Afghanistan’s real estate market: chaos and uncertainty
Afghanistan, torn apart by internal strife for decades, is still home to nearly 30 million people. More than a third of them (according to the World Bank for 2014) live below the poverty line: in fact, they are deprived of the opportunity to satisfy basic food and shelter needs. In 2016, Afghanistan ranked 23rd in the ranking of the poorest countries in the world according to Global Finance Magazine and 7th among the most corrupt countries in the world in the rating of Transparency International.
The US government website warns those who want to go to Afghanistan about landmines on the roads and the danger of being robbed or stolen anywhere outside Kabul. Extremely unfavorable for life and business (183rd place out of 190 in the World Bank Doing Business ranking), Afghanistan remains one of the world leaders in the production of drugs. What is the real estate market in this country?
One of the main characteristics of the local market is its randomness. In Afghanistan, there is no land cadastre system, and, according to the US International Trade Administration, about 80% of transactions are concluded informally, without any documents confirming the seller’s ownership right.
Because of this, often one land plot belongs to several owners at once, and local courts are not able to effectively resolve such disputes. The market as a whole is poorly regulated: the laws are incomplete and contradictory, and lawyers working with real estate do not have the competencies necessary in this industry.
The World Bank, which studied business conditions in five provinces of Afghanistan – Kabul, Balkh, Herat, Nangarhar and Kandahar – calculated that real estate registration in the capital takes an average of eight months and costs about 5% of the property value.
According to Javad Paikar, the head of the Independent Land Administration of Afghanistan (ARAZI), two thirds of the housing in the country’s major cities were erected illegally. To obtain an official building permit in Kabul, it will take one year, and the costs will be approximately 80% of the value of the object. In Kandahar – faster and cheaper: about three months and 28% of the price. In general, obtaining a permit in Afghanistan is twice as expensive as the regional average.
In 2016, the authorities began to combat the problem of illegal structures. According to Reuters, ARAZI launched a pilot project for the registration of facilities illegally erected in Kabul until 2001. If he shows results, the authorities plan to implement the initiative in other cities of the country.
Demand for cheap housing
According to the International Monetary Fund, in 2010 foreign aid amounted to 97% of Afghanistan’s GDP. The NATO coalition and donor countries distributed generous donations to rehabilitation projects: according to official information, such investments ranged from 2 to 10 billion dollars a year. Around the mid-2000s, a construction boom continued in Kabul, during which many premium-class homes were built for foreign professionals, embassies, lawyers, and government officials.
But in 2012, the NATO coalition announced its decision to leave Afghanistan. Many projects have been frozen, and property prices in Kabul have dropped by 30–50% over several months. The investment attractiveness of the capital has fallen sharply.
However, this does not mean a complete lack of demand today. according to official data, the population of the country from 2004 to 2017 increased by almost 40%. According to the local law firm, Masnad Legal Consultancy, citing data from the Ministry of Urban Development and Housing of Afghanistan, the country requires 500,000 houses and apartments every year. The population of large cities in dire need of cheap housing. Over the past five years, the population of the capital has grown by a quarter from 3.2 to 4 million people: residents of rural areas in Kabul are seeking work and a better, safer life.
According to the Numbeo website, a square meter in Afghanistan costs between $ 300 and $ 1,500, and rental prices range from $ 50 to $ 300 per month for one-bedroom apartments and from $ 150 to $ 700 for three-bedroom housing.
What are the prospects for the real estate market in Afghanistan? According to analysts, ongoing conflicts increase the likelihood that the next generation of Afghans will repeat the fate of their parents: today many children do not go to school, families leave their homes in search of shelters. The economic and social crisis exacerbates inequality, which, in turn, will remain fertile ground for the spread of corruption and money laundering for at least the next 15 years.