As Afghan war hits 10-year mark, falling land prices signal fear over future

The 10-year war in Afghanistan brought an influx of foreign cash helped boost real estate values. But since Obama set in motion a US withdrawal this summer, security concerns are driving land prices down.

By , Correspondent

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    US soldier PFC Philip Guthrie from Alpha Co, 2nd Battalion 35th Infantry, Task Force 'Cacti' walks near donkeys in a village during a patrol in Khas Kunar district in Kunar province, eastern Afghanistan on Friday.
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On the 10-year anniversary of the war in Afghanistan, there may be no clearer sign that Afghans think the security situation is deteriorating than the country’s falling real estate market.

With more than three-quarters of the population reliant on agriculture to make their living, land is a measure of wealth and one of the most clear-cut investment options. As such, property prices have historically risen and fallen with the fortunes of the nation. But after several years of a soaring property market, real estate prices here began to plummet in just the last several months.

Property dealers and investors say the downturn started almost overnight after President Barack Obama announced the beginning of the drawdown of American forces in June. Soon after, NATO forces began transitioning security responsibility for parts of the country to Afghan forces. Meanwhile, insurgents have assassinated a string of high-profile Afghan leaders.

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“Since the day they said the foreigners are withdrawing and they started the transition everything just stopped,” says Mohammad Agha, a property dealer in Kabul. “When the foreigners leave, we are not united. There will not be any compromises among Afghans. Everyone will try to have their own group and they will start fighting each other and there will be another civil war.”

Throughout Afghanistan, there are a growing number of people who are unwilling or extremely hesitant to invest inside Afghanistan amid fears of growing instability and questions about how the economy will function after foreign forces leave.

“Right now our security situation is getting worse and America is talking about the withdraw[al], so it clearly indicates that the security will continue to get worse. How can an investor decide to invest in this climate?” says Abdul Baqi Banwal, an economics professor at Kabul University. “The economy of Afghanistan is not sustainable. All our financial resources come from abroad and this is an abnormal economy.”

97 percent of Afghanistan's GDP comes from foreign money

According to a World Bank estimate, approximately 97 percent of Afghanistan’s gross domestic product depends on money from the international military and donor community. The estimate does not include opium production as a component of the GDP.

As countless Afghans made their fortunes off the billions of dollars flowing into the country as part of foreign development projects and security contracts, a number of people began buying up property in Kabul.

Housing prices and land value skyrocketed. Developers began building luxury apartment complexes in Kabul, and some Afghans say their land increased in value by as much as 20 times what it was worth a decade ago.

But President Obama's announcement that the US would begin withdrawing troops, followed by a number of high-profile in assassinations and attacks by insurgents, shook investor confidence that might otherwise have remained steady. Now, many Afghans say they need to see much clearer indications of stability before they’re willing to invest.

“I have enough money to invest, but I don’t want to buy any land or open a new factory. If the situation was the same as last year, I would invest. But right now I clearly know that if I buy a piece of land … eventually it will be worth half of what I paid for it and it will continue to decrease. Why would I do that?” says Haji Haikal, an Afghan investor.

Mr. Haikal, who describes himself as “uneducated,” says that he and many other local investors do not know enough about international markets to invest their money outside Afghanistan, so they will wait on the situation before doing anything.

Importance of liquid assets

Amid this climate, even those who have no intentions to buy or sell land say they fear that falling property prices are a harbinger of hard times to come. After 30 years of conflict, most Afghans know the importance of having liquid assets.

“When the prices drop, it’s a sign that more violence is about to happen in the future,” says Shahidullah Salwari, who owns a plot of land that has depreciated by almost 20 percent in the last four months. “The bad situation has already started in Afghanistan, maybe we’re headed toward a civil war.”

Still others say that while security and the future of Afghanistan is not looking good, now is simply the time to get out of the market. In the past four months, Faisal Rahman says a plot of land his family owned has depreciated by nearly 15 percent. Still, he plans to sell it in the coming weeks to get money for marriage, but also because he thinks the real estate bubble has burst.

“The prices were high and we think they will not go that high again. They will only decrease,” says Mr. Rahman.

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