Should the property bubble currently inflating in Iraqi Kurdistan burst, the crash could have a damaging effect on the region. For many people, property really is their only investment option and a market correction would be a severe blow.
The economic impact of a failing property market could have severe consequences for Iraqi Kurdistan’s fragile economy. Property transactions are one of the main economic activities in the region and falling property prices would be directly linked to falling consumer confidence as well as business stagnation in the area.
In most nations, when the economy falters, the government gets the blame - and Kurdistan is no exception. Tensions are already high between different political factions in power as well as between the government and the public who have been protesting about corruption. Added economic uncertainty, as locals see the price of their most valuable investment drop dramatically in a short period, would only add to this kind of unrest.
However policy makers in Iraqi Kurdistan do not seem to have grasped the seriousness of the housing bubble the region is sitting on and its consequences if the bubble eventually bursts. There are no real policies in Iraqi Kurdistan to try to control the property market and currently local politicians appear to be content for the general public to feel wealthy, while they see the value of their property continue to rise. The state’s Ministry of Finance is also happy to benefit from duties paid on property transactions.
It is never easy for a government to meddle in the property markets but leaving the local property market unregulated could have severe consequences. In particular, the Kurdish Regional Government should take steps to tighten regulation around off-plan developments in order to minimise any potential foul play by developers. As yet, there have been no reported cases in Iraqi Kurdistan so far but the potential is clearly there.
Measures the government could take here include requiring property developers selling off-plan to maintain escrow or trust accounts to protect consumers in case of developer default. And in more general terms, the government could also introduce taxes that try to calm inflated property prices so that when the local market hits its peak, the landing for everyone involved will be softer.
(Source: NIQASH)
(Photo Credit - Jan Kurdistani)
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