An American suburb in Erbil

Developmens are springing up in a region that has long been bereft of growth. But will this boom last?

A contractor walks past homes of the American Village, Erbil, Iraqi Kurdistan.

ERBIL, IRAQ // As Nawzad Khoshnaw, a military adviser to the president of the Kurdistan Regional Government (KRG), sat in the living room of his new home earlier this week, the sprinklers in the neighbourhood spurred to life and began watering the lawns. Each square of grass in front of each identical home was as bright and uniform as the next. "This is progress," he said. "It is silent and comfortable. We have here electricity, water and safety."

The development where Mr Khoshnaw has chosen to live is called American Village and it is almost an exact replica of a subdivision - better known as a "suburb" in American parlance - in a small city like Chantilly in Virginia. The streets in the development, located just outside the capital city of Erbil, have names like Kentucky St and Tennessee St, and even the curbs on the street are designed to meet US building codes. It is a far cry from downtown Erbil, where families pack into small apartments and go without a modern sewerage system or electricity for much of the day.

American Village is at the forefront of what can be described only as a surreal property boom in Iraq, especially the northern, semiautonomous region known as Kurdistan. In cities that have gone without basic infrastructure for decades, developers are planning, and in some cases building, projects on a scale never before seen in the country's history. But without a strong banking system and amid widespread poverty, some believe the boom is outpacing the population's ability to buy homes. While cranes dot the horizon, many projects have stalled and sit half-finished.

"This is a country where there were no construction projects for more than 30 years," said Nabil Haddad, the director of operations in Iraq for Dar Al Handasah, a property and design consultancy. "The only things that were built were Saddam's palaces and a good road network, so he could send his army anywhere he wanted fast... Now there is a big movement to build." Mr Haddad said that as electricity became available for a larger part of the day in Kurdistan - about eight hours on average - and the government made investments in infrastructure, companies were starting to take notice of Erbil as a possible headquarters for their countrywide operations. Kurdistan is much safer than the rest of the country because it is guarded by its own army, called the peshmerga, or "those who face death". Americans and westerners are well-liked because of the overthrow of Saddam Hussein, who terrorised Kurds for decades, during the Second Gulf War in 2003.

"Things are moving," Mr Haddad said. Perhaps most dramatic in the property market is the emergence of large-scale, multi-billion-dollar projects. Just behind American Village, in a valley that was the setting of a major battle between warring political parties in the 1990s, will be Tarin Hills, a Dh55 billion (US$15bn) project by Damac Properties, based in Dubai, that is expected to include sport facilities, parks, a commercial area and enough housing for about 50,000 people. A Damac spokesman said the project was in the design phase.

Earlier this month, Al Maabar International, a group consisting of the major Abu Dhabi property development companies, announced a $10bn project at the site of the Al Rasheed Military Compound in Baghdad. The 1,250-hectare project will have its own healthcare centres, hotels, mosques, parks, housing and offices. "The move to develop this project complements the growing levels of support that the UAE is providing to the government of Iraq," said Yousef al Nowais, the managing director of Al Maabar. Bonyan Real Estate, another Dubai company, has also signed a memorandum of understanding for a roughly $2bn project in Suleimaniyah, according to government officials.

But even though it has managed to secure its cities, Kurdistan is coming up against the significant economic challenges of rebuilding a country that does not have a proper sewerage system, much less a mortgage market or a network of property brokers. Hamin Dizayee, the developer of American Village and chief executive of Sigma International Construction, said he had sold only 85 of what eventually would be 400 houses in 18 months - a fairly slow absorption rate for new units.

"We expect the real estate business is going to boom," he said. "But not a lot of people have income for this. Everything is direct cash." Prices of the houses range from $250,000 to $650,000, which means that so far the buyers are wealthy Kurds returning from abroad, oil companies, government officials and businessmen. The Kurdistan regional government recently approved the creation of an insurance fund that would give out 30 per cent mortgages for low-income housing below $50,000. The rest of the market, for now, will have to be fuelled by people with enough disposable income to pay for an entire house in cash.

These new master developments "are for the highly paid expatriates and businessmen returning to Kurdistan", said Herish Muhamad, the chairman of the KRG's Investment Board. "Over time, I think that will change." Eventually, as the entire country begins to stabilise, government officials in Kurdistan believe that more people will move from the dusty, hot climates of southern Iraq to the mountainous, cooler environs of the north. Dar al Handasah's master plan for Erbil estimates that it will grow from about 900,000 people to 2.5 million in the next decades. The plan proposes spreading the population out to the hills around the city and building such things as a logistics area near the airport that is modelled on the Jebel Ali free zone in Dubai.

Still, the slow-moving market has left some people concerned that construction projects are going faster than demand. "It could be headed for a real-estate crash," said Zaab Sethna, a former adviser to Ahmed Chalabi at the Iraqi National Congress and one of the partners of a New York-based investment fund operating in Iraq called Northern Gulf Partners. "There is definitely a building boom going on. I just don't think the demand is there yet."

Mr Dizayee took a longer view, especially for the developing suburb market in the Middle East. "If you look at what is happening in America now, building houses in Iraq doesn't look that much more risky any more," he said. "Many people want these kinds of homes." [e-mail]