Idea Transcript
STUDY OF KABUL HOUSI NG MARKET
SYED MABOBUULLAH RABANI February, 2014 Research, Planni Planning and Policy Directorate, AISA
ACKNOWLEDGEMENT First of all, I am grateful to Allah for giving me strength and opportunity to complete this paper. As the publication of this paper would not be accomplishable without continuous support of AISA’s top management, especially his Excellency Mr. Wafiullah Iftikhar CEO/President of AISA and Mr. Junaidullah Shahrani Director of Research Plan & Policy to whom I am obliged to convey my greatest appreciations for their keen contributions. Furthermore, I am highly grateful expressing my gratitude and appreciations to Mr. Ahmad Nawaz manager of research department in his wholehearted practical guidance and supervision throughout this paper. Last but not least,
survey of this paper has been done with the assistance of Mr
Hanef Rostam, Mohammad Zaki Stanikzai, Mirwais Ahmadzai and all department colleagues to whom I am thankful of their valuable input and support.
Study of Kabul Housing Market
The views expressed in this paper are those of the author and do not necessarily reflect the official position of AISA (Afghanistan Investment Support Agency).
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Study of Kabul Housing Market
TABLE OF CONTENTS Acknowledgment…………………………………………………….………..….. 2 Executive Summary…………………………………………….……….….………5 Chapter 1: Introduction Introduction……………………………………………………………….….…….7 Research Objective……………………………………………….……….………..8 Methodology and Research Scope………………………………………….….…...8 Chapter 2: Housing Demand and Supply Housing Market System…………………………………………………………….9 Demand Side………………………………………………………………….…….10 Supply Side……………………………………………………………………....….11 Details of Findings (Dwellers Demand)……………………………………….…....12 Chapter 3: Housing Financing House Financing………………………………………………………………..……14 Details of Findings (Dwellers and Developers Finance)…………………………….14 Chapter 4: Investment Opportunity Investment Opportunity………………………………………………………………17 SWOT Analysis……………………………………………………………………….19 Recommendation……………………………………………………………..……….20 Conclusion……………………………………………………………………….……21 References……………………………………………………………………….…….22 Appendix………………………………………………………………………………23
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Study of Kabul Housing Market EXECUTIVE SUMMARY Kabul, capital of the country with increasing level of population has accumulated much of the nation’s economic resources, the utilization of these resources are not as even as enough. This can be observed from living style of majority in Kabul in slum areas and informal settlements. One would find different kinds of housing styles and structures in Kabul such as traditional mud houses (informal settlement), Blocks of flats, villas and western and Arabian style houses. Minor portions of the population live in these luxurious and comfortable dwellings while majority of the people are residing on informal settlements. Kabul population is rapidly growing and Lack of houses and accommodation is a major problem of residents. It is estimated that population growth will be 5% over the next 9 years. 20,000 households are added annually to the existing number of households which means the demand for housing is overwhelmingly increasing. The existence of strong housing market will lead to sustainable economy as availability of housing help to equitable economic growth, encourage people for further savings, mobilize factors of production in an efficient way and bring a sense of belongings and stability to Kabul citizens. Considering the shortage of housing in Kabul, this report aims to provide information to investors on available business opportunity in this sector, as we focused to provide reliable information on housing development, demand, financing method and opportunities. Concerning on demand and supply side, 82% (2442000) of the population in Kabul live in houses structured as detached houses, courtyard houses and houses on slopes with the worst and fragile condition (World Bank). Overall, the average number of family members living in a house reached to 10 people in 2013. Based on our findings, the average cost of building an apartment or house is between$10000-40000. Those who had left their homes and migrated to Pakistan and Iran also have been returning to Afghanistan since 2003.More than 5 million refugees have returned to Afghanistan and returnees’ growth might be higher after then. The increase in population rate, returnees and rural people influx to Kabul speed up the demand for housings and has affected the living cost, rental rate and housing prices,, as the average normal old township house with 2 rooms rental rate reached to $200 per month. To solve these problems, since 2001 to 2012 there have been 13 housing governmental projects in Kabul in which donors has planned to build 19747 apartments and STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market only 4117 of them are completed, the remaining are in the process. Also, Kabul new city the largest housing project with 250,000 housing stocks costing $13000 each for 700000 inhabitants is about to start. However, our findings show that inhabitants in Kabul are eagerly looking forward to developers and financiers to help them build a house for next five years. Majority of respondents live in houses which are more than 20 years old and the houses are either built informally or remained as old township fragile house. In one finding, 58% percent of respondents live in rental houses which they are unsatisfied with the quality and conditions of houses. In another finding, 54% of respondents are planning to build houses over the next five years and they wish their house to be apartment rather than township or yard house. Furthermore, Afghanistan as an underdeveloped country yet has not developed a reliable and sustainable housing finance market and access to funds is a major challenge to home seekers and developers. Based on our survey, majority of respondents willing to take housing loan from financial institutions and the percentage will increase if there are Shariah compliant loan products. Our report finds a foreseeable investment opportunity on developing houses and providing finance to low and median income households.
As the report preformed SWOT analysis and marked strengths of housing
market such as: 1. High demand growth for housing due to rising population rate and income level, 2. Low cost construction raw materials, Plenty of empty land to build housing in Kabul, 3. Minimum investment risk in Housing market due its
Self-reliance from world
economy, 4. Cheap skilled and unskilled labor on housing market in Kabul, 5. High capacity of housing market to absorb huge investment and create job and; 6. Low competition on Kabul housing market. Thus, investors could be able get benefits from sustainable investment opportunity and lucrative return on housing market such as expected growth in economy which would persuade people to demand more for housing, as well High demand for mortgage loan in financial market and Islamic financial mortgage products.
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Study of Kabul Housing Market
CHAPTER ONE INTRODUCTION One of the essential needs of human is having shelter or a heaven to live which manifests as a form of wealth or asset in the society and everyone struggles for it. This asset structures into different shape such as shack, house or apartment blocks. Economists define this asset as house or housing which is physical structure of connected sheltered space and system or constructed of materials with components by utilizing capital, labor, and land (Clapham2012). Housing creates a market and sector for itself and development of this sector is dependent on socio-economic growth and extra-economic factors like income, job, population growth and interest rate. Meanwhile, housing sector plays important role to economic growth and mobilize factors of production through observing large number of unskilled and skilled labors, creation of demand for construction materials and financial services which itself reduce poverty and brings social stability. In line with development of industrial and service sector in Afghanistan, Kabul the capital of Afghanistan is about to develop an efficient housing market. Kabul has population of more than three million inhabitants and experienced population growth of 15% percent per year between 1999 and 2002, the population reached to 4.5 million in 2008 and it is estimated to reach 8 million by 2023. The population growth will remain 5% per year after 2004 which represents a yearly increase of 15000 to 20000 household annually (World Bank). Kabul symbolizes the progress and development made to this country over the last decades of international community’s presence. Much of the nation’s capital and financial resources are accumulated and circulated in this city. These resources play role as pull factor to attract further people for seeking job and settlement in their economic and financial hub. Kabul inhabitant’s major problem is renting house or owning home as it carries huge cost. However, annual earnings of Kabul residents are getting much higher than the provinces. Sensibly, this increase can be felt from the life style of Kabul inhabitants with rapid consumption and more business transactions. The shortage of housing projects is one the acute problem of Kabul residents as to focus for tackling this problem will mobilize the factors of production in an efficient way and create more jobs and investment opportunities. STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market In this research we disclose these challenges and find feasible spots for further investment opportunity. The report shall mainly shed lights on development, demand and financing methods of housing market in Kabul by observing the market trends and challenges and collecting data from the crowd.
Research Objective: The survey has been done to collect data on housing market with the objective of providing information to investors about available and lucrative business opportunity of housing sector in Kabul.
Research Methodology and Scope: This report is provided based on sample interview of 5 major housing construction companies and survey of 25 Kabul dwellers which in total there are thirty sample sizes. This study both has quantitative and qualitative aspect. In quantative part, Questionnaires to get primary data were designed into two parts as one for developer and another for dwellers. The developer’s questionnaires were aimed to gather data on supply side such as development of housing, financing methods for developing house. Meanwhile, the dwellers questionnaires targeted to collect data on demand side as to know the conditions current housing, the financing needs, methods and obstacles to get fund of dwellers, and to know there wiliness and plan for building new house in the future. On qualitative part, the entrepreneurs were interviews and information gathered from relevant sources. Survey has been done only from different location of Kabul from beginning to end of December 2013. Surveyed participants related to different categories of such as: simple workers, businessman, and employee of both governmental and nongovernmental organizations However, the limitation of our study is on collecting data from inhabitants and developers, the numbers of housing developers are limited and we have tried our best to get the required information from all housing developers but certain companies did not respond with survey questionnaires so we bounded our answers to five companies only. STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market
CHAPTER TWO HOUSING SUPPLY AND DEMAND
Housing Market System: Housing markets function with the availability of inputs such as lands, fund to finance, labor and materials in which demand is shaped by renters and homeowners and production offered by developers, landlords, builders and homeowners. Majority of houses in Kabul are almost self-built which are informal settlements; the owners buy the land, hire unskilled labor and build the house. To build a house they do not consider consulting engineers, architects or house building firms. The average cost of building an apartment or house is between$10000-40000 and rough estimation of costs can be depicted from the figure 1 below
Structure Building Cost House category
Cost (USD)
size
details
Upper
50,000
200 Square-meter
apartment
4000-15000
---
Two
middle-
income housing Low
income
dwelling house
housing Home upgrading
room
100-5000
----
Fixing building
ceilings, Extra
room or bathroom House for Rent
100-500
----
Apartment, house
Source: Survey from Public and Interview of five Construction company. Figure 1
Inhabitants whom reside in Kabul has the potential to rent or buy a house as there are well paid jobs compared to provinces, thus the purchasing powers
Kabul inhabitants is
significant to own a house in long term. As you see in the figure 2 below, the average salary of Kabul resident is 128,112 AFN with minimum and maximum 5000 and 265,000 AFN respectively. STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market
Salary range in Kabul 300,000 250,000 200,000 150,000
Salary range in AFN
100,000 50,000 0 Maximum
Median
Average
Minimum
Source: retrieved from salary explorer website
Figure 2
1
Meanwhile, construction material producer companies offer a considerable price advantage. Good quality construction materials are produced locally, therefore imported construction raw materials are much cheaper compared to other developing countries due to low taxing rate and tariff relief.
Demand Side: However, Due to increasing levels of population, income level and lack of housing stock, demand for housing overlapped the supply of housing in Kabul. It can be seen from the table 3 below that 104.22 km2 residential lands with 69% of them are occupied by informal residential houses, as 82% (2442000) Kabul population lives in informal houses structured as detached houses, courtyard houses and houses on slopes with the worst and fragile condition (World Bank). Overall, the average number of family member living in a house reached to 10 people in 2013.
exchange rate: 1USD= 57AFg
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Study of Kabul Housing Market
Kabul formal and informal houses Residential
Population
% population
used land area (Km2) Formal
Apartments
1.80
91,000
3.1%%
housing
Townhouses
0.17
5,000
0.2%
Detached
30.69
435,000
14.6%
3.33
88,000
3.0%
57.69
1,980,000
66.6%
10.26
375,000
12.6%
104.22
2,973,000
houses Informal
Detached
housing
houses Courtyard houses Houses
on
slopes Total residential areas Source: World bank report, interpretation data from IKONOS 2004
Figure 3 Those who had left their homes and migrated to Pakistan and Iran also have been returning to Afghanistan since 2003, as over the past three decades of war almost all their housings, establishments and infrastructures have been demolished to the ground. Since 2003 more than 5 million refugees have returned to Afghanistan and returnee’s growth might be higher after then. The increase in population rate, returnees and rural people influx to Kabul speed up the demand for housings and has affected the Living cost, rental rate and housing price.
Supply Side: The average normal old township house with 2 rooms rental rate reached to $200 per month which is due lack of housing supply. The government also has been trying to tackle these problems by initiating housing projects with donors fund in Kabul but in general it does not solve the urban housing problem of Kabul. Since 2001 to 2012 there have been STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market 13 housing projects in Kabul in which donors haves planned to build 19747 apartments and only 4117 of them are completed, the remaining is on the process. Furthermore, Ministry of urban development and housing has planned to build new Kabul city which has the largest housing projects with 250,000 housing stocks costing $13000 each in which 700000 inhabitants could dwell there.
Details of Findings (Dwellers Dwellers Demand): Survey has done from a sample population of Kabul inhabitants with different income category.. Majority of respondents live in house which are more than 20 years old and the house either built informally or remained as old township fragile house. 58% percent of respondents live in rental houses which are unsatisfied from the quality and conditions of houses. The inhabitants were asked whether they planned to build house in the next five years, majority answers were re yes as you see in the figure 54% of them has strong tendency to own a house, as most them expect to receive formal loans from banks or expecting to get subsidy from government.
Preference to build house Yes
46%
No
54%
Figure 4
The interesting fact is that, respondents has willingness to hire a builder or laborers for constructing their houses as it can be seen from the graph* that 29% of respondents are willing the builders or companies to build their houses and 37% didn’t answer; the reason behind is that they don’t have ave fund to build houses houses. Only 21% consider building house by their own. It is because,, they think it will cost less comparing to hire a builder to build the house.
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Study of Kabul Housing Market
Choice to build house Build yourself
Hire builder
Buy completed
No answer
21% 37%
13%
29%
Figure 5
Moreover, majority of respondents have preference to own apartment home or afghan traditional house (Yard ship house) as you see in the chart, more than 33% percent are wishing to own an apartment and traditional houses as only minorities has the tendency to own township houses like Pakistani Banglows and Arabian style houses.
Types of house 35 30 25 20 15
Types of house
10 5 0 Apartments
Township houses
Traditional No answer houses
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Figure 6
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Study of Kabul Housing Market
CHAPTER THREE HOUSE FINANCING House financing not only helps needy to access funds for owning house but it also boosts economic growth and stability through increasing productivity, income creation, wealth accumulation, enhancing welfare and development of civil society. However, Afghanistan as an underdeveloped country yet has not developed a reliable and sustainable house financing market. Finance is at its initial stage which accounts only one percent of GDP of Afghanistan; however, financial system is the backbone of developed countries economy. Afghanistan yet has 17 commercial banks which account 86.8% of total lending; mortgage loans comprise only 0.88% in which only few banks provide housing loan to the public with high interest on short term basis (Afghan Central Bank). However, finance methods are different among the public, some private and public banks have stepped into house financing market in which they have started short-term lending with loan size about $500 to $ 10000 charging interest rate between 10 to 13%. There are some banks that introduced Islamic financial method of financing like Murabaha (cost plus arrangement), and Musharikah (partnership) but Islamic financial methods are in a very primary level in Afghanistan due to lack of skilled manpower and knowledge. People mostly deal through informal loan or traditional financing method because of interest. They rarely say yes to interest based financing. In fact traditional finance is Islamic financing method and people apply it in their own way, as funds are exchanged through contract of Murabiha, Mudharaba and Musharikah and Hawalah with mutual agreement; these contracts are mechanized and modernized in Islamic financial system as part of financial system but in Afghanistan people are less aware of modernized Islamic financial system.
Details of Findings (Dwellers and Developers Finance): Part of our survey seeks answers on questions about types of financing people prefer, loan maturity, collateral and the repayment amount per month. In our finding, owners were asked where they had received fund for building their houses, majority of them STUDY OF KABUL HOUSING MARKET
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Study of Kabul Housing Market responded that they used informal loan and personal cash to build their house. Meanwhile, they were asked about their willingness to take housing loan from banks or micro lenders, many of them had not preference of getting loan from formal institutions, as you see in the graph below 58% don’t have preference to take loan and the reason were involvement of banks and micro banks with interest which contradicts Islamic values.
Preference to take housing loan Bank
No Preference
42% 58%
Figure 7 Furthermore, those who are willing to take loan from bank, has ability to repay their loan on average $200 per month, mostly these category people receive income above 300 USD per month. In addition to that, they were asked about collateral in which they could give as security to borrow from financial institutions, as indicated in the graph below, majority has the potential to offer other security tools (42%) like bank account, jewelries, grantor and pensions. Only 33% offer land as collateral and 25% alternatively propose their salary.
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Study of Kabul Housing Market
Types of Collateral Land
Salary
Others
33%
42%
25%
Figure 8 In addition to that, based on our interviews from five major housing developers company, almost all developers use equity based financing in which they finance their housing projects through personal cash, retained profit, partnership (Musharikah). Right after the project completion, they rent or sale their developed houses to customers. nevertheless, Developers complain about lack an efficient and reliable financial and mortgage system in Afghanistan, they believe that financial institutions charges very high interest rate therefore they don’t have interest asking financial institutions for fund.
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Study of Kabul Housing Market
CHAPTER FOUR INVESTMENT OPPORTUNITIES Despite security and good governance challenges, Afghanistan’s economy is projected to grow 3.5%, 4.8% and 5.3% between years of 2014, 2015 and 2016 respectively. Construction sector is a leading contributor to Afghanistan economy, as 38.1% of private capital is allocated to this sector and still indicate potential growth over the next years. However, most of these investments assigned in building commercial and luxurious building and challenges of housing sector remain as a major dilemma of Kabul. Addressing these challenges will require special attention and resources from both government and private sector. Afghanistan has adopted the free market policy where there is no business and investment barrier for foreigners and locals. Both sellers and buyers of housing market can act according to market signal, government is a facilitator in which promote investment by providing land and other facilities to investors. The government of Afghanistan has realized the challenges and problems of construction sector in terms of licensing issuance, high land cost, and land ownership transfer uncertainty and lack of professional labors. Therefore, they have initiated certain policies to further promote private investment with the following objectives:
Offer particular facilities for investors to promote private sector between 2013-1014.
Attraction and promotion of domestic and foreign investment and prevention of capital outrun from the country.
Creation of long time employment opportunity
Building trust, taking cares of welfare of public and reduces communal tension about economic downturn. On the shed light of these objectives, construction sector has given special policy
attention and investment privileges such as ease of getting licenses from Kabul municipality in the shortest time and inspecting the topography issues of the area as soon as possible to implement the map.
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Study of Kabul Housing Market Furthermore, Afghanistan has adopted the most liberal policies on investment and business practices. The Law on Private Investment, issued in 2005, does not discriminate, in any type, between domestic and foreign investments. Provisions made in the law are applied uniformly to both local and foreign businesses. Whilst 100% foreign ownership of an enterprise is allowed in most economic sectors, the law also allows full profit repatriation out of Afghanistan for foreign companies. The Central Bank (Da Afghanistan Bank) does not put any restriction on capital flows or on currency exchange. As well, Afghanistan Investment Support Agency (AISA) acts as a “one-stop shop for investors.” In which Business license is delivered within the shortest time with minimum capital required, and the companies are not required to deposit a single amount in bank. Meanwhile, To implement government plan for building new Kabul city there will be huge need for financial capital in which only private sector could afford to bear. Based on Japan International Cooperation Agency (JICA) study in 2006, total of 200,000 building lots to be subdivided and developed into 20,000 parcels that will be sold to private investors over a 10 year period. Using an estimated average value of $30,000 per lot in which about 6 billion dollar will be generated to hire private sector to implement the plan. This will be a unique and potential opportunity for both domestic and foreign contractors and investors. Furthermore, another potential investment opportunity is on financial segment of housing market where investors could provide financial resources for people to invest though Islamic financial contracting system. Largest group of low income inhabitants are looking forward for financing source to build a house as the financial institution and micro finance are not capable of fulfilling their demand. It’s estimated that if 20,000 new houses are built annually, the approximate financing need will be $154 million a year.
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Study of Kabul Housing Market SWOT Analysis: Strength
Weakness
High demand growth for housing due to rising population rate and income
information on housing demand and
level
supply
Low cost construction raw materials
Lack of reliable and
well-built
Plenty of empty land to build housing
financial
mortgage
in Kabul
method.
Minimum investment risk in Housing market due its
Cheap skilled and unskilled labor on
of
and
government
policy-
housing sector.
Lack of electricity and proper public infrastructure and transportation.
housing market in Kabul.
Lack
market
implementation and cooperation on
Self-reliance from
world economy
Lack of constant market data and
High capacity of housing market to absorb huge investment and create job.
Low competition on Kabul housing market.
Opportunity
Expected growth in economy and
Threat
income level of the country which
Corruption
and
favoritism
by
regulators
would persuade people to demand
Security problems.
more for housing.
Unhealthy competition in the market.
High demand for mortgage loan in financial market.
Sustainable investment opportunity and lucrative return on housing market.
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Study of Kabul Housing Market Recommendation: The supply and demand gap is very huge in Kabul housing market. Investor can target both low and high income household by directly initiating housing projects and buildings. Major problem faced both for house seekers and developers are lack of fund and mortgage system and interest issue.
To overcome these problems there is need for
government to build a vibrant mortgage system in which different category of people in society could access to fund for building a house, as well as investors could confidently invest in housing market and offer their products. Furthermore, there is high investment potential for banker to enhance Islamic financing capacity and invest on Islamic financial products, as Islamic financing method gives better option for house seekers to access for funds. Alternatively, to fulfill the demand from low income household, there is a big opportunity for investors to invest on micro financial institutions targeting housing market.
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Study of Kabul Housing Market Conclusion: Considering Afghanistan better economic growth, population growth and shortage for housing in Kabul, there is a lucrative business opportunity for investors and private sector to develop new houses and began investing on mortgage market. Findings show that majority of Kabul inhabitant live in informal settlement and they are looking forward either to build house or expected developers to do so for them. 54% of respondents our survey has strong preference to own a house over the next five years and 29% expect the developers to build for them. The tendency to own a block of apartment is very high compare to other type of houses in which this is a positive hint for developers to further invest on building apartment shape settlements. Meanwhile, access to fund is a major challenge to both developers and dwellers. There is a huge investment opportunity for financers to grab this market. People mostly prefer Sharaiah compliant financial products as 58% of survey respondents are willing to borrow fund from banks and financial institutions to build a house, this tendency most probably increase to 80% if financial institutions provide their loan products on Islamic basis. Last but not least, SWOT analysis point out that market strength overwhelms market weakness as there is less threat more opportunity for investor. Investors those who invest on construction sector will minimize their risk by receiving strong support from the governmental bodies such as the Municipality, Afghanistan Investment Support Agency (AISA) and other governmental entities.
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Study of Kabul Housing Market
REFERENCES
Afghanistan Economic Update (2013), World Bank
Afghanistan Statistical Yearbook 2012-13, CSO
Boyer (2006), Kabul Urbun Survey Afghanistan, LRRD
Bertaud (2005), Kabul Urban Development Current city structure, spatial issues, recommendations on urban planning, World Bank
Clapham, Clark, Gibb (2012), Understanding Housing Markets: Real Progress or Stalled Agendas? Cardiff University, Sage Publications ltd.
Fitrat (2010), Building a vibrant Afghanistan affordable housing market, Afghanistan Central Bank.
Kabul Urban Policy Notes, World Bank
May,Bell,Islam (2008), Housing Finance in Afghanistan: Challenges and Opportunities, World Bank. Leung (2004), Macroeconomics and Housing: A Review of the Literature, Chinese University of Hong Kong
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Study of Kabul Housing Market APPENDIX
List of Interviewed Companies No Company Name
Position of Interviewee
1
Golden City Construction Company
President
2
Shah Wali Koot Construction Company
President
3
Ali Riza Ates Construction Company
President
4
Rasooly Trust Builders
President
5
Ghulghla Group Construction Company
President
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