The recent decision by the Central Bank of Iraq (CBI) to prohibit the sale of real estate exceeding 100 million dinars through non-bank channels has stirred considerable debate. This regulation mandates both buyers and sellers to open bank accounts, aiming to bolster transparency and combat domestic money laundering.
However, specialists have raised substantial concerns about this directive, labeling it as unprecedented and potentially detrimental to market dynamics. Critics argue that while facilitating transactions through banks is ostensibly sound, the lack of a robust banking infrastructure in Iraq may hinder market activity and investment opportunities.
One economist noted, “While the intention behind the decision is valid, Iraq currently lacks a competent banking sector that can prevent stagnation in market movement and impede investments.” Furthermore, this stance aligns with sentiments that the CBI’s recent decisions have been erratic and lack coherence, despite having established mechanisms for property sales and tax registrations. The predicted outcome is an increase in tax burdens and purchase-related costs in the market.
Economist Nabil Al-Marsoumi emphasized, in a recent public statement, that this new policy requires both parties in real estate transactions over 100 million dinars to engage in banking formalities, which could lead to decreased demand and prolonged transaction times, ultimately raising costs associated with real estate.
Social media reactions varied, with some activists expressing concerns about personal property sales being restricted to bank transactions and viewing this move as a measure to address budget deficits.
As of Thursday, the CBI’s directive, aimed at preventing money laundering through real estate—a sector that has seen alarming price surges—is expected to bring about a decline in real estate prices, as financial transactions will now be closely monitored and conducted solely through banks.
According to Hussein Ali, an assistant director at the CBI’s department focusing on money laundering, the new measures are intended to expedite investigations related to money laundering activities. The Real Estate Registration Department’s oversight will enhance the scrutiny of suspicious transactions and facilitate documentation pertinent to money laundering cases.
In related developments, Iraqi Foreign Minister Fouad Hussein recently led a high-profile economic and banking delegation to Washington, where they discussed critical issues such as monetary policy reform and the challenges facing the Iraqi financial system. The discussions also encompassed combating corruption and money laundering within the banking sector.
The U.S. has previously endorsed Iraq’s initiatives against money laundering and terrorist financing and continues to pressure the country to enhance compliance standards to curb illicit financial flows, particularly concerning dollar smuggling to Iran.
As skyrocketing real estate prices in Baghdad, with some areas seeing costs exceed $20,000 per square meter, create notable economic strain, public sector employees and retirees have reported delays in receiving their December 2024 financial disbursements. While some point to liquidity shortages in banks, the government has publicly refuted claims of financial distress.
Mustafa Al-Karawi, a member of the Parliamentary Finance Committee, acknowledged a looming financial crisis in Iraq. He noted that although the Minister of Finance reassured that employee salary financing would not be adversely affected, potential delays might arise.
Despite record-high spending in 2023, including the hiring of over half a million new public sector employees and significant infrastructure investments, Iraq has raised its budget for 2024. However, financial advisers, like Mazhar Muhammad Saleh, have cautioned that a budget crisis may materialize in 2025 due to falling oil prices, a primary revenue source for the nation.
Unlike many regional counterparts, Iraq lacks comprehensive laws governing real estate transactions, including sales and rentals. Such regulations typically set annual price increases and guarantee contractual rights, aligning economic fluctuations with the broader national landscape.
Finally, according to the “Mercer” index, which assessed the livability of 231 global cities, Baghdad ranked last as the least desirable city to reside in, sharing this unfortunate position with Damascus.