Brownfield & Newbuilders in Kurdistan – the State of the Region

by Joachim Hallams on June 24, 2012

Gulan Street Skyscrapers

Few things unite people from different parts of the world as much as the continuous quest for better living conditions and wealth. In Kurdistan, with strong economic development, the wealth is within reach for almost everyone especially the middle age and younger population that has dreams about the future.

There is a clear vision stated by the leaders of Kurdistan to build, drive the economy by construction and allow people to dream and realize their dreams. This is manifested in the multifold of cities and town parts emerging. Builders are for example people with previous successful careers as sportsmen, as singers, and as politicians. You need to have a bit of success, though not necessarily an exaggerated amount of it, behind you to back up your large scale construction venture. It is also more practical from a marketing point of view to peg a township to a person and an end consumer group that can relate to that person and the offering.

The power of marketing is absolute. The effectiveness of the marketing strategy heavily relies on the innovative nature of it and the everlasting truths of the marketing mix. There are though only a few examples of flawed product positioning and communication that resulted in construction havoc since most projects are heavily financed by and thus depending on end consumers buying housing units during the construction itself.

Most project owners seem to get away with modest real estate offices, brochures and word of mouth. The speculation in most parts of Kurdistan is prevalent. Sometimes complete housing projects are sold in a few weeks to businessmen that speculate in appreciation very much depending on marketing, who is building, and the location. When land developers go for TV commercials, they are basically buying an insurance policy for the sales progress, and doing so is relatively inexpensive.

Another insurance of project success is a low degree of indebture, hence bank loans are often not the main source of funding. Overall, the sceptics of banks are often the ones you see building complete projects of thousands of units turnkey ready without borrowing a single dollar. Although banks are with a few exceptions trustworthy and a real intermediation mechanism, as they used to be in the 1980ies in Europe, they tend to be excluded from many housing projects and be more involved in state financed large infrastructure projects.

If you ask banks if they want cash or land as collateral for construction ventures, they are likely to say “land is a better collateral during loan periods”. As a matter of fact, money is much riskier than land since land increase in value continuously and often so exponentially. By the way, the cash economy is a reality so banks and Credit Cards are not as useful as one may think.

At a mid class hotel lobby many transactions are taking place ranging from apartment purchases to car purchases or business deal buy ins. If you spend an hour or two waiting and observing you may see at least 2-3 deals taking place leaving only empty plastic bags that used to carry the decks of hundred dollar bills. Receipts are optional and often unnecessary since the meaning of a promise is always stronger than that of a paper slip.

The typical land developer and new builder speculates not only in how land is best developed but also in a 5-10 year perspective the appreciation of the land itself. If land is to be developed it is usually done by Turkish companies that has learnt how to make complete success in Kurdistan. Construction of housing units provides also for household extra income since what you earn you keep. In this way the land is rapidly developed with little means and the state reap the benefits from increased household and corporate spending. In no way this land can be developed in such rapid way, and no one wants to wait decades for increased living standards – none, without liberal restrictions on income generating activities. Again, as we saw the rapid development of Dubai in the UAE, Kurdistan is taking on the same path.

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