Housing prices soar in Iraqi capital

updated 6:21 p.m. ET Oct. 14, 2008

BAGHDAD - An arrow in central Baghdad points down a side-street to a glass door with a sign that reads: "Ali's Office."

That's where real estate broker Hadi Abbas Ali has greeted clients for 25 years. Now Ali is witnessing a boom of sorts in the Iraqi capital, where real estate prices have doubled in some areas.

But a sectarian shadow hangs over the boom. Buyers don't look for a river view or simply the best deal in town. Safety-conscious Shiites seek housing in walled-in areas dominated by their sect, and Sunnis stick to their own as well.

With little new construction afoot, there are far more buyers or renters than available homes in places like Karradah, a mostly Shiite area where Ali is hard-pressed to shrink his waiting list.

"The business in the area is not so good now because there is high demand but not much supply," said Ali, dressed sharply in a jacket and pressed trousers. He noted that the monthly rent for a two-room apartment in Karradah, where attacks still occur, is about $400, double the price in 2006.

Most homes are hardly posh. Although the well-to-do stay in heavily guarded compounds with walled gardens or courtyards, the city is mostly a bleak landscape of drab, dilapidated offices and apartments that become hazy outlines during summer sandstorms. Much of Baghdad's crumbling infrastructure dates from an oil boom in the 1970s, prior to war and sanctions.

The vast majority of sales are strictly cash deals between buyer and seller since Western-style mortgages are unavailable here.

Uncertain future puts clamp on development
In the U.S.-protected Green Zone, which houses the U.S. Embassy and Iraqi government offices, there are plans for luxury hotels, a shopping center and even condos, but uncertainty about Iraq's future will hinder full-bore development for now.

Property agents enjoyed a price surge after the U.S.-led invasion of Iraq in 2003, but the burgeoning insurgency and sectarian warfare quashed that. Anyone trying to sell a house in Baghdad could become a target of attack. If word got out that a property was on the market, a militia or gang might hunt for the owner in hopes of grabbing the payment. Militias often became landlords themselves, collecting rent.

Baghdad's Haifa Street, a former insurgent stronghold parallel to the Tigris River, was a front line in the sectarian war before the violence tapered off in 2007. Mixed neighborhoods dissolved as Sunnis fled mostly to western Baghdad, and Shiites mostly to the city's east. Some Sunni and Shiite families who were friends temporarily swapped houses in each other's neighborhoods. Others quit the capital altogether.

Some refugees are trickling back into the capital, though 5 million Iraqis remain displaced from their homes nationwide.

The decline in violence has caused prices to rise again, as have the city's new concrete blast walls that help keep neighborhoods safe and segregated.

Fears linger — mostly of kidnapping — and the U.S. military has warned that Iraq could descend back into the dark days of rampant bloodshed.

"Most displaced Sunnis or Shiites cannot return to their houses because they have been through a difficult situation and they do not want to go through the same experience again," said Abu Shaima, a real estate broker in the Maghrib area of northern Baghdad.

"So they prefer to sell their houses and live in Sunni areas if they are Sunnis, or Shiite areas if they are Shiites," he said, giving only his nickname because he was concerned for his safety.

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