Afghanistan’s property market: chaos and uncertainty

431 views · 05 Oct. 2017

Afghanistan, torn apart by domestic warfare for decades, is still home to almost 30 million people. More than one-third of the population lives below the poverty line, practically unable to fulfill their basic food and housing needs, according to World Bank data (2014). Afghanistan ranked 23rd in Global Finance Magazine's Poorest Countries in the World list in 2016, while Transparency International listed it as the world’s seventh most corrupt country.

The U.S. government has warned travellers wishing to visit Afghanistan about landmines on the roads and the possibility of being robbed or kidnapped anywhere outside Kabul. Afghanistan is still one of the largest drug producers in the world, and is extremely poor in terms of quality of life and ease of doing business (ranked 183 of 190 by the World Bank in its Doing Business Report), but what does the country’s real estate market look like?

Land disputes

One of the main characteristics of the local market is its chaotic nature. Afghanistan does not have any land registry system, and, according to the U.S. International Trade Administration, about 80% of transactions are closed informally without any documents to prove the seller’s ownership.

This is why the same land plot is often owned by several proprietors, while the local courts are unable to resolve such litigations effectively. In general, the market is regulated loosely, with controversial and incomplete laws, and property lawyers who lack the necessary skills.

Having observed business conditions in five Afghan provinces — Kābul, Balkh, Herat, Nangarhār and Kandahar — the World Bank has calculated that property registration in the capital takes an average of 8 months and costs about 5% of the property price.

Illegal construction

According to Afghanistan Independent Land Authority (ARAZI) CEO Jawad Peikar, two-thirds of residential properties in the country’s major cities have been constructed illegally. An official construction permit takes 12 months to be issued and costs about 80% of the property value. It is cheaper and less time-consuming in Kandahar, taking about 3 months and costing 28% of the price. Generally, permits outside Kandahar are twice more expensive on average.

In 2016, the authorities attempted to address illegal construction issue for the first time. According to Reuters, ARAZI launched a pilot project to register properties constructed illegally in Kabul before 2001. Authorities plan on rolling out the initiative in other cities if the pilot proves effective.

Demand for cheap residential property

According to the International Monetary Fund, foreign aid amounted to 97% of Afghanistan’s GDP in 2010. The NATO coalition and donor countries have made generous contributions to rehabilitation projects. According to official data, the volume of such investments ranged from $2 billion to $10 billion per annum. In the mid-2000s, Kabul experienced a construction boom during which abundant prime housing was built for international experts, embassy employees, lawyers and government officials. However, in 2012, the NATO coalition announced its decision to leave Afghanistan. As a result, the capital’s investment attractiveness decreased dramatically. Many projects were put on hold, and prices for real estate in Kabul fell by 30–50 % in several months.

However, this does not mean a total absence of demand today. According to official data, from 2004 to 2017, the country’s population grew by almost 40%. As reported by local law firm Masnad Legal Consultancy, citing the Ministry of Urban Development and Housing of Afghanistan, the country needs 500,000 new-build flats and houses annually. Large cities are badly in need of cheap housing for its residents. The population of the capital has increased by 25% in the past five years, from 3.2 million to 4 million. Inhabitants of rural areas are flocking to Kabul looking for employment and a better and safer living environment.

According to Numbeo, prices per square metre in Afghanistan range from $300 to $1,500, while rental rates range from $50 to $300 per month for one-bedroom flats and between $150 and $700 for three-bedroom properties.

Residential property prices in Afghanistan ($) Source: Numbeo City Purchase

price, $/m² Rental price, $ per month

for one-bedroom flats Herat 300 – 1,000 30–250 Kabul 400 – 980 0 75–300 Mazar-i-Sharif 200 – 1,500 50–200

What prospects are there for Afganistan’s real estate market? According to analysts, the ongoing conflict increases the possibility of the next generation of Afghans suffering the same fate as their parents. Many children are unable to attend school as their families abandon their homes in search of shelter. The economic and social crisis in Afghanistan is exacerbating economic inequality, which, in turn, means the country is likely to remain to be a hotbed for corruption and money laundering for at least another 15 years.

Yulia Kozhevnikova, Tranio