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Cablegate: Construction Booming in Al-Hillah

DE RUEHIHL #0092/01 3101334
R 051334Z NOV 08



E.O. 12958: N/A

HILLAH 00000092 001.2 OF 002

1. Summary: Construction in Al-Hillah, particularly of homes,
is booming. Land values have doubled in the past year and in
some cases increased even more. Construction is fueled by
Al-Hillah's strategic location, improved security, growing
population and economy, and changing social customs.
Al-Hillah's rapid growth will pose a serious challenge given the
current lack of government enforcement of zoning and the absence
of a master plan.

Construction on the Rise in Al-Hillah

2. Local businessmen and economists tell us construction,
particularly residential construction, is one of the most robust
sectors of the economy in Al-Hillah, the capital of Babil
province. The Director of the Ministry of Planning's Provincial
Statistical Office said the number of private construction
projects, including new homes being built by contractors, is on
track to increase by 500 percent from 2006-2008, having risen
from 134 in 2006 to 235 in 2007 and with a projected 750 by the
end of 2008.

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3. Government construction permits for public projects also
increased, albeit it at a slower pace, from 230 in 2006 to 315
in 2007 and with a projected 350 by the end of 2008. In
conversations with three large local construction companies they
said that while new home construction was doing very well,
public sector projects were plagued by corruption, delays in
payment, and poor planning.

4. Outside investors want to get in on Al-Hillah's housing
market. The Talia company, a construction firm with branches in
London, Baghdad and Erbil, recently met with the Governor to
discuss a proposal to build a residential complex with 2000
apartments in Al-Hillah while a Lebanese firm is looking to
develop 500 housing units.

Land Values Increasing Dramatically

5. Dr. Mejbel Rafia Merjan, Dean of the Economic Department of
University of Babil, estimated that in the last two years land
prices doubled in Al-Hillah. While the greatest dollar increase
was for high-value city-center property, the greatest percentage
increase came from agricultural land on the city's edge being
used for residential construction -- in some cases multiplying
by 400-500 percent over the past two years.

6. Alaa Harba, the Chairman of the Babil Investment Commission,
noted that raw land values have increased more rapidly than the
cost of land with homes. Part of the difference can be
attributed to the fact that many buyers purchase old houses and
immediately tear them down to build more modern homes. Home
prices range from USD 50,000 for a basic two bedroom,
one-bathroom home outside of town to USD 100,000 for a similar
home within the city center. Larger homes, especially new ones
within the city center, can cost up to USD 400,000.
Construction costs generally fall between USD 400-USD 500 per
square meter.

Location and More Fuels Construction

7. Al-Hillah's construction boom has been fueled by its
location, growing population, improved security, more and higher
paying jobs, lack of other investment opportunities and changing
social customs. Al-Hillah's location in the heart of an
agricultural region between Baghdad and Basra make it a natural
spot for growth. With a birth rate of 4.7 percent, the 700,000
population needs almost 6,000 new housing units a year even
without newcomers.

8. But newcomers are coming to Al-Hillah because it is seen as
safe: improved security has made the city a safe haven for
Shias fleeing Baghdad as well as a magnet for rural inhabitants
hungry for an urban lifestyle after years of instability. While
the unemployment rate remains murky, there is general agreement
that employment rate and salaries are rising. Local sources
note that the number of laborers looking for day jobs has shrunk

9. For those with extra funds available, land is the easiest
and safest investment. Anyone with the money can purchase
property. More significantly land values, unlike the interest
on bank accounts, surpasses the inflation rate.

10. Changing social customs also contribute to the rise in
residential construction. Young married couples, who in the
past often lived in the homes of one of their parents (usually
the husband's), are now more likely to move into their own homes
earlier, particularly when the couple both have jobs. Because
it can be difficult to obtain bank loans, and the price of homes
has outpaced the rise in incomes, workers will often pool their

HILLAH 00000092 002.2 OF 002

salaries and take turns using the common fund to make down
payments on land and build homes in stages.

Uncontrolled Urban Sprawl Could be Problem

11. The PC recently rejected a draft master plan for Al-Hillah.
PC Planning Committee Chairperson Qusae Nadi Ali Hummadi told
us the plan was filled with errors and planners hadn't engaged
stakeholders in its development. Qusae said that shortly after
the PC passed a resolution rejecting the plan they were told by
the Ministry of Municipalities that the plan would be used and
that the PC lacked authority to reject it. Qusae said the PC
now plans to file a lawsuit challenging the plan, but admitted
that the situation created a planning vacuum that may be
difficult to fill.

12. Qusae said that while general zoning regulations existed
they were largely ignored with increasing number of homes being
built on non-residential zoned land. The government's inability
to enforce property laws is highlighted by the increasing number
of squatters who build substantial homes on government property.
About a year ago a PC member entered a neighborhood of
squatters and, with appropriate security in place, began loudly
haranguing the homeowners for illegally building on government
property. The squatters vociferously objected to his presence
and went so far as to file a complaint with the governor's
office about his behavior. The squatters, and their homes, are
still there.

13. Security improvements have also had unintended consequences
on urban development patterns. Parking is often not allowed in
the city commercial center in front of stores. In response, new
commercial districts have sprung up next to the highways on the
outskirts of town, where drivers can park in front of stores,
and some large residential lots have evolved into mini malls.

Lack of Credit Slows Construction Somewhat

14. Loans from private banks to buy property or build homes are
not easy to obtain. The government real estate bank offers low
interest home construction loans but the process is not quick --
an existing back-log of close to 1,000 loans means months before
applications are considered -- and loans are slowly doled out in
thirds after each stage of work is completed. Three large local
construction companies told us that while home building was on
the rise, the difficulty in obtaining bank loans was a major
impediment for builders and would-be home owners. And in a
recent survey of local construction businesses virtually all
pointed to lack of credit as a serious problem.

15. Comment: Construction, especially residential, is giving
Al-Hillah's economy a short-term boost. Still, rapid growth
combined with a lack of government enforcement of zoning and the
absence of a master plan will likely pose a serious long-term
challenge for Al-Hillah.

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