Insight on Current Scenario of Real Estate in Nepal
Fixed/Immovable property such as land, houses and any type of building; used for residence, businesses or other purpose is a part of real estate. The process of selling purchasing and renting of such properties involve real estate business. It is also known as a dependable source of passive income as it has limited liquidity compared to other business investments.
Nowadays, it is much difficult to understand the excessive price of land in Nepal. Nepal’s real estate business has been in an upward swing since the 1980s. The ever-increasing price of land has dropped into the economy in such a way that ownership of a small piece of land within the ring road of Kathmandu and other urban places of Nepal is out of the imagination of even individuals with strong financial status. Therefore, it is almost impossible for first-time buyers trying to get land or housing through their saving.
Basically, land price depends on the economic significance of a particular location and on other amenities. Fair value for land and housing is totally dependent on major national economy amenities such as road connection, market proximity, the excess of local facilities and topography. Therefore, from the business perspective, Nepal has a healthy real estate market and room for potential investment.
Since the 1980s, Land price moved up when banks and financial institutions began to accept overvalued land as collateral, which further encouraged people to invest in land and housing. In contrast, those institutions began to accept collaterals even from undeveloped estates and thus, raised the price thresholds of lands in all areas. Furthermore, the bank also did not encourage other sectors due to fearing liquidity and payback risk. Likewise, those who invested in industries could not make expected returns due to unhealthy political condition.
Background of Real Estate in Nepal
With the evolution of mankind, organized living and civilization sense evolved. The Nepalese Community also was not far behind from this concept and urbanization was in progress in the Kathmandu valley. During the pre-1950s, the period of the Malla kings, urbanization was in its embodiment. The urban planning of those days incorporated all of the necessary services into considerations. With planned cohesive community living, and a strong sense of belongingness; which was depicted in its courtyard designs for common houses, Temples and Baha-Bahis in the proximity, a well-planned Dhungedharas, Patis for rest and recreation, Dabalis as open air amphitheatres, common community and available resources and the favorable Climate condition, urbanization was rapid in Kathmandu. This consequently increased population and density, thus less availability of land.
According to the census 2011, the increasing concentration of population in urban areas in created new problems. Problems arose mainly due to internal migration and rapid urbanization. National urban population is approximately 12%, yet the valley’s share of urban population is 54.5%. Post 1950s era experienced urban expansion with the opening up of highways linking it to other parts of the country and air services increased development activities which is further accelerated after 1970s. Migration from outside the valley grew consequently while the importance of other towns outside the valley declined. (Source: 2011 census)
Furthermore, since 1990, the government of Nepal established a specialized housing finance instruction, Nepal Housing Development Finance Company, to make housing finance available to low-income families at a feasible rate besides banking and financial institutions also started to facilitated housing finance in Nepal.
Current Scenario of Real Estate
The housing scenario in the valley is undergoing an urban explosion rather than managed urban growth. As per the 2011 census, the urban areas are expanding at the rate of about 6.67% annually. Besides, as per the recent figure of Central Bank of Nepal (NRB 2018), there has been a total of Nepalese Rupees (NRs). 88 billion worth of investment in real estate and housing sectors. Among of this, the share of commercial banks is NRs. 65 billion, that of development banks NRs. 12 billion and that of finance companies is RS 10 billion. The contribution of housing and real estate sector to the GDP of Nepal is 8 percent (Source: NRB)
In the fiscal year 2016/17, the market scenario of real estate in Nepal went through real transformation. According to Nepal Land and Housing Developers Association (NLHDA), the Investment in housing accounts for 15-35 percent of the country’s total investment and Kathmandu real estate accounts for 42 percent of the organized real estate sectors. Despite the excessive rise in land prices, which was 40 to 45 percent in F/Y 2016/17, still the real estate price is booming. Hence, as a matter fact, these statistics shows this is the right time for the investment in real estate throughout Nepal. in addition, there are various housing business exist in Nepal, such as, CE Construction, Birat Group, Comfort Housing, Downtown Housing, Civil Homes, CG Developers, Green Hill city, Westar Residency, are the prominent names in the Nepali real estate and housing sectors.
Trend of Real Estate
A statistical report of World Bank in fiscal year 2010/11, stated that 23% of urban population is poor and live in unbalanced and substandard housing with inadequate infrastructure and services. It is stated in the Directive Principles and the Policies of the State in the constitution of Nepal: “The State shall pursue a policy of raising the standards of living of the general public through the development of infrastructures as health, education, housing and employment of the people” Housing has been identified as a national problem.
Also, there is a trend of buying apartments as an investment rather than for self-consumption. Many buyers have been renting out apartments to ensure growth in the housing business, however, developers need to encourage buyers to live in the apartments.
It has also been noticed that there has been a substantial increment in the number of companies and projects involved in this sector. The number of companies engaged in this sector within the valley currently stands at above 150, according to the membership Roaster of Nepal land & Housing Developers Association.
The demand for individual housing has increased expressively after the occurrence of an earthquake in the year 2015.
According to real estate developers delayed in demand and sales generally, have doubled for plotting and individual houses in the valley. Earlier, the government of Nepal temporarily banned new construction after the massive earthquake hit the country. Later, the real estate industry faced turmoil due to the blockade and confusion over housing policy, however, with the clarity on policy and a gradually improving economy, the real estate industry is again growing.
With the intensifying investment in real estate, Nepal Rastra Bank has taken corrective measure by reducing the limit of real estate lending for commercial purpose by 10 per cent. In a new monetary policy, NRB has limited the loan value of collateral from 60 per cent earlier to 50 per cent. NRB’s corrective measure also shows that the investment in real estate sector is growing.
Why People Prefer to Invest in Real Estate?
As a developing nation, Nepal has huge business opportunities to generate income from construction as well as other sectors such as manufacturing, services, tourism etc. However, real estate (Especially housing) is the least risk associated business and one could achieve financial gain from real estate businesses in the following ways.
Real Estate Appreciation refers to an increase in the value of property over a period of time. The value will increase while the increase in demand for real estate market. Physical infrastructure, development activities, and other factors such as location, water, road, transport, parking and proximity are the major elements that influence the price of the real estate market. Hence, prior to making a decision on investing in property, investors should conduct a feasibility study of a particular location.
Flipping house is a strategy of purchasing home at a lower price and then holding onto it for a certain period of time and sell it to a new buyer who is offering you more money than the initial investment.
Rental Property is another way to make money from the housing business. Mostly this is a system of investing a rental property to make a regular cash flow income. There are several ways to do this-investing in commercial or residential properties; or take land for lease for long term purpose.
Other Sources to Generate Income from the housing business is from negotiation skills. The negotiating person may be the intermediates, agents or broker, Broker act as intermediaries and help predictions and tenants to buy and sell their property.
Other sources of income also involve property management system where the third party manage the day to day operation along with management of rental property. This system facilitates tenants and landlords in various management functions such as advertising rental properties, collecting rent, repairs and maintenance etc.
Mandatory Documents for Registration of Housing Business
The following are the documents required for the Private Company Registration in Nepal
A company registration procedure needs some fee (rajaswa) to be paid along with the amount of time required for the registration process. The registration fee differs from the public company and private company. Hence, in terms of private company registration the paid up capital is not fixed whereas to start public limited company minimum requirement of paid up capital is Rs. 100000.
Bank and Financial Institutions Real Estate Loan in Nepal
The above table reflects that there is an increasing trend in overdraft loan and personal home loan and personal home loan on housing and real estate sectors.
Kathmandu District Real Estate Planning Unit
Present scenario of Apartment in Kathmandu
Role and Demand of Real Estate in Nepal
Real estate business contribute well to the nation economic condition. Likewise, it has created a huge number of employment opportunities within the country. As a result of increased number of housing industries, one can find well-developed land and houses with essential infrastructure within the country. Thus, in every phase, be it from registration and local taxes from concerned authorities or from the procurement of construction materials from abroad, real estate business has contributed a good revenue to the government.
The following statements depicts the current demand of real estate sector:
Since 2000, the real estate business has been gradually picking in the Kathmandu valley and other major cities of Nepal.
The reason for increasing housing trend in Kathmandu valley were due to the Maoist insurgency and the increasing trend among people to migrate from rural to urban areas.
According to the Nepal Land and Housing Developers’ Association (NLHDA, the annual demand for houses and apartment in Nepal stand at around 140000 units.
Whereas Kathmandu valley alone occupies about 42 percent but the organized real estate sector is able to construct barely 25000 units per year.
To conclude, one can note that increasing demand of housing is due to the migration of rural population to urban areas as a result of the factors related to favorable climate condition, access of basic facilities, availability of needed resources and good community. Another element for urbanization is easily availability of loan from banking and financial institutions. Hence, people are ready to invest in land and housing as it is one of the safest investment among other sectors, however, Nepalese real estate market is volatile. Various factors play vital role in rise and fall of the market, therefore, it is always important for an investor to take advice from expertise on existing real estate market scenario prior to making such investment.References: