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Iraq emerges as a major market
June 5 2011
A Dubai-based developer is leading the way with its five-star hotel project in Kerbala, Iraq, which is undergoing a major reconstruction boom.
A recent Citibank study on the fastest-growing economies placed Iraq second out of ten nations with the most promising growth prospects for the period 2010-2015, with a yearly increase in GDP of 11.7%.
It also placed Iraq among the top five countries with the best growth prospects through 2050. Iraq’s 2011 budget, approved by the Council of Representatives in February, calls for a 27% increase in capital spending, while private commercial activity has reached a peak at present.
Iraq’s National Development Plan (2010-2014) calls for $186bn in spending to set the country on course to become a diverse and competitive economy dominated by the private sector.
According to a report by Dunia Frontier Consultants, the volume of new foreign commercial activity in Iraq rose from $28.7bn in 2009 to $42.67bn in 2010.
This increase is attributed mainly to housing and real-estate sector, which accounted for a third of the 2010 total – more than twice that of other critical sectors such as transportation infrastructure, electricity, industry and oil and gas.
One developer taking advantage of Iraq’s burgeoning need for infrastructure is Range Hospitality of Dubai. The company recently hosted an Iraq investment summit at the Dubai International Financial Centre to highlight investment opportunities in that country.
Range Hospitality CEO Munaf Ali says that, about eight years after the fall of Baghdad, Iraq has an overwhelming need for the basic trappings of civilization, from essential infrastructure to basic industry. In the real-estate sector, this demand extends from low-end, affordable housing to five-star hotels.
In terms of the former, in 2010 the National Investment Commission (NIC) and the Ministry of Planning and Development Co-operation called for the construction of 3.5m houses by 2020, at an estimated cost of $25bn. The anticipates that the bulk of these houses will be built by private companies.
In late 2010, Baghdad’s municipality awarded contracts to a Turkish consortium valued at $11.3bn for 75,000 units in the Sadr City neighbourhood, while the Najaf Provincial Investment Commission reported that, through late March, it had approved 27 investment licenses valued at $2.92bn for building 45,000 houses.
In terms of the high end of the real-estate market, Range Hospitality is building what it claims to be Karbala’s first five-star hotel, the 12-storey, $100m Al Rawdatain Residences, which will be managed by Shaza Hotels upon completion, the Islamic division of the Kempinski Group. Ali says Karbala does have so-called four- and five-star hotels, but these usually charge per bed space.
“During peak season, equivalent to the Haj period in Saudi Arabia when a lot of pilgrims flock to the Holy Sites, there is no accommodation available.”
Indeed, the current influx of pilgrims, estimated at up to ten million a year, is growing at such a rapid rate that Iraqi National Business Council chairman Ibrahim Al Baghdadi says: “We require at least 500 hotels to be built in Karbala based on the current influx of pilgrims.”
Ali says the focus at the moment is on all kinds of accommodation.
“The government is encouraging foreign companies, whether they are developers or contractors, to build affordable accommodation.
They are willing to offer concessions such as free land and registration with the NIC, which means companies can obtain a lot of tax breaks and duty exemptions for bringing in building materials and expert labour,” says Ali.
This is critical to spur on Iraq’s overall development. Ali says the government is also faced with a large pool of disaffected youth demanding education and employment opportunities, together with demands from the rest of the population for essential services such as water and sanitation.
“Iraq with its oil reserves is a very rich nation, and now that stability is coming into play and the political scene seems to be calming down, the focus is slowly filtering down to the people.
I think that, given time, Iraq and its importance in the region will only grow. Saudi Arabia is known as a major oil producer, but then Iraq is not that small either. It is spending a lot of money trying to redevelop the country, and we are regularly bumping into people and companies involved in that market,” says Ali.
“It is a big market simply because it needs so many fundamental things.” Ali says there has been a marked change in Iraq over the last two years, from safety and security to infrastructure development.
“It has been a progressive change. Over the last two years the government has been deliberately wooing external investors. I normally fly direct from Dubai to Najaf.
Last time I went to Baghdad, I actually did not feel concerned or scared at all. Yes, there is a lot of security at the airport, but it is for everyone’s benefit.
"Your bag may get scanned a few times more than it does anywhere else, and you may get patted down more often, but this par for the course.” Ali says that Baghdad Airport itself, which is more than 20 years’ old, is an impressive achievement for the period in which it was built, as well as being a potent symbol for what Iraq can achieve in the future.
“Iraq has such a huge workforce at its disposal, with a large young population, and everyone is eager to see their country move out of the shadow of the past.”
Ali explains Range Hospitality was founded specifically to target religious tourism development opportunities in emerging markets.
“What we found in Karbala was of a very poor standard, and the prices were Dubai prices. We thought this was unfair and not right. You visit these religious sites, and you are meant to have a spiritual journey, and yet you lose all that by staying in sub-standard accommodation. So we found an opportunity to do some good, and also to build a business around it.”
With British nationals being able to acquire land in Iraq due to a reciprocal agreement, Ali says the company’s first step in realising its project was greatly facilitated.
“Obviously not any person can buy land in a foreign country, but my partner and I are both British nationals, so we started doing some work with architectural firm Dewan, whose chairman and CEO hail from the neighbouring town of Najaf.”
Dewan is also responsible for the master-planning of the Karbala and Najaf redevelopment plan. It was therefore able to advise Range Hospitality on the best site to acquire in terms of the city’s future growth.
“We chose a piece of land just on the outskirts at present, which means we have easy access, but it is also very close to strategic points such as the shrines.”
In terms of the architectural style of the project, Ali elaborates: “As it is in a religious city, we wanted to maintain the Islamic and Arabic feel, but because it is a new five-star hotel, it has got to have a modern feel to it as well, so we are working with some very well known interior designers here to come up with the look."
It is a large hotel, about 5,5741.82m2, with four large restaurants, a small gym, children’s facilities and a clinic and business centre.
At the outset, the developer approached many international project managers and architects, who were leery of getting involved in Iraq at that particular time.
“We found that, although they did not really have a presence on the ground yet at that time, now all of these companies we were talking to before are clamouring to get into Iraq.
“First when we spoke to a European or US company, they said they were not ready for Iraq. Now they call us back and say they are opening an office in Baghdad, and if you are looking to do anything else, please send us a proposal. So it is interesting how perceptions have changed. Two years ago people still deemed it a high risk,” says Ali.
Added to this is the fact that the price of land has increased dramatically in Iraq. “We have the advantage because we bought land two years ago.
It also means we did all our planning, permission and zoning work with the municipality two years ago, which means we do have long-term relationships. Working with Dewan has also been a plus factor.
While a lot of people came into Iraq and bought land, I think we are one of the first to have actually started building in that country,” says Ali.
Not only did Real Hospitality take on the considerable challenge and risk of entering an emerging market, but it was also established just after the downturn.
“We actually started just after the crash, at the end of 2009. So we started a real-estate company when the economy was not doing so great, but we were not focusing on Dubai, so we were fortunate.
We also believed that if we were able to survive and sustain ourselves as a business during such a grey period, we would be sitting quite pretty when things turned.
Ali says he also wanted to counter the negative perception attached to the real-estate sector after the property market crashed, especially in Dubai, where developers took investors’ money “but the projects never actually got off the ground.
We are based in Dubai, but we have never done anything in Dubai as such. We wanted to make sure people did not get the wrong impression about us.” The company has created a unique financing model for the project.
“We explained to Standard Chartered exactly what it is we wanted to do: to create a Sharia-compliant escrow account for an Islamic project under construction. They worked with us over the space of six months.
This means that, whether you are buying a timeshare unit for a period of one week for the next 50 years for $5,000, or you are buying an apartment for a $1m, we as a developer do not take any of your money.
“It all goes into an escrow account, and Standard Chartered actually regulates the payments on our behalf to the various contractors and professional consultants, so it means the investors, small or large, have peace of mind.
We wanted to make sure that what had happened in Dubai was not repeated, and that gave a lot of people comfort and confidence,” says Ali.
This approach has been so successful that 65% of the project was sold upfront, meaning the construction is essentially self-funded. Another unique aspect is that 20% of profits are ploughed back into corporate social investment initiatives, with the long-term to build a clinic in Karbala.
Ali says such a flexible financing model could be used as a benchmark for the rest of the region. “This would be a very good model for other developers to follow in other markets.
Our focus is the religious hospitality sector, but it would be a great model to follow here in Dubai as well.
We are currently trying to negotiate land in Najaf, a similar sized plot for a similar development, also with the Shaza brand. Then we are looking at other countries like Iran, Damascus in Syria and Makkah and Madina in Saudi Arabia.”
Looking at current progress at Al Rawdatain, Ali says construction commenced about two months ago.
“The water table in Karbala is very high, which means you dig about 1m down and you hit water, so it is a long and lengthy dewatering process. Currently there are a number of wells pumping away for most of the day, and this will probably go on for another month or so before they carry on with all the excavation work, shoring and creating the waterproofing membrane.”
The main contractor is the Tadbir Construction & Development (TCD) Group, which has 500ha of developments under construction in the Middle East.
“It has a done a lot of work in the Gulf, the UAE and Iraq already. For us it was trying to find someone who already has experience and was willing to go there, and that has worked on large-scale projects in the Middle East region.”
In terms of supply-chain challenges, Ali says that while a lot of material has to be imported, “a lot of essential building materials are available.” While the local workforce is adequate for basic construction work such as bricklaying and plastering, specialist trades such as MEP services have to be imported.
“The government understands and acknowledges that there is a limited quantity of skilled labour available, and we are trying to reciprocate where we can in terms of skills transference.”
Ali says that Al Rawdatain is also unique in that it will be a steel-framed structure rather than a traditional concrete building, an area that TCD has considerable experience in. “This is more expensive obviously, but it means the building gets built a lot faster as well.
The steel structure will probably be constructed with one of the large steel fabricators in Dubai.
The main reason for going this route is the timeframe, says Ali. “It is very important for us to be able to deliver the project on time. We are looking at the middle of 2013. We have a small grace period until the end of the year, but we are very confident we can deliver on time. Using the steel structure, we will be able to deliver on time.”
Ali is adamant that the project will adhere to international standards. “Just because it is Iraq does not mean that it lacks building standards and regulations. In fact, the bigger the project, the more stringent the requirements.”
A particular problem that the project has had to address is the inclusion of underground fuel and water tanks in case of interruption of essential services.
Al Rawdatain is one example of the revival of Iraq’s construction industry, while Range Hospitality is an example of the new breed of company seeking out opportunities in emerging markets.
In 2010, the Trade Bank of Iraq issued letters of credit worth $7.45bn to organisations from 54 foreign countries, in addition to Iraq itself. The Iraq Stock Exchange, which listed about 120 companies in mid-April, has registered a collective gain of 26% since January 2010, much of it during this quarter.
Preparation for major cultural, sports, and diplomatic events over the next two years has generated projects estimated at more than $1bn. In Basrah, a $500m effort is underway to prepare for the 2013 Arabian Gulf Cup of Nations, the Gulf region’s premier soccer tournament.
Work is already underway on a new 65,000-seat soccer stadium and accompanying sports complex. Completion is scheduled for March 2013. In Baghdad, the city government has embarked on more than $800m in major road improvements and other renovation and beautifi cation projects to prepare the capital for an eventual Arab League summit meeting, in addition to its role as the Capital of Arab Culture in 2013.
However, public dissatisfaction with the delivery of essential services in Iraq, especially electric power and water services, remains high. As of 31 March, the US had obligated $5.07bn and expended $4.97bn to improve Iraq’s generation, transmission, and distribution of electricity network. It had also obligated $2.65bn and expended $2.57bn to rehabilitate Iraq’s water and sanitation sectors.
“This year we are seeing a larger quantity of people coming into the country than ever before – not just pilgrims, but foreigners and businesspeople.
I think it is more a case of perception at the end of the day. We have been going backwards and forwards to Karbala in Iraq for about two years now, and we have not really faced any major challenges. In fact, it has gotten easier every time we go,” he concludes.
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June 5 2011
A Dubai-based developer is leading the way with its five-star hotel project in Kerbala, Iraq, which is undergoing a major reconstruction boom.
A recent Citibank study on the fastest-growing economies placed Iraq second out of ten nations with the most promising growth prospects for the period 2010-2015, with a yearly increase in GDP of 11.7%.
It also placed Iraq among the top five countries with the best growth prospects through 2050. Iraq’s 2011 budget, approved by the Council of Representatives in February, calls for a 27% increase in capital spending, while private commercial activity has reached a peak at present.
Iraq’s National Development Plan (2010-2014) calls for $186bn in spending to set the country on course to become a diverse and competitive economy dominated by the private sector.
According to a report by Dunia Frontier Consultants, the volume of new foreign commercial activity in Iraq rose from $28.7bn in 2009 to $42.67bn in 2010.
This increase is attributed mainly to housing and real-estate sector, which accounted for a third of the 2010 total – more than twice that of other critical sectors such as transportation infrastructure, electricity, industry and oil and gas.
One developer taking advantage of Iraq’s burgeoning need for infrastructure is Range Hospitality of Dubai. The company recently hosted an Iraq investment summit at the Dubai International Financial Centre to highlight investment opportunities in that country.
Range Hospitality CEO Munaf Ali says that, about eight years after the fall of Baghdad, Iraq has an overwhelming need for the basic trappings of civilization, from essential infrastructure to basic industry. In the real-estate sector, this demand extends from low-end, affordable housing to five-star hotels.
In terms of the former, in 2010 the National Investment Commission (NIC) and the Ministry of Planning and Development Co-operation called for the construction of 3.5m houses by 2020, at an estimated cost of $25bn. The anticipates that the bulk of these houses will be built by private companies.
In late 2010, Baghdad’s municipality awarded contracts to a Turkish consortium valued at $11.3bn for 75,000 units in the Sadr City neighbourhood, while the Najaf Provincial Investment Commission reported that, through late March, it had approved 27 investment licenses valued at $2.92bn for building 45,000 houses.
In terms of the high end of the real-estate market, Range Hospitality is building what it claims to be Karbala’s first five-star hotel, the 12-storey, $100m Al Rawdatain Residences, which will be managed by Shaza Hotels upon completion, the Islamic division of the Kempinski Group. Ali says Karbala does have so-called four- and five-star hotels, but these usually charge per bed space.
“During peak season, equivalent to the Haj period in Saudi Arabia when a lot of pilgrims flock to the Holy Sites, there is no accommodation available.”
Indeed, the current influx of pilgrims, estimated at up to ten million a year, is growing at such a rapid rate that Iraqi National Business Council chairman Ibrahim Al Baghdadi says: “We require at least 500 hotels to be built in Karbala based on the current influx of pilgrims.”
Ali says the focus at the moment is on all kinds of accommodation.
“The government is encouraging foreign companies, whether they are developers or contractors, to build affordable accommodation.
They are willing to offer concessions such as free land and registration with the NIC, which means companies can obtain a lot of tax breaks and duty exemptions for bringing in building materials and expert labour,” says Ali.
This is critical to spur on Iraq’s overall development. Ali says the government is also faced with a large pool of disaffected youth demanding education and employment opportunities, together with demands from the rest of the population for essential services such as water and sanitation.
“Iraq with its oil reserves is a very rich nation, and now that stability is coming into play and the political scene seems to be calming down, the focus is slowly filtering down to the people.
I think that, given time, Iraq and its importance in the region will only grow. Saudi Arabia is known as a major oil producer, but then Iraq is not that small either. It is spending a lot of money trying to redevelop the country, and we are regularly bumping into people and companies involved in that market,” says Ali.
“It is a big market simply because it needs so many fundamental things.” Ali says there has been a marked change in Iraq over the last two years, from safety and security to infrastructure development.
“It has been a progressive change. Over the last two years the government has been deliberately wooing external investors. I normally fly direct from Dubai to Najaf.
Last time I went to Baghdad, I actually did not feel concerned or scared at all. Yes, there is a lot of security at the airport, but it is for everyone’s benefit.
"Your bag may get scanned a few times more than it does anywhere else, and you may get patted down more often, but this par for the course.” Ali says that Baghdad Airport itself, which is more than 20 years’ old, is an impressive achievement for the period in which it was built, as well as being a potent symbol for what Iraq can achieve in the future.
“Iraq has such a huge workforce at its disposal, with a large young population, and everyone is eager to see their country move out of the shadow of the past.”
Ali explains Range Hospitality was founded specifically to target religious tourism development opportunities in emerging markets.
“What we found in Karbala was of a very poor standard, and the prices were Dubai prices. We thought this was unfair and not right. You visit these religious sites, and you are meant to have a spiritual journey, and yet you lose all that by staying in sub-standard accommodation. So we found an opportunity to do some good, and also to build a business around it.”
With British nationals being able to acquire land in Iraq due to a reciprocal agreement, Ali says the company’s first step in realising its project was greatly facilitated.
“Obviously not any person can buy land in a foreign country, but my partner and I are both British nationals, so we started doing some work with architectural firm Dewan, whose chairman and CEO hail from the neighbouring town of Najaf.”
Dewan is also responsible for the master-planning of the Karbala and Najaf redevelopment plan. It was therefore able to advise Range Hospitality on the best site to acquire in terms of the city’s future growth.
“We chose a piece of land just on the outskirts at present, which means we have easy access, but it is also very close to strategic points such as the shrines.”
In terms of the architectural style of the project, Ali elaborates: “As it is in a religious city, we wanted to maintain the Islamic and Arabic feel, but because it is a new five-star hotel, it has got to have a modern feel to it as well, so we are working with some very well known interior designers here to come up with the look."
It is a large hotel, about 5,5741.82m2, with four large restaurants, a small gym, children’s facilities and a clinic and business centre.
At the outset, the developer approached many international project managers and architects, who were leery of getting involved in Iraq at that particular time.
“We found that, although they did not really have a presence on the ground yet at that time, now all of these companies we were talking to before are clamouring to get into Iraq.
“First when we spoke to a European or US company, they said they were not ready for Iraq. Now they call us back and say they are opening an office in Baghdad, and if you are looking to do anything else, please send us a proposal. So it is interesting how perceptions have changed. Two years ago people still deemed it a high risk,” says Ali.
Added to this is the fact that the price of land has increased dramatically in Iraq. “We have the advantage because we bought land two years ago.
It also means we did all our planning, permission and zoning work with the municipality two years ago, which means we do have long-term relationships. Working with Dewan has also been a plus factor.
While a lot of people came into Iraq and bought land, I think we are one of the first to have actually started building in that country,” says Ali.
Not only did Real Hospitality take on the considerable challenge and risk of entering an emerging market, but it was also established just after the downturn.
“We actually started just after the crash, at the end of 2009. So we started a real-estate company when the economy was not doing so great, but we were not focusing on Dubai, so we were fortunate.
We also believed that if we were able to survive and sustain ourselves as a business during such a grey period, we would be sitting quite pretty when things turned.
Ali says he also wanted to counter the negative perception attached to the real-estate sector after the property market crashed, especially in Dubai, where developers took investors’ money “but the projects never actually got off the ground.
We are based in Dubai, but we have never done anything in Dubai as such. We wanted to make sure people did not get the wrong impression about us.” The company has created a unique financing model for the project.
“We explained to Standard Chartered exactly what it is we wanted to do: to create a Sharia-compliant escrow account for an Islamic project under construction. They worked with us over the space of six months.
This means that, whether you are buying a timeshare unit for a period of one week for the next 50 years for $5,000, or you are buying an apartment for a $1m, we as a developer do not take any of your money.
“It all goes into an escrow account, and Standard Chartered actually regulates the payments on our behalf to the various contractors and professional consultants, so it means the investors, small or large, have peace of mind.
We wanted to make sure that what had happened in Dubai was not repeated, and that gave a lot of people comfort and confidence,” says Ali.
This approach has been so successful that 65% of the project was sold upfront, meaning the construction is essentially self-funded. Another unique aspect is that 20% of profits are ploughed back into corporate social investment initiatives, with the long-term to build a clinic in Karbala.
Ali says such a flexible financing model could be used as a benchmark for the rest of the region. “This would be a very good model for other developers to follow in other markets.
Our focus is the religious hospitality sector, but it would be a great model to follow here in Dubai as well.
We are currently trying to negotiate land in Najaf, a similar sized plot for a similar development, also with the Shaza brand. Then we are looking at other countries like Iran, Damascus in Syria and Makkah and Madina in Saudi Arabia.”
Looking at current progress at Al Rawdatain, Ali says construction commenced about two months ago.
“The water table in Karbala is very high, which means you dig about 1m down and you hit water, so it is a long and lengthy dewatering process. Currently there are a number of wells pumping away for most of the day, and this will probably go on for another month or so before they carry on with all the excavation work, shoring and creating the waterproofing membrane.”
The main contractor is the Tadbir Construction & Development (TCD) Group, which has 500ha of developments under construction in the Middle East.
“It has a done a lot of work in the Gulf, the UAE and Iraq already. For us it was trying to find someone who already has experience and was willing to go there, and that has worked on large-scale projects in the Middle East region.”
In terms of supply-chain challenges, Ali says that while a lot of material has to be imported, “a lot of essential building materials are available.” While the local workforce is adequate for basic construction work such as bricklaying and plastering, specialist trades such as MEP services have to be imported.
“The government understands and acknowledges that there is a limited quantity of skilled labour available, and we are trying to reciprocate where we can in terms of skills transference.”
Ali says that Al Rawdatain is also unique in that it will be a steel-framed structure rather than a traditional concrete building, an area that TCD has considerable experience in. “This is more expensive obviously, but it means the building gets built a lot faster as well.
The steel structure will probably be constructed with one of the large steel fabricators in Dubai.
The main reason for going this route is the timeframe, says Ali. “It is very important for us to be able to deliver the project on time. We are looking at the middle of 2013. We have a small grace period until the end of the year, but we are very confident we can deliver on time. Using the steel structure, we will be able to deliver on time.”
Ali is adamant that the project will adhere to international standards. “Just because it is Iraq does not mean that it lacks building standards and regulations. In fact, the bigger the project, the more stringent the requirements.”
A particular problem that the project has had to address is the inclusion of underground fuel and water tanks in case of interruption of essential services.
Al Rawdatain is one example of the revival of Iraq’s construction industry, while Range Hospitality is an example of the new breed of company seeking out opportunities in emerging markets.
In 2010, the Trade Bank of Iraq issued letters of credit worth $7.45bn to organisations from 54 foreign countries, in addition to Iraq itself. The Iraq Stock Exchange, which listed about 120 companies in mid-April, has registered a collective gain of 26% since January 2010, much of it during this quarter.
Preparation for major cultural, sports, and diplomatic events over the next two years has generated projects estimated at more than $1bn. In Basrah, a $500m effort is underway to prepare for the 2013 Arabian Gulf Cup of Nations, the Gulf region’s premier soccer tournament.
Work is already underway on a new 65,000-seat soccer stadium and accompanying sports complex. Completion is scheduled for March 2013. In Baghdad, the city government has embarked on more than $800m in major road improvements and other renovation and beautifi cation projects to prepare the capital for an eventual Arab League summit meeting, in addition to its role as the Capital of Arab Culture in 2013.
However, public dissatisfaction with the delivery of essential services in Iraq, especially electric power and water services, remains high. As of 31 March, the US had obligated $5.07bn and expended $4.97bn to improve Iraq’s generation, transmission, and distribution of electricity network. It had also obligated $2.65bn and expended $2.57bn to rehabilitate Iraq’s water and sanitation sectors.
“This year we are seeing a larger quantity of people coming into the country than ever before – not just pilgrims, but foreigners and businesspeople.
I think it is more a case of perception at the end of the day. We have been going backwards and forwards to Karbala in Iraq for about two years now, and we have not really faced any major challenges. In fact, it has gotten easier every time we go,” he concludes.
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