As house prices rise, Iraqis find they can't go home again

The improved security situation in Iraq isn't unmitigated good news for Mahmoud Jasim Mohamed.

Mr. Mohamed once lived in a family-friendly neighborhood, the Baghdad equivalent of New York's Brooklyn Heights. "My family didn't think we would ever leave," he says, noting the excellent schools.

But after the US-led invasion, his Sunni neighbor began threatening Mr. Mohamed, a Shiite. When the neighbor killed four of Mohamed's cousins, Mohamed and his family fled, selling his home of more than 20 years for $126,000 – just half its market rate.

Now, with relative calm returning, Mohamed is trying to reconstruct his former life. But while he's happy about the greater security, he's confronting a troubling reality that underscores that recovery will take more than an end to fighting. Like many Iraqis, he can't afford his old neighborhood.

"Many people sold their houses during the sectarian violence and lost money," says Basil Kalf, a Baghdad real estate agent. They used the money to flee to safety outside Iraq or within a quieter part of the country. While some managed to reinvest their money into another venture, many more struggled to find work and made short work of their savings.

It wasn't until the first major security gains in late 2007 that housing prices began to climb gradually toward normalcy once more. Today, real estate agents say that with the exception of several neighborhoods, prices are close to a full rebound, even surpassing pre-war values in some areas.

For example, in Ghazaliya, a neighborhood in western Baghdad, houses used to go for between $60,000 and $76,000, then they dropped to between $42,000 and $51,000, and in some cases went for as little as $25,000. Today, some houses go for as much as $102,000.

For those like Mohamed, this may mean making lifestyle changes. "Many people can't afford a house in the same neighborhood they used to live in, or they have to buy a smaller house than they had before," says Rafat Abud Jabar, a Baghdad real estate agent. Another concern is that some neighborhoods are reviving along sectarian lines, though some remain mixed.

Before the war, the majority of Iraqis owned a house or lived in a family-owned home. Mr. Jabar and other agents say that many former homeowners can now afford only to rent. In the past, 70 to 80 percent of Jabar's business came from people buying homes, with the remainder renting. "Now, it's almost the exact opposite," he says.

While no one can say how far-reaching the problem is, nearly 1 in 5 Iraqis – some 5 million – are displaced. The International Organization of Migration estimates that, at best, 140,000 displaced Iraqis had returned as of November. Of those, 86 percent went back to their houses.

"The Iraqi government is considering different polices and strategies in order to facilitate the return of displaced people to their homes, but I'm not sure you're going to find much sympathy on the part of the government for those Iraqis who freely … decided that it was in their interest to sell their homes, even if ... prices were unusually low," says Jason Gluck, an expert on Iraqi property laws at the United States Institute of Peace, a government-funded, nonpartisan think tank in Washington, D.C.

The government is more likely to focus on helping those who retain the legal deed to their house and need help reclaiming it, says Mr. Gluck. And to avoid creating a new class of displaced people, Iraqis who were squatting in private homes may receive about $250 a month for six months. There are no indications, though, that the government has issued rent assistance yet.

Still, those who sold at the bottom and lost up to three-quarters of their equity may find assistance. If a family revokes their official status as displaced and meets other criteria, the government will provide them with $850 to help them resettle.

Not everyone who sold at the bottom lost money. In 2006, Sadiq al-Zohari, a contractor, realized that his home in Baghdad's Saydeya district was not only unsafe, but was a losing investment. Although he sold his home for a quarter of its original value (a loss of $235,000), he immediately reinvested in a smaller parcel of land in Baghdad's upscale and traditionally stable Karada district. The investment has since appreciated enough to cover most of Mr. Zohari's losses.

A shrewd investor, he argues that if someone knows Iraq's real estate market well, it's easy to come out ahead. "In Iraq, we trust in property investments more than anything else," says Zohari.

Still, for most, starting over isn't this easy. Abdul Ahmed al-Habeeb wanted to sell his farmhouse on the fringes of Baghdad, but the best offer was less than 10 percent of its original value. "I don't want to go back to my family home," says Mr. Habeeb, who lives in a storefront that he converted into a home for his wife and four children. "It's a sensitive issue for me because both my brothers were killed there."

While he's eligible for aid as a displaced person, he says it's not worth it, as he'll lose at least half the value of the grant in bribes he'll have to give government officials just to get the money.

For now, he has accepted that it's unlikely he'll sell – or return anytime soon. But, he adds, "I hope that one day my children will be able to use this house."