3. Permissibility of Off-Plan Sales Under Strict Conditions

Article Five of the instructions permitted the sale of residential units "off-plan" (under construction). However, this permission was not absolute; it was restricted by a set of strict conditions aimed at protecting buyers and ensuring serious execution.

These conditions can be summarized as follows:

Completion Rate

• The instructions required the completion of no less than (25%) of the total project, including infrastructure, before commencing the signing of residential unit sale contracts.

• In the event that the project is implemented in phases, no less than (25%) of the specific phase intended for sale must be completed.

• It is not permissible to proceed to sell a subsequent phase until the completion of the previous phase.

Escrow Account (Guarantee Account)

• The instructions mandated opening a Guarantee Account (Real Estate Development) at one of the banks approved by the Central Bank of Iraq.

• All amounts received from Iraqi buyers must be deposited into this account.

• These funds are to be allocated exclusively for the purposes of implementing the investment project.

Fund Management

• The funds in the Escrow Account shall be managed for the purpose of spending on project requirements.

• This includes contractors' dues, design works, and infrastructure.

• This process is done in coordination with the bank, with the investor obligated to submit a monthly account statement to the relevant Investment Commission.

Investor Entitlements

• The remaining amounts for each completed residential unit are transferred to the investor following a notification from the Investment Commission.

• A percentage of (5%) of the unit's value shall be retained.

• This percentage shall not be released until after the expiration of the maintenance period or the submission of a Performance Bond (Good Performance Guarantee).

Profit Transfer

• The instructions allowed the investor to transfer profits realized during the execution phase.

• This is subject to the endorsement of the Investment Commission.

• These profits must be clearly established in the audited final accounts.

Protection of Funds

• The instructions stipulated that it is not permissible for the bank to seize (attach) the funds in the Escrow Account, neither for its own benefit nor for the benefit of the investor's creditors.

• The only exception is a final judicial ruling that is due for payment and specifically related to the progress of work on the project.

• These funds are not considered collateral for the investor's personal debts.

Note on Regulatory Framework:

In this context, it is worth noting that the provisions for off-plan sales and guarantee accounts are also subject to the Controls for Maintaining a Real Estate Development Guarantee Account (ESCROW ACCOUNT). These controls were issued by the Central Bank of Iraq under its letter number (9/3/109) dated March 8, 2020, which serves as the complementary regulatory framework for these instructions.

4. Advertising, Non-Monopoly, and Other Investor Obligations

• Article Six of the instructions organized a set of additional obligations imposed on the investor.
• Foremost among these is the obligation to advertise the sale of residential units and the prohibition of monopolizing them or speculating on them.
• This aligns with the social objective of residential investment projects and curbs practices that lead to unjustified price increases.

Maintenance and Reporting Obligations

• Maintenance Period: Paragraph (Second) of Article Six stipulates that the investor must include a maintenance period of no less than one year in the residential unit construction contracts, commencing from the date of handing over the unit to the buyer.

• Monthly Reports: The investor is obligated to submit monthly reports to the Investment Commission granting the license, detailing the marketing situation and sales percentages.

Transfer of Ownership and Legal Precedents

• Paragraph (Four) of the same Article obligated the investor to hand over the residential unit to the buyer and work on transferring its title to their name in the relevant Real Estate Registration Office.
• This obligation is considered one of the areas witnessing the most significant delays in practical application by many residential complexes, as reliance is often placed solely on the purchase contract as proof of ownership.

The Federal Court of Cassation has supported this trend in several decisions, including Decision No. 8105/Civil Panel/2024 issued on September 3, 2024, which established the following principle:

"The contract for the purchase of a residential unit contracted under Investment Law No. 13 of 2006 is of a special nature; the real estate cannot be registered in the Real Estate Registration Office forcibly against the seller. If the seller refuses, the buyer has the right to request the rescission (cancellation) of the sale contract, treating it as a valid contract, and claim compensation if applicable."

Prohibition of Sub-Selling to Related Parties

• Paragraph (Five) of Article Six stated that the investor must refrain from sub-selling to persons with whom they have a connection.

• The text did not define the nature of this connection or the intended degree of kinship.

• This ambiguity raises practical issues regarding the possibility of enforcing this provision and accurately determining its scope.

Submission of Contracts and Documentation

• Paragraph (Six) obliged the investor to provide the Investment Commission granting the license with a copy of the residential unit sale contracts and the beneficiaries' identification documents.

• This must be done within a period not exceeding (30) days from the date of concluding the contract.

• Observation: This obligation raises practical questions, particularly in major residential projects where the number of contracts may reach thousands, casting doubt on the feasibility of this measure and the mechanism for the Commission to handle this vast volume of documents.

Approved Currency

Finally, Article Ten of the instructions stipulated that the currency approved for paying the purchase price of residential units is the Iraqi Dinar exclusively.

This aligns with the state's monetary policy and aims to limit dealings in foreign currencies within the local real estate market.

Conclusion

In light of the foregoing, it becomes evident that Instructions No. (1) of 2025 regarding the Sale and Rent of Residential Units in Investment Projects were introduced to establish a more detailed and stringent regulatory framework concerning investor obligations.

These instructions aim to achieve the following:

• Protecting buyers.

• Ensuring the seriousness of residential project implementation.

• Preventing practices that lead to a breach of investment objectives or cause harm to the real estate market.

Furthermore, these instructions confirm the orientation of the competent authorities towards enhancing oversight and ensuring adherence to legal controls.

This approach seeks to achieve a greater degree of balance between:

• Encouraging residential investment.

• Protecting the public interest.

For expert guidance on navigating these new regulations, trust Osama Tuma for Legal Services and Advisory. We are a premier law firm in Iraq dedicated to protecting your interests in the real estate investment sector.