The Iraqi Housing Fund and its impact on investment housing projects

The Iraqi Housing Fund and Its Impact on Investment Housing Projects

Iraq is currently facing a continuous housing crisis that demands innovative financing solutions.

Within this framework, the Iraqi Housing Fund emerges as one of the state's most vital instruments for addressing this problem.

Establishment and Objectives

The Fund was established under Law No. 32 of 2011.
Its primary objective is to finance housing projects to empower Iraqi citizens.
This enables them to build residential units through interest-free real estate loans.
Note: The scope of the Fund covers Iraq, with the exception of the Kurdistan Region.

Administrative Structure and Legal Status

The Fund is administratively linked to the Ministry of Construction and Housing. It possesses full legal personality.

The Fund is managed by a Board of Trustees, structured as follows:

Chaired by the Minister of Construction and Housing.
Includes members representing various ministries and government entities.
Includes experts from the private sector.

Contribution to the Housing Sector

The Fund has contributed, albeit partially, to alleviating the housing crisis.

This is achieved through the provision of soft loans for building homes.

While the focus is on supporting individual housing, the law also permits the financing of major investment projects in the housing sector.

What This Article Will Cover

In this article, we will review the following details:

The legal terms and conditions for individual Housing Fund loans.
The mechanisms for financing investment residential complexes.

The extent of the Fund's impact on revitalizing investment housing projects in Iraq.

Here is the professional translation of the text provided, structured to ensure accuracy, comprehensive detail, and SEO-friendly formatting.

Terms and Conditions for Individual Lending to Citizens

The Housing Fund Law and its regulations have established a specific set of conditions for benefiting from individual housing loans.
These conditions aim to ensure that loans reach deserving individuals capable of construction, while guaranteeing the recovery of public funds.
The most prominent conditions and procedures for individual lending can be summarized as follows:

Target Audience, Nationality, and Age

Nationality: The loan is granted to every Iraqi citizen.
Age: The applicant must be an adult who has completed eighteen years of age and does not exceed sixty-five years.
Legal Capacity: The applicant must enjoy full legal capacity.
Geographical Scope: Residents of the Kurdistan Region are excluded from the Fund's loans due to the legally defined scope of its operations.

Residential Land Ownership

Ownership Type: The loan applicant must own a residential plot of land registered in their name (Freehold/Melk Sarf).
Ownership Form: Ownership can be independent or common (joint with others).
Value Requirement: The value of the land must cover the requested loan amount to serve as collateral for repayment.
Joint Ownership Rules: If the land is jointly owned (Mushaa’), the borrower's share must not be less than 100 square meters.
Independent Ownership Rules: If the land is fully independently owned by the borrower, there is no minimum land area required, provided it accommodates the construction requirements.
Minimum Construction Area: The area of the built residential unit must not be less than 65 m² according to regulations.
Land Type: Agricultural lands are generally not accepted within the residential lending program; the land must be residential in nature (Residential Title/Tabu).
Project Scope: The property to be built can be:
- A new house on vacant land.
- An addition of a building (a new floor or part) to an existing house capable of expansion.
Exclusions: Loans do not cover simple renovation or rehabilitation purposes.

Building Permits and Designs

Valid Permit: The loan applicant must obtain a valid building permit for the residential project to be constructed.
Permit Validity: The permit must be recently issued (not older than 3 years; if older, it must be formally renewed).
Certified Maps: A certified construction map (architectural and structural plans) matching the permit must be submitted.
Boundary Map: A map fixing the property boundaries must be provided.
- It must be issued by the Real Estate Registration Department.
- It must be recent (not older than 3 months).
Purpose: These requirements ensure the seriousness of the project and verify the land's legal suitability for construction.

Financial Solvency and Personal Guarantee

To ensure the payment of installments, the following guarantee structure is required:

Guarantor Requirement: The borrower must present a guarantor who is a government employee on the permanent staff (civil or military).
Salary Coverage: Half of the guarantor's nominal salary must cover the value of the monthly installment required from the borrower.
Formal Procedure: A formal guarantee is organized at the Fund or a Notary Public and duly certified.
Deduction Commitment: The guarantor's department must pledge to deduct installments from their salary upon the Fund's request.
Excluded Categories: Currently, guarantees from retirees and members of the Popular Mobilization Forces (PMF) are not accepted due to the lack of instructions including them. The guarantor must be an active employee.
Self-Guarantee: If the borrower is a government employee, they are allowed to guarantee themselves using their own salary without needing another guarantor. This flexibility was recently introduced to facilitate procedures.
Guarantor Limit: A person is not allowed to be a guarantor for more than one borrower simultaneously.
Loan Cap Calculation: The Fund has established a formula to calculate the maximum loan amount based on the guarantor's income (or the employee borrower's income).
- This ensures the monthly installment falls within limits coverable by at least half the nominal salary.
- Currently, the minimum required salary for the guarantor is 690,000 IQD, which roughly equates to the maximum loan ceiling.

Required Documents

The loan applicant must complete a package of official documents before the grant. This package typically includes:

Loan Application Form: The approved form prepared by the Fund (submitted electronically).
Title Deed: A recently issued title deed (Land Cheque) and a colored copy of it. It must not have been issued more than 6 months ago to ensure up-to-date ownership data.
Valid Building Permit: A permit for the residential project, with an issuance date not exceeding 3 years. If older, it must be renewed, stamped, and duly certified.
Boundary Fixation Map: A recent map (issued within the last 3 months) certified by the Real Estate Registration Department, accurately showing the land's boundaries and dimensions.
Construction Map: Engineering plans certified by official authorities (Municipality or General Housing Authority).
- Plans must cover all architectural and structural details.
- The design must meet the minimum building area of 65 square meters for the residential unit.
Guarantee Letter: A formal guarantee letter and undertaking according to the Fund's approved model.
- Signed by the employee guarantor.
- Certified by their department and the Notary Public.
- Guarantees coverage of monthly dues.
Written Pledges: The borrower must sign a written pledge stating that:
- The land ownership belongs truly to them.
- They are committed to repaying the loan according to the specified mechanism.
- They bear legal responsibility for the validity of all submitted documents and information.
Personal Identification Documents:
- Civil Status ID (or Unified National Card).
- Iraqi Nationality Certificate.
- Residence Card.
- Recent personal photos of the borrower and the guarantor.

Electronic Application Procedures

Upon meeting the above conditions and submitting the required documents, the loan request becomes eligible to proceed.

Digital Transformation: As of 2024, applying for the loan has become fully electronic via the Ur Portal for Government Services.
Application Process: The applicant fills out the electronic form and attaches photos of the documents.
Evaluation System: Requests are evaluated electronically according to a points-based differentiation system. This system considers factors such as:
- Location of the property.
- Type of construction.
- Age of the applicant.
- Social status and number of family members.
- Whether the applicant has special needs.
- Whether they have previously benefited from housing loans.
Transparency: This system aims to ensure fairness and transparency in loan distribution according to priorities, eliminating nepotism and forgery.
Final Step: After the initial acceptance of the request, the citizen is notified to attend in person to submit the original documents, sign the contract, and complete the remaining procedures.

Loan Ceilings and Repayment: Financing Amounts and Disbursement Mechanism

When the Housing Fund Law was launched in 2011, financing ceilings were set at relatively modest amounts, reflecting the economic situation at that time.

The original instructions stipulated a loan ceiling of 35 million IQD in the center of Baghdad Governorate (within the boundaries of the Mayoralty of Baghdad), and 30 million IQD in the centers of other governorates, districts, and sub-districts.

Additionally, a one-time administrative fee of 2% of the loan amount was imposed, deducted upfront upon disbursement of the first installment. This fee replaces any interest, as the loan is completely interest-free according to Article 2 of the Law.

Evolution of Loan Limits

These financial limits evolved over time in response to inflation and rising construction costs.

2022 Update: The ceiling was raised to 50 million IQD in city centers and 35 million IQD in other areas.
2023 Update: A Council of Ministers decision unified the ceiling across all governorates (Baghdad and other regions alike) to 60 million IQD.

Current Loan Terms

Maximum Amount: 60,000,000 Iraqi Dinars.
Repayment Period: 15 years (180 months).
Interest Rate: 0% (Zero Interest). The borrower repays the exact amount borrowed without any profit increase, excluding the simple administrative fees mentioned.
Objective: The long repayment period aims to reduce the monthly installment value to be within the reach of an average family's income.
Payment Method: The repayment process has become electronic. Installments are deducted monthly via electronic payment or smart payment cards, replacing traditional manual payments.

Loan Disbursement Mechanism

The mechanism for disbursing the loan amount and its installments is directly linked to the progress of construction stages. This ensures the funds are actually used for building the residence.

The instructions offer the borrower two options for the disbursement method, depending on their construction plan:

Option 1: Disbursement in Two Installments

The loan is disbursed in two equal stages (50% each).

First Installment (50%): Released after completing the Roofed Structure stage (completing the building up to the concrete roofing of the final ceiling).
Second Installment (50%): Released upon completion of Final Finishing Works (including water and electricity installation, windows and doors, internal and external plastering, flooring, etc.).

Note: This method suits those who start building and reach the roofing stage before requesting the first disbursement.
Exception: According to instructions, if the borrower proves at the first inspection that the building has already reached the Roofed Structure stage, 70% of the loan may be disbursed as a single first installment, with the remaining 30% paid upon finishing. This effectively condenses the payments.

Option 2: Disbursement in Three Installments

The loan is disbursed in three stages for those desiring more gradual financing.

First Installment (35%): Paid upon completion of the Foundation and Base stage (excavation/plinth).
Second Installment (45%): Paid upon completion of the Roofed Structure stage.
Third Installment (20%): Paid upon completion of the Final Finishing Works.

This mechanism ensures the project is financed step-by-step and incentivizes the borrower to complete stages to secure subsequent payments.

Inspection and Valuation

In all cases, the property being financed is subject to site inspections by engineering committees affiliated with the Fund to verify stage completion before releasing any installment.

Inspection Fees: The borrower bears a fixed fee of 100,000 IQD for each site inspection, paid in advance.
Valuation: The property value is appraised to ensure it is commensurate with the loan amount as part of the approval procedure.

Repayment Schedule

The schedule of monthly installments typically begins approximately 1-2 weeks after the disbursement of the first installment.

This means the borrower starts repaying even before the building is fully completed, making the financial commitment clear from the start.

Legal Guarantees and Penalties for Default

Since the Fund's capital consists of public funds, the law has surrounded it with strong guarantees to ensure recovery from defaulting borrowers.

Article 12 of the Housing Fund Law stipulates placing a seizure mark in the records of the Real Estate Registration Department on every property for which a loan is granted. This acts as a first-degree security mortgage in favor of the Fund, giving it priority over other creditors in satisfying its rights from the property.

Furthermore, Article 13 of the Law and its attached instructions detail the consequences of the borrower breaching contract terms or delaying repayment:

1. Late Payment Fines

If the beneficiary delays paying the monthly installment by more than 30 days from its due date, the Fund imposes a late fine of 5% of that installment's value for the duration of the delay.
If the default continues, the fine is doubled every three months as long as the installment remains unpaid. These progressive fines aim to deter payment delays.

2. Guarantor Liability and Salary Deduction

When the delay exceeds 3 consecutive months, the Fund administration officially addresses the guarantor's department.
A request is made to deduct the overdue installments plus fines from the guarantor's salary and transfer them immediately to the Fund.
If the guarantor or their department refuses to comply, this is considered a breach of contract, allowing the Fund to take additional legal measures against the guarantor personally. Typically, warnings are issued to both the borrower and guarantor.

3. Contract Termination and Statutory Eviction

According to Article 13/First of the Law:

Grounds for Termination: If the borrower violates any provision of the law, instructions, loan contract, or property obligations, or if it is proven that they provided incorrect information or documents.
Action: The Fund has the right to unilaterally terminate the loan contract and oblige the borrower to vacate the property immediately.
Notification: The Fund officially notifies the borrower of the termination and eviction decision.
Appeal: The aggrieved borrower has the right to object before the competent court within 30 days (inside Iraq) or 60 days (if residing outside Iraq). This objection does not stop the Fund's procedures unless a judicial decision is issued to that effect.
Financial Consequences: In the event of a final eviction judgment, no installments previously paid are refunded; they are considered rent for the period of occupancy.
Debt Collection: Remaining dues are collected under the Government Debt Collection Law No. 56 of 1977, which allows direct execution on the debtor's assets without lengthy lawsuits.
Damages: Eviction does not exempt the borrower from compensation for any damages or losses to the property.

4. Sale of Property by Public Auction

Trigger: If the borrower's default accumulates to 24 monthly installments (two years), whether consecutive or separate.
Action: The Fund administration is entitled to proceed with selling the property via public auction.
Execution: This is carried out through the Execution Directorate. The borrower bears all fees and expenses related to the auction process.
Settlement: The Fund's dues are settled from the sale price. Any surplus is returned to the borrower; if there is a shortfall, it remains a debt collected as a privileged government debt.

5. Enforcement of Personal Guarantees

In addition to the property collateral, Article 14 of the Law authorizes the Fund to request the Judicial Execution Department to enforce the personal guarantee bond.

This allows for the seizure of the guarantors' salaries or personal assets to recover the Fund's money. This enforcement power encourages guarantors to monitor the borrowers they have vouched for.

6. Death Insurance (The "Death" of the Loan)

To protect both the Fund and the borrower's family, the law authorized the Fund to insure the lives of borrowers.

Article 15: The group temporary insurance contract concluded by the Fund is valid from the date of signing without needing individual beneficiary approval.
Effect: Upon the borrower's death during the loan period, the loan is considered fully paid by the insurance company.
Social Security: The deceased's family is not claimed for anything; the debt expires with the life of the borrower. Officials metaphorically describe this as the "death of the loan" alongside its owner.

Conclusion: A Revolving Fund

The legal and procedural system described above achieves a delicate balance between facilitating interest-free housing loans for citizens and protecting public funds.

While the Fund offers soft terms, it maintains a firm legal grip via first-degree mortgage, mandatory government guarantees, and strict judicial execution measures. This strictness is essential for the sustainability of the Fund as a Revolving Fund; high recovery rates are a prerequisite for financing more families in the future.

In conclusion, understanding the legal aspects of housing loans is a crucial step to ensure your financial stability and avoid legal risks associated with default or construction violations. Whether you are an individual borrower or an investor in the housing sector, expert advice protects you from costly mistakes.