to Mercer’s 2019 Quality of Life Index, Baghdad ranked bottom on the list of 231 cities, preceded by Sanaa in Yemen, Khartoum in Sudan, and Damascus in Syria. However, all of that does not prevent a further rise in real estate prices, as recent months and weeks have recorded unprecedented increases in prices in some areas of Baghdad.

“The biggest concern for most of those who live here is getting a house,” Hussein added, wiping the sweat from his forehead while waiting at the door of his rented house for the electricity to come back on. “We have been working for 30 or 40 years to achieve that dream, which remains unattainable. In some areas of the capital, house prices cost millions of dollars. It is difficult to find a house for less than 200,000 USD in areas that can be considered popular.”

He continues, pointing to his small house consisting of two rooms and a living room: “I pay half of my salary for the rent, for how long will I stay like this?? Even the prices of modern apartments here are about twice, and sometimes three times the prices in the Kurdistan region.”

In the cities of Kurdistan, where economic conditions, purchasing power, job opportunities, and services are better compared to the rest of the country, the average price of a two-story house is about $100,000, but in Baghdad, prices double, which prompts some people, like Duraid Issa, to leave the capital and settle in Kurdistan region once he retires: “I will buy an apartment in Erbil and move there. I cannot buy a house here, even after another 20 years of work.”

Baghdad suffers from a severe housing crisis in light of the high population density, the increase in slums, and the faltering of services as a result of the poor utility infrastructure. According to officials, the basic design of Baghdad specified 40% of its area as green areas and 60% for housing, but the green areas in it decreased to only about 10%. This means that the capital has lost 75% of its green spaces due to encroachments on it.

Mustafa Rabie, an employee of the Iraqi Ministry of Health, has been married to his cousin for more than 15 years, and he has four children, the youngest of whom is in primary school, but he still lives with his parents in a small house east of the capital.

Rabie, whose monthly income does not exceed one million Iraqi dinars ($700), said: “I have no other solution. I am forced to live with my parents in the municipalities area, in a house consisting of 3 rooms measuring 100 square meters.”

“I and my children have to adapt to reality and live here for many more years. I cannot own a house or pay rent for an apartment.” He added.

Unexplained wealth

Contractors estimate the price of one square meter in Baghdad at 2,000 to 5,000 dollars in the capital’s middle neighborhoods, while prices rise in what are known as high-end neighborhoods such as Karrada, Mansour, Al-Aadhamiya, and others, where they reach $7,000.

Real estate prices have witnessed significant booms in recent years and jumped in the past months, with the transformation of these areas into a field of competition between owners of capital, those who want to invest in the construction of residential towers, and those who entered the market for speculation and profit-taking because more traders are interested in investing in real estate, as a result of the great need and lack of investment opportunities in other sectors.

There is another reason that some owners of real estate offices do not hesitate to reveal: “the money of corruption that senior officials, who are not accountable convert into real estate because of the difficulty of taking money out of the country.”

Haider, a university graduate who holds a high degree and is working in a real estate office after he left teaching, said: “In a rentier country, with the accumulation of money that results from the increase in oil revenues, we find officials who do not hesitate to steal in the absence of accountability, are willing to buy real estate and paying more money to get it”.

Baghdad, home to more than 8 million people, sets real estate prices at record levels compared to many countries in the region despite high poverty rates that exceed 20%, political unrest, and poor infrastructure.

According to traders in the real estate market and building contractors, the real estate world in Baghdad is governed by many factors other than the demand that result from population growth. Some speculations create price jumps in some areas, and there are the ruling powers, their contracting companies, and their ability to seize areas intended for services or convert green spaces or agricultural lands into residential ones. It is a battlefield for conflicts ruled by players under fluctuating standards, changing controls, and anonymous funds.

Salam A., who works in Real Estate Sales and Lease Office, explains the reasons for the rise in prices. The demand doubled because of the increase in the population in a country that has suffered for three decades from wars and security disturbances that have disrupted the launch of housing projects. Also, real estate has recently become one of the money-laundering tools for some suspicious merchants, politicians, and senior and junior officials.

Money laundering

The introduction of money laundering into this sector turned it into a new quagmire of corruption and a way for officials to evade financial disclosures, which cast a pall over the ability of the average citizen to obtain a small house that has become a dream or a fantasy, according to a former member of the Services and Reconstruction Committee in the Iraqi parliament, Abbas Owaid.

According to Owaid, the rise in real estate prices has been going on for years and has increased recently under speculation and money laundering operations done by some influential parties that illegally seized large funds. Owaid called on government agencies to follow up on the parties that own all that money.

Although these money laundering operations and funds of unknown origin have affected the rise in the real estate market, Owaid believes that Baghdad needs 3 million new housing units, blaming successive governments for the real estate crisis because they “did not provide services or an environment to launch construction projects, and most of their responsibility was limited to oil revenues distribution to employees and beneficiaries,” as he described.

Meanwhile, Salam Sumaisem, an academician specializing in economic issues, said: “money laundering activities, whether in the real estate sector or otherwise, is a result of rampant corruption in the country,” stressing that “the growth of these activities requires the investigation and prosecution of corruption-related offenses.”

The economist believes that “the real estate market in Iraq has become a haven for money laundering because of the secrecy, the lax regulations that govern it, and the permissive environment that prevails in the free market in general,” noting that “the other reason for the high prices is also due to the fear of capital owners of internal or external investments in other sectors such as industrial and agricultural sectors, that drives them to go towards the real estate market, which they find more secure and profitable.”

The “Iraqi Economic and Political Center,” referred to money laundering operations that may take place in the real estate sector in a statement that said: “the year 2021 witnessed a significant rise in real estate prices in Baghdad that may exceed those in Dubai and London.”

The center added: “This rise indicates the existence of money laundering operations or conflicts in real estate prices after the government clamped down on external financial transfers.”

For years, Iraq was one of the high-risk countries in the field of money laundering, but on January 9, 2022, the Iraqi government announced that it had removed the country’s name from the European Union’s list of high-risk countries in the areas of combating money laundering and terrorist financing, according to a letter received by the Iraqi Prime Minister from the European Commission mission.

The government declare the failure

Salah al-Kubaisi, a leader in the Salvation and Development Front, and interested in economic challenges, commented on the real estate crisis:” Prices in Baghdad are not comparable to any other place, which drives families to divide the single residential house into several pieces,” noting that the cost of building is approximately $400 per square meter, but it is sold for $1,000 and in some areas $2,000 per square meter due to speculation and short supply.”

Many areas in the center of Baghdad, such as Al-Jadriya, Karrada, and Al-Arasat, witnessed the division of 300 and 400-square-meter houses into three or four houses with space from 75 to 150 square meters.

During his visit to the Baghdad Municipality building in the center of the capital on May 18, 2022, Prime Minister Mustafa Al-Kadhimi expressed his regret about the violations and poor services in Baghdad that suffers from the absurd planning done by power holders, which contributed to the rise in real estate prices in the capital areas.

For his part, Mazhar Muhammad Salih, economic adviser to Prime Minister, does not deny the impact of money laundering operations in the real estate sector.

Saleh said that there are two main reasons for the rise in real estate prices, the first one is that the world experienced the phenomenon of economic closure in 2020, “which gave a vague picture of the future of investing Iraqi money (inside and abroad), it can take the form of funds ran, alienating money, or what is sometimes called hot money from short-term capital. The second reason “is related to the growing international control restrictions on the phenomena of rapid inflation of money of wealth owners that flows outside the country, especially in regional and international banks, which strengthened the global accountability measures of anti-money laundering units, searching for the source of funds and restricting the movements of some of them.”

The above two reasons prompted owners of funds to invest their money in Iraq, specifically in the real estate sector, which achieves quick profits with the growing market need for residential real estate under relative security stability in the country. That is why the visitor to the capital Baghdad notices the presence of several housing projects in progress, but the imaginary high prices and the dominance of those close to the parties over the majority of these projects prevent low-income from occupying a housing unit in them.

High-profit opportunities

Within three years, real estate prices in Baghdad increased by 44%, according to the economist Abd al-Rahman al-Mashhadani, who attributes the rise to the inclusion of many political figures and leaders of armed factions on the US Treasury Department’s sanctions lists, which prompted them to change their investments from smuggling them out of Iraq, to buy real estate at high prices and register them in the names of their agents, because they found real estate investment  better than depositing money in banks.

Al-Mashhadani said: “The decrease in purchasing power after the decision to devalue the dinar against the US dollar (from about 120 dinars for one dollar to about 150 dinars for one dollar) prompted owners of money to keep the value of their capital through fixed assets that are not affected by market variables, such as gold and real estate.”

What al-Mashhadani said was also summed up by the economist Bassem Antoine who confirmed that “political money contributed to the rise in real estate prices, especially commercial ones, to cover up the money seized from the state treasury.”

The rise did not come as a result of increased demand and lack of supply only, said Antoine. Other factors include the failure to build housing units at state-subsidized prices for low-income people, the population growth in addition to migration from the provinces to Baghdad, and the high prices of building materials.

Government housing programs provide housing units for citizens, which the economist considers necessary to control the market, especially since low-income buyers of real estate are frustrated because they are not able to fulfill their desire due to the high real estate prices in private housing projects, which have reached $200,000 per housing unit.

Owners of real estate sales offices, for their part, see that the great demand of Iraqis for housing in the capital, and the lack of specific determinants of buying and selling operations contributed to a sharp rise in real estate prices.

Sabah al-Jubouri, an owner of a real estate office in the Karrada district in central Baghdad, said that “the high fees and taxes paid by sellers and property owners, in addition to the moodiness and randomness in determining prices and the exploitation of the large and continuous demand by expatriates from the governorates to the capital’s regions, specifically those close to its center, for study or work purposes are another reason of the increase in real estate prices.

The real estate price crisis is accompanied by a rise in the cost of rents, which has negatively affected all segments of society, according to al-Jubouri: “residential apartment rental costs in some areas of Baghdad increased during 2021 and 2022 from $300 to $700, and $500 to $1,000 for houses.”

The owner of the real estate office confirmed that “the prices of selling and renting real estate are subject to the mood and greed of some owners of real estate companies,” explaining that “the high purchasing power of some groups, such as politicians, some businessmen, and merchants, is what drives prices.”

Fight against corruption

Addressing the housing crisis file is not only done through plans and projects of land distribution and providing grants and loans to citizens, but it requires governmental actions to combat corruption in this sector, said Ali Al-Badiri, a former member of Parliament.

He indicated the presence of “a defect and suspicions of corruption in approximately 18 housing projects affiliated with the Ministry of Construction and Housing,” which was supposed to alleviate the housing crisis for some groups, calling on “the Integrity Commission and the Board of Supreme Audit to check the files of housing projects and verify the suspicions around them.”

Al-Badiri held the successive governments “responsible for the exacerbation of the housing crisis in the country,” stressing that “real estate prices cannot decrease without government intervention on several levels, including confronting corruption.” It is estimated that the state has lost about $178 billion since 2003 due to corruption in the housing investment sector, infrastructure projects, schools, and hospitals.

Al-Badiri believes that getting rid of corruption factors, especially since Iraq is ranking 160th out of 180 countries on International’s Corruption Perceptions Index for 2021 according to Transparency International, is the solution to facing the housing crisis and the rise in real estate prices in Baghdad.

The economic housing project announced in 2012 at a financial cost of $2 billion to solve the housing crisis is one of Iraq’s most prominent housing files.

The project, which did not find its way to implementation, was launched by the Ministry of Construction and Housing in July 2012, aimed to help the poor who do not own housing units and money by building economical housing that will be distributed free of charge to them. The project includes all the country’s governorates.

“Dari” (my house) project

The large increase in real estate prices contributed to the increase in the number of informal settlements in the capital, which in turn affected the completion of some service projects and the development of infrastructure.

Officials estimate that there are 400,000 informal housing units in Baghdad, while some green spaces have turned into residential ones because of the weakness of the law in confronting the power of some armed parties.

To solve the crisis, the Al-Kazemi government put forward the “Dari” initiative to distribute half a million residential plots to eligible groups, while providing soft loans with a long payback period of up to 20 years, to facilitate the ownership of suitable housing for those wishing, said Sabah Abdul Latif Mushatat, the advisor to the Prime Minister for Construction Affairs.

He added: “The initiative aims to alleviate the housing crisis in Iraq, and it is among other projects of the government to solve the crisis. The initiative includes distributing 550,000 plots in Baghdad and other governorates to citizens with average and limited incomes.”

The government official noted that “the lands that will be distributed in Baghdad within the initiative will be in the Nahrawan region, east of the capital, Baghdad that will include about 60,000 plots, and the Tariq camp area in Abu Ghraib district that will include 13,000 plots within the first phase,” pointing out that “these areas will be serviced and ready for construction by citizens or investment companies.”

The government advisor confirms Iraq’s need for “three and a half million housing units, meaning that about 20 million Iraqis need housing if the average family size is six members,” attributing the rise in prices to the large demand in a market governed by supply and demand.

The government advisor confirms Iraq’s need for “three and a half million housing units or about 20 million Iraqis need housing if we consider that the average number of family members is six,” attributing the rise in prices to the strength of demand in a market governed by supply and demand.

Mushatat said that “the price of real estate in some cities in London is less than the price of an apartment in Baghdad,” noting that changing this will require the launch of new housing projects and supporting the Housing Fund.

He concluded that the government, through the Central Bank, has worked to increase housing loans for citizens to 5 trillion dinars, and the beneficiary can obtain a financial loan ranging from 25 to 100 million Iraqi dinars, paid with the insurance of the employee’s department and two employees.

The effects of the rise in real estate prices were not limited to the inability of the majority of Baghdadis to own a property and the rise in rent prices but extended to include the health aspect by increasing pollution rates as a result of the doubling of the population in the old residential neighborhoods, and with the division of large houses into smaller ones with a larger number of floors.

A report of the Central Statistical Organization at the Ministry of Planning showed a rise in pollution rates, as the annual rate of air pollution with sulfur dioxide, one of the sulfur oxides, SO₂, increased by 0.054, while the rate of nitrogen dioxide reached 0.040, and the rate of carbon monoxide which is considered a highly toxic gas was 0.597, and the rate of methane, CH₄, was 1.740.

1,000 projects

Planning Ministry spokesman, Abdul Zahra Al-Hindawi, hopes that the Iraqi real estate sector will be in recession after the distribution of land plots to citizens in serviced areas, and the implementation of approved housing projects, so that supply becomes equal or more than demand, so the prices decrease.

Al-Hindawi says that “government efforts are working to support low-income people who face a problem in obtaining a housing unit,” revealing that “there are about 1,000 projects for building residential complexes and low-cost homes in Baghdad, to solve the housing crisis and reduce informal settlements, which are estimated at 1,000 random complexes only in Baghdad.

Although Al-Hindawi acknowledges that high-income people take over the real estate trade, he thinks that the reason for the large demand is that 25% of Iraq’s population lives in Baghdad, because it’s considered an attractive city in terms of job opportunities, ruling out that “money laundering operations are behind the high prices.”

The real estate market is still high even with the political crisis that delayed the formation of the government ten months ago. “There is a kind of recession in the market due to political tensions, and this usually prompts merchants and investors to keep their money, but despite that, prices did not decrease but rather increased,” said Salah Abdullah, a small contractor who follows the real estate market.

“The price of one square meter of land in some areas witnessing commercial investment has exceeded 7,000 dollars, while it was under 5,000 months ago,” he explained.

Abu Hussein, who has been working in the market for 30 years, confirmed the same thing. “Prices have risen in areas that can be invested commercially, such as Karrada, Jadriya, and Mansour, by 30%. Perhaps the reason is related to the increase in Iraq’s financial balances that resulted from the increase in oil prices. The financial abundance let politicians and investors behind them collect large sums of money through the projects that they will receive”.

Jalil Ahmed (55 years old), a government employee, agreed. He works in the evenings in an electrical appliance store so that he can secure the rent of an old apartment that costs $500, and the owner demands a higher sum. He believes that politicians are investing corruption money in the construction sector to make a quick profit: “residential towers, shopping malls, and markets…nothing else”

He asks in a sarcastic tone, “Are the owners of these towers that are now rising in Baghdad real investors and looking for a reasonable profit?” And he answered, “Everyone knows that it belongs to senior officials in the state and armed groups. No one else owns all that money.”

And he concludes, “They use people’s money to build their real estate companies. Perhaps they do so because they cannot take their money out of the country, or they see that investing here is better, and no one asks them about the source of the fund. The disaster is that even when they put their money in any sector, they turn it into the fire through their speculation.”

This report was produced with support from the NIRIJ Network for Investigative Journalism