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Iraq faces chronic housing shortage, needs foreign investment -minister

(Reuters) - Iraq is mired in a housing crisis, with the war-ravaged country likely to complete only 5 percent of the 2.5 million homes it needs to build by 2016 to keep up with demand, the Minister for Construction and Housing said on Monday.

Experts expect the private sector to account for up to four-fifths of new builds in Iraq, and the bulk of this investment will come abroad. But foreign investors are deterred by stifling bureaucracy and government inexperience in managing projects, while the worsening security situation is also a worry.

Furthermore, potential home owners in the country struggle to get mortgages at reasonable interest rates from commercial lenders, while state-backed finance schemes are chronically under-funded relative to demand.

By the end of 2016, Iraq needs to build 2.5 million new housing units, Mohammed al-Daraji, Iraq Minister of Construction and Housing, told Reuters on the sidelines of a conference in Dubai.

But he estimated that only 130,000 of those homes would actually get built: 30,000 by the government and a further 100,000 by the private sector.

"That's why I say it's a crisis," said Daraji. "Unless there's direct investment from foreign investors there won't be a solution. We've had a problem for the last 40 years. I'm not going to solve it in 2-3 years."

Foreign direct investment was about 1 percent of gross domestic product in 2012, according to a July report by the International Monetary Fund.

"Unless we attract foreign companies we don't know when this crisis will end," said Daraji.

"Some provinces haven't spent more than 25 percent of their budget because of a lack of contractors. The number of contractors is limited and the amount of work is more than they can take. It's a golden opportunity to enter Iraq."

Yet few foreign firms have been willing to build in Iraq, a reluctance more down to local bureaucracy than increasing sectarian violence, according to Amar Shubar, a partner at Dubai-based consultancy Management Partners.

About 800 Iraqis were killed in August, the United Nations estimates. The bloodshed, 18 months after U.S. troops withdrew, has stirred concerns about a return to the sectarian slaughter of 2006-7, when the monthly death toll sometimes topped 3,000.

"The biggest concern for international companies wanting to enter Iraq are the bureaucratic, administrative and contractual hurdles to work with the government," said Shubar. "The Iraqi government lacks the skills and experience to properly manage large and complex projects to an international standard."

Political infighting, with increasingly sectarian undertones, plagues the government, according to the IMF report.

"Poor governance, an inefficient judiciary system, inconsistent regulations, and insufficient security keep Iraq at the bottom of global rankings for doing business," it added.

Construction in Iraq is a tenth of the target rate, said Shubar, with foreign developers usually uninterested in building low-margin, low-cost housing.

"The biggest need is in the lower-mid and low income segment," he added.



State-run Real Estate Bank provides home financing, but its annual budget is only 50 billion dinars ($43 million), "which covers nothing" said general manager Hussein Tohme.

The government raised the bank's budget to 100 billion dinars for 2012 and 2013, but the extra funding never materialised, he said.

"Our capital should be around 500 billion dinars - 100 billion and 200 billion will not do anything," said Tohme.

More funding would allow the bank to raise its loan limit to $60,000 from $25,000, he said.

"With the current funds we can only cover 1,000 houses (yearly)," Tohme added.

Aside from housing, Iraq's infrastructure is also in dire shape. Daraji estimates the country needs to build 500 new bridges, which would raise its total to 1,700, while it also requires 7,000 kilometres of new roads.

"The previous regime spent all Iraq's resources on the military. That's why there's a lack of infrastructure," said Daraji. "We can't use all the available land because there's no infrastructure. We need to spend more money on sewage and water. We have problems with maintenance."

Iraq will spend around $10 billion on infrastructure projects this year, he added, with the country aiming to increase this to more than $15 billion annually by 2016. ($1 = 1163.0000 Iraqi dinars) (Reporting by Matt Smith, Mahmoud Habboush and Layla Maghribi; Writing by Matt Smith; Editing by Hugh Lawson)