When will the bubble burst?

,,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 neighbourhood 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 neighbourhoods. 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.

This reaction reached outside this website:

Azad Shekhany (Dean of the college-university at Sulaimany Technical College) wrote:

"Dear Judit, almost you find the same housing situation in Sulaymania, with renting around from 1550 to 2000 USD per month and prices of accommodation from the worst area of the city around 15000 USD to the MIDDLE and "higher" areas reaching around 220.000 (for apartment) and 700.000 usd for a villa. it is full madness. this is a result of a full speculation from one side, and the absence of housing and land market policy by the regional rulers. "