THE REAL STATE OF REAL ESTATE

By B360 Special Correspondent

If there is one sector that has witnessed a real roller coaster ride in the past decade, it has to be the real estate sector. Starting from humble beginnings to exponential growth followed by recession and then the correction course, the real estate sector has been through it all within a short period of time. Having been through ups and downs, the sector finally seems to be on the path of gaining maturity. Transaction of land, one of the decisive indicators of realty market, off late has started taking an upward spiral. According to government records, Land Revenue Offices (LROs) across the country posted transaction worth Rs 19.31 billion in the fiscal year 2016-17, an increment of 62.26 percent compared with the previous fiscal year. The government had set a target of Rs14.4 billion in the same fiscal. Apart from increase in real estate transaction, the Ministry of Land Reforms and Management (MoLRM) had increased tax on land transactions in metropolitan cities to 5% from 4.5%, to 4.5% from 4% in sub-metropolitan cities, and to 4% from 3.5% in village councils and metropolis. Likewise, in the fiscal year 2015-16, the government had set a target of Rs 12.1 billion. LROs, however, succeeded collecting just Rs 11.9 billion. This shows that the trend of land purchase across the country has started improving in the past year. There’s also another side to the story. While purchase of land has seen an upward trend, transaction of standalone houses as well as apartments isn’t vibrant. Real estate property developers blame government policy for this. The government is of the view that builders are to be blamed for targeting people belonging to upper medium and higher income groups thus keeping people from medium and low income groups out of radar. “The government does not feel obliged to promote organised housing which is why people are still opting to purchase land plots, be it for building a house or as investment,” Bijay Rajbhandari, Chairman and Managing Director of CE Construction said. “Issues like declaration of income source while buying real estate properties, inadequate exposure to the realty sector and difficulties related with land acquisition have been discouraging people to shift their mind to properties built by developers.” The government unveiling the monetary policy for the fiscal year 2017-18 increased the cap on home loans to Rs 15 million from Rs 10 million, a bid to provide respite to the realty sector that had seen depression in the previous fiscal partially due to the 2015 earthquake and trade embargo. Property developers, however, feel the initiative isn’t enough. Rajbhandari is of the view that the government should ease the environment for the construction of apartments as the rapid pace of urbanisation in major cities including Kathmandu has contributed to escalation of land price and haphazard development of the city. “Property price has become expensive because of land,” he said. “It is difficult to acquire land and develop planned residences in the city core.” According to industry insiders, price of land in prime locations inside ring road of Kathmandu starts from around Rs 4 million per anna (342.25 sq.ft). Same amount of land in around 2-3 kilometres away from the ring road is available in the range of Rs 600,000 to Rs 1.2 million per aana. Properties in places like Baluwatar, Naxal, Sanepa, Chauni and New Baneshwar among others, according to builders, are considered to be the most expensive in Kathmandu. In case of house or apartment, design and amenities too play a crucial role in determining the price. Likewise, the Nepal Land and Housing Developers Association (NLHDA) estimates that around 150 big and small property developers in the country have made an investment of around Rs 300 billion in the sector. These companies have obtained permission to build around 70 high-rise projects having around 6,500 apartment units from the Department of Urban Development and Building Construction (DUDBC). Former Secretary at the Ministry of Urban Development (MoUD) and Urban Planning Expert Kishor Thapa agreeing with Rajbhandari said that the development of major cities in Nepal including Kathmandu is similar to any other country in the world and that time now has come for the government to initiate the process of making it well managed. “Every city initially expands horizontally and then starts vertical expansion. The time has come for Kathmandu too,” Thapa said, adding that the escalation of land price, in fact, is playing a positive role in making urbanisation organised. “There’s no way people are going to buy apartments until and unless land prices go completely out of their budget.” At a time when buyers seem to have lost confidence in apartments post earthquake, Thapa suggested that the country should go for two types of high rise buildings – walkup apartments and apartments having 11 storeys maximum. A walkup apartment is an apartment in a building without an elevator. They have 4-6 storeys. According to Thapa, while walkup apartments can be built in moderate price and cater to the needs of people that fall in medium and lower income scale, the other with modern day amenities can address the demand of people seeking premium abodes. The former top bureaucrat, however, insisted that property developers should use modern day technologies for greater levels of safety and reliability. According to him, most high rise buildings in Kathmandu are equipped with raft foundation which is why the earthquake didn’t cause major impact to most of the properties. “Given that Nepal lies in a vulnerable zone in relation to seismic impact, developers should make use of technology used in countries like Japan to win buyer confidence,” Thapa said. Rajbhandari, who is in the country’s real estate business since the past 25 years, informed that there are people who wouldn’t mind climbing up 10-storeys even after the earthquake. “That is because none of the high-risers in Kathmandu collapsed during the earthquakes while standalone houses were severely impacted,” he said, adding that an owner of an apartment constructed by his company CE Constructions, reflecting the market mood, recently sold a property at Rs 40 million that was initially purchased at Rs 16 million. The head honcho of one of the most trusted real-estate companies in the country informs that significant increase in prices of apartments in the country has much to do with factors like political instability, prolonged construction period, bureaucratic hurdles and time needed to obtain construction approval from the government agencies. He shares, “All these things have indirect impact on the cost of the project and it is passed on to the consumers making properties costlier”. Apart from this, properties built by developers are supposed to follow several compliances set by the government. The government has adopted stringent measures post earthquake to ensure that the properties are safe. The provision of open space, for an instance, in apartments has been increased to 28 percent from 20. Moreover, developers are now required to adhere to leaving specified open space area as a mandatory provision which also contributes to the increased cost of a property. Given that major cities in the country including Kathmandu have been densely populated, Thapa feels that the government should not hold back from policy intervention. “There is no such word called development in case of urban centers. There is re-development,” he said, adding, “The government should not resist from taking timely action.” As per a rough calculation made by industry insiders, it requires around 30 ropanis of land to construct around 100 standalone houses, while apartments can accommodate over 200 families in an area of around 12 ropanis. According to developers, completing a cycle starting from recession to stability, the future is expected to be bright for the real estate business. Back in the fiscal year 2009-10, the Central Bank had capped real estate lending of financial institutions leading to the crash of the realty market. Significant exposure of financial institutions to the sector had led to speculative investment in real estate properties and that was also among the major reasons behind surge in price. “The lesson has been learnt. Property developers, end consumers and those buying properties with a motive of making investment all have come to a course correction,” a leading property developer who wished to remain unnamed said adding that this is the right time for end consumers to buy property as the trend of making speculative investment has gone down significantly.