ATCONZ: Housing Projects in Kurdistan

When we analyze the investments that are going into the country, almost half of the investments went to real estate and the other majority went to the oil and gas sector. Can you give us a general overview of the real estate including prices? Some investors say there is a property bubble when you look at what people are earning compared to real estate prices.

The first statement was not entirely correct because 80% of the real estate investments are local so this money has not been sent from abroad into the country.

The questions is related to entire investments (including the private sector); not only foreign investments.

Real estate is a good and profitable business. The laws coupled with good incentives allowed very fast return on your investment and that is why it was very popular and is still popular. This created an issue with the demand and offer in the market. Prices went up so high. If you are looking at our economy in Kurdistan, it is a cash economy. There is no mortgaging, or very rarely, and no insurance to cover that. So the price is considered high. If you look at the actual way the economy is structured, it is not really productive because it relies on the oil and gas income. The government plays a large role in that.

So we need to grow and create a proper infrastructure in terms of industry, agriculture, and other segments to have a real sustainable economy. At that time we can assess the pricing of the real estate. That is why we believe it will take another ten years or some time for this business to settle at a sustainable level. Then it will enter a recycling stage in which all the houses will be torn down because of the scarcity of land and then there will be a renewal and redevelopment. What we have seen lately is rebuilding a place instead of redeveloping a place. The next stage will include more quality which is really developing the place with a proper infrastructure and services attached to it. You don’t only build a house; you are actually a real estate developer. That should integrate with the entire economy.

Do you feel that the market still needs a lot of housing? Is there the potential for prices to grow?

We always say that the board of investment has the statistics and they know better how the market is and how many licenses they have awarded. But we look at it from a different angle. From our view, once you have the quantity demand met, you will shift to a quality demand. On that end, we at Atconz are leading the market in quality. In this case, once the quantity demand is met, like you need 100,000 housing units, although I don’t think the 100,000 units provided in the last few years were meeting the requirement of quality of living, this will shift again to quality which means you will need to build a decent house which has a healthy environment. So the real estate market will stay but the face of it will change. The market will not stop; it will change but it will not stop.

Much of the prices are governed by the economy and much of our economy is governed by our political relationship with the Central Government and surrounding countries. So it is a very volatile market here, meaning that if any threat comes in from Turkey or Baghdad, it immediately affects our real estate market. So I don’t see stability in this market. It doesn’t matter if it’s at a high or low price. You need the stability because stability attracts investment and this business of real estate is a catalyst for so many other businesses. It will help the builders to have a job. It will help the bakers to have a job. It will help the taxi drivers to have a job. Once you are in operation, the support industries play a big part in real estate development. But we are talking about development, not building projects. Building projects is a different story. I’m talking about real estate which is building quality houses in our region.

At the same time, this is like something that happened in Ireland in which the economy was over-dependent on construction and real estate. And when the property bubble burst in the United States, the contagion spread and now Ireland is in trouble. Is that a concern for you?

Yes, we are concerned about that but it is not as serious as Ireland or the United States simply because we are a cash economy. The livelihood of so many people was dependent on the mortgages that they were taking from the bank. So what they did was remortgaged but then reality hit and when it burst, many people lost their houses. Here this is not possible because you are paying cash for your house so you cannot lose it.

But what we need now is to focus on how to structure our economy to be sustainable. We have the resources like water, population and natural resources, as well as the knowledge. All we need is some stability and some investments to pour in and bring with them money and know-how. Then we will be able to structure a sustainable economy. This is why I don’t compare us with Ireland or any other country because we are a cash economy which helps us to start from the ground up in the right way.

At the same time, how is the valuation for real estate done over here? Valuation is very simple. Your neighbor buys a house for half a million U.S. dollars and all of a sudden all the houses have a value of half a million U.S. dollars. How is property valuation being done in Kurdistan?

But when you say half a million U.S. dollars, it is based on something. There is a formula in real estate. I’m sure we have not seen any real estate company being used for re-selling houses in an appropriate way. There is no such thing here in Kurdistan because we are still underdeveloped. A big part of the valuation is speculation and what the affordability of the customer is, not the actual real value. I will give you an example of our project. We started $70,000 per unit. The units were 4 bedroom, 200 square meter villas. Today, the same villa after two years is $250,000, re-sold by the client who bought it. Why did it rise to $250,000? Because of the quality and the comparability to what is in Ainkawa or any other town, the market goes up. This is the market trend.

But in reality, it is based on the following. What is the value of the land? What is the value of the built up area? You add this to that with some appreciation or depreciation depending on the location and then you will come up with the price. It is very simple. But if the market goes down, the entire city goes down unless there is some key change. For example, if we have a proper infrastructure, wastewater treatment plant, standby power generation, gated community and security, of course our value will be a little bit higher than others. Why? Because we have this infrastructure that is not available in some other places. But that is the nature of the economy. It just settles itself according to the value offered.

But if you are asking me about expensive or cheap, I don’t know. We look at it through an economic view when we do feasibility studies. This is my cost, this is our targeted objective prices, and then we sell according and we produce. But at Atconz, we took it a little bit further. We wanted to create a community and prove that a nice community can be created that gives a sense of safety and comfort to the residents. This is possible by doing the right things and providing proper services. By proper services I mean professional services. When something is broken, people can call you and you have a facility management company to provide the services right away. We don’t want people to have trash outside so we supply the houses with a trash bin. All these little bits and pieces make the difference. That is how we at Atconz are different as a company from others because we are about company and are integrating because we are here to stay. We have another thousand units that haven’t sold yet which we will sell soon.

Please talk generally about business in Kurdistan and how it is developing. What is your perception as part of the business community about the economy?

Well, God blessed this nation with a lot of natural resources. There is decent leadership and the laws are there to protect all citizens. So we have the parameters needed to establish something nice and grow from it. From our point of view as investors doing projects here, we have absolute support from the government. We are staying here and we have our headquarters here instead of going to Baghdad or elsewhere because we have a sense of safety and stability. This place has great potential for the next 20 years. Piece of advice if you are interested: get in, now. They will help you here. That is our opinion.

Let’s talk about your current and upcoming projects. Please give us a brief overview and try to connect it to the general state of this sector of the economy. The real estate market and business opportunities are growing.

We started on this project in 2009. We were supposed to building 1,500 housing units of a horizontal type, villas. We staged the project in multiple phases because of the market volatility. Phase 1 is completed and we have residents living there. Phase 2 will also be finished in the second quarter of next year. The project is an entirely integrated community which has schools, entertainment facilities, services and commercial business, and all the infrastructure required from underground electricity, optical fiber for telecommunication, wastewater treatment, and a water network. So it is a fully integrated project. We also provide after-sale facility management and facility services. So in general, this is our project. We are different from others because we emphasize quality. We are sitting in one of the houses that we built. We have doors from Germany, we have a wastewater treatment plant from the United States, we have sewage pipes from Germany, and windows from Germany. So we emphasize quality and it costs a lot, but we believe it is value for the money.

For upcoming projects, we have a few more projects coming that will be published on our website soon. Some of them have already been published but we are intending to build even more commercial, international malls. This will be like the China Mall or Dragon Mall in the United Arab Emirates in Dubai. As well, serviced apartments or office condos as they say in America and other places. We are also forecasting to launch another project in the first quarter of 2013 which is a hospital and medical centre.

Let’s talk about your current and upcoming projects. Please give us a brief overview and try to connect it to the general state of this sector of the economy. The real estate market and business opportunities are growing.

I feel great about it. We fly from Dubai on a 2½ hour flight, the plane lands in a fantastic airport, and five minutes later you are in a house. That feels great; even better than any city in Europe where it takes two hours to get into your house. There is a modern airport, good infrastructure, the electricity is much more stable compared to any other part of the country, and nature is beautiful. There is the ease of doing business and the fact that the government allows you to do business once you comply with their requirements. The rule of law is there, they give you protections, and the government supplies us with guards to protect the project during the building process. They are meeting and respecting their obligations towards investors who come in and they will try to help you as much as possible to make your project a success. If your project is successful, it means that they are successful and that’s how they look at it.

With new projects coming up, we are getting more and more integration. We used to import some items and now we can get them from the local market which is good news. It means there are some trends shifting towards industry. We will establish our own factories for glazing, for example, to integrate and provide for our needs and also for the other quality products. So the environment here for investing or contracting is very attractive compared to the rest of the country. But if you do SWAT analysis, it will be affected by the region around you which is true of anywhere in the Middle East so it is nothing unusual for this area. But compared to what this area has seen in terms of struggles and history in the last 50 or 60 years, we are now at the beginning of a golden era of Kurdistan.