Financing investment housing projects through the fund

Financing Investment Housing Projects Through the Housing Fund

The role of the Iraq Housing Fund is not limited solely to lending to individuals for building their homes. By law, it extends to financing major housing projects executed by investment companies. This initiative aims to increase the supply of residential units at affordable prices.

Article 2 (Second) of the Fund's Law stipulates the possibility of the Fund participating with real estate companies (established under Iraqi law) in financing the construction of investment residential complexes, the units of which are to be sold to citizens by installments. This falls within the multiple means adopted to achieve the Fund's goal of alleviating the housing crisis.

To implement this, the Minister of Construction and Housing issued special instructions for lending/financing residential complex projects based on Article 2 (Third) of the Law. Below, we review the most prominent conditions and regulations for including an investment housing project in the Fund's financing according to those instructions:

Eligibility and Legal Requirements

Legal Status of the Executing Entity

The applicant for financing must be a company legally registered in Iraq or have legal representation within Iraq.
The entity can be a private real estate investment company or a state-affiliated development company.
The essential requirement is that the entity must possess a legal personality and the legal capacity to own, build, and sell real estate.

Financial and Technical Competence of the Company

The applicant company must prove its financial merit and technical expertise.
It is mandatory to submit the company's latest final balance sheet, certified by a licensed chartered accountant.
The company must provide proof of its financial solvency, such as bank credits or letters of financial support from accredited banks.
Furthermore, documents proving that the company has executed similar housing projects, whether inside or outside Iraq, must be presented.
If the projects were executed abroad, the documents must be attested by the Iraqi Embassy in the project's country to ensure authenticity.
These requirements aim to ensure the investor's ability to complete the proposed project with quality and within the specified duration.

Tax and Legal Compliance

The company is required to obtain a recent tax clearance certificate from the General Commission of Taxes.
This certificate must prove that the company has fulfilled all its tax obligations and has no arrears.
Additionally, the company must be free of major legal disputes that might hinder the project.
This step ensures the reliability of the investor and their commitment to the State.

Technical Assessment and Feasibility

Feasibility Study and Technical Evaluation

The applicant must prepare an integrated feasibility study for the proposed residential project.
This study must include economic feasibility, schedules of costs, expected returns, and a timeline for execution.
The study is presented to a technical committee within the Fund's administration, which evaluates it both in the office and via field visits.
The committee submits its recommendations to the Fund's Board of Directors to consider the viability of the partnership.
Finally, a recommendation is made to the Board of Trustees for the final ratification of the financing.
This sequence ensures the project is studied from all aspects before public funds are invested in it.

Engineering Supervision and Quality Control

The company must contract with an engineering consulting bureau accredited by the Engineers Syndicate (or any supervisory body designated by the Fund).
The bureau is responsible for evaluating the qualitative and quantitative performance of the project.
It prepares periodic reports on the workflow and quality of execution to be submitted to the Fund.
This ensures that funds are spent on viable works with high-quality specifications.
The instructions also require the submission of a complete set of engineering plans (architectural, structural, electrical, mechanical, sanitary).
These plans must be accompanied by priced Bills of Quantities (BOQ) for each item.
A crucial condition is that these plans must be certified by the General Commission for Housing, which verifies the efficiency of the designs and their compliance with standards.

Completion of Basic Infrastructure

A critical condition is that the company provides evidence supporting the completion of the project's infrastructure or, at the very least, a confirmed plan for it.
It is necessary to prove the availability of road networks, electricity, pure water, and sewage systems within the project site.
This condition aims to ensure that the project is actually habitable upon completion, as providing basic facilities increases the project's value and facilitates unit sales.

Financial Framework and Security

Fund Financing Ratio and Payment Mechanism

The instructions set the ceiling for the Fund's participation in any project at no more than 50% of the total project cost.
This means the Fund can finance up to half of the costs, while the company must cover the remainder from its own resources or other loans.
The Fund's financing is not injected in a lump sum; rather, it is disbursed gradually against completion percentages.
The Fund will not disburse any amount until a completion rate of at least 25% of the project is achieved using the company's private financing.
Subsequently, the Fund releases payments proportional to the progress stages, provided the total paid does not exceed half the cost in the end.
This mechanism guarantees the investor's seriousness and ensures they spend at least a quarter of the cost before benefiting from the Fund's money, thereby reducing the risk of project stalling.

Return on Fund Participation

This participation differs from individual loans as it resembles an investment or partnership by the Fund in the project.
The instructions state that the Fund shall recover the capital it provided plus profits based on its contribution percentage.
For instance, if the Fund financed 50% of the project cost, it is entitled to 50% of the profits (or profits defined by a specific agreement) when the units are sold to citizens by installments.
This appears consistent with Islamic finance principles (profit sharing rather than fixed interest) and aligns with the Fund's non-usurious nature, aiming instead for capital sustainability.

Project Land Status and Security

The instructions emphasize the necessity of securing the Fund's rights regarding the project land.
If the land is owned by the State or another entity and is being invested by the company, the owner entity must provide an official letter approving the project and placing the land at its disposal throughout the execution period.
If the land is purely owned by the investing company itself, a joint seizure signal (lien) must be placed on the real estate title deeds in favor of the Fund, similar to individual loans, to ensure priority rights.
The company must also submit all evidentiary ownership documents (Land Registry title deed, plot and district number, area), officially certified to confirm freedom from any disputes.
Through this step, the investor cannot dispose of the land (e.g., selling or mortgaging it to others) during the partnership period without the Fund's approval, thus safeguarding the Fund's assets.

Contractual Obligations and Default

The Agreement and Partnership Contract

A detailed legal contract is concluded between the Fund (as the financier) and the company (as the executing investor).
The contract specifies the agreed participation duration for completing the project and marketing its units.
It also determines the rights and obligations of each party, the financing ratio, the mechanism for the Fund's recovery of its funds and profits, and guarantees for adhering to the timeline.
The company is required to have a fixed address for correspondence and legal notifications.
The company is prohibited from assigning its rights or obligations to third parties (such as selling the project to another developer or changing ownership) without official approval, ensuring the signing party is the one executing until the end.

Handling Company Default

If the participating entity (the company) breaches the repayment of installments due to the Fund or fails to meet any financial obligations under the contract, it is treated exactly as an individual borrower would be.
Debts are collected in accordance with the Law on Collection of Governmental Debts No. 56 of 1977, considering the Fund's money as public funds protected by law.
Practically, this may mean the seizure of the project or the company's movable and immovable assets to satisfy the Fund's rights.

Strategic Overview

These multiple conditions demonstrate the Legislator's and the Administration's diligence in ensuring that entry into financing investment complexes is controlled and has calculated risks.

The Fund finances only purely residential projects (excluding commercial or tourism centers).
Projects must be executed by experienced and solvent companies.
Financing occurs only after a percentage of completion is achieved, indicating the project's seriousness.
The Fund does not cover the entire cost, ensuring the investor bears a significant part of the risk.
Ultimately, the beneficiary citizens obtain residential units in these complexes through an installment sale system in which the Fund itself may be a party.

However, it is worth noting that despite the existence of these texts since 2011, the Fund's practical focus has been more on loans to individuals. Officials have stated that financing major projects depends on the availability of sufficient capital within the Fund, which remains limited compared to the scale of the housing crisis. Therefore, the Fund's efforts are currently concentrated on financing individuals directly, while the door for financing complexes remains legally open, though perhaps for a relatively small number of cases. This relates to a general policy followed by the State during years of financial crisis to direct resources to the most urgent needs.

To ensure your project complies with all regulations and to secure your investment, expert advice is essential. Contact Osama Tuma for Legal Services and Advisory today. As a leading law firm in Iraq specializing in investment and real estate laws, we are dedicated to providing the legal support needed for your project's success.