The Stagnant Asset: Nepal’s Gridlocked Property Market

Nepal’s real estate market is in a paradoxical situation right now. The market is being shaped by contradictions. This contradictory pause is causing the real estate industry to neither collapse nor boom, but instead remain stagnant.

On paper, activity still exists. Land is being bought, apartments are still being listed, industries are surviving, and credit is still flowing through parts of the system. But beneath the surface, confidence has turned into caution. Buyers hesitate, while sellers hold on to high price expectations. Transactions are still taking place, but buyers require greater negotiation, while sellers rarely compromise.

For decades, real estate in Nepal behaved like a one-way bet. Remittances, urban expansion, and limited investment alternatives reinforced a simple belief: property values only rise over time. That belief is still visible, but it is increasingly being tested by the nation’s economy, rising interest rates, declining affordability, geopolitical conflicts, and a generation whose incomes are not keeping pace with asset prices.

What Does the Data Say?

According to recent data published by Nepal Rastra Bank (NRB), the country recorded approximately 456,000 property transactions in the final quarter of FY 2024/25, with a declared transaction value of Rs 127.61 billion, marking one of the highest quarterly volumes recorded in recent years. Overall annual transactions have crossed 500,000 land and housing deals, indicating that the market is still active in volume terms even as sentiment weakens.

“Recent data itself shows that real estate is one of the crucial infrastructures for development and contributes around 8%-9% to the nation’s gross domestic product (GDP). Even traditionally speaking, land, buildings, infrastructure, and real estate have always been considered safe assets,” says Er Arjun Pandey, Director at Arch Tech Builders.

However, this activity masks deeper structural pressures. Data also shows that while transaction volumes have risen, the value composition is highly uneven. Urban municipalities account for only around 4.1% of total transactions but nearly 13% of total value, showing how concentrated high-value property remains in urban clusters.

“Kathmandu is already overpopulated and urbanised. People are slowly shifting to other areas like Butwal and Chitwan, which are already following a similar model of urbanisation. They are not limited to Kathmandu only. Rather, Kathmandu residents are shifting towards such areas. It is a good thing, I feel,” adds Pandey.

“We are currently working on a few projects related to government school infrastructure in Butwal and nearby areas. Even talking about students and facilities, some government schools had more than 8,000 students, while others had 6,000 here in Butwal. It was surprising,” states Pandey, adding, “It is due to facilities, which are no longer limited to just Kathmandu.”

The Triple Tension

Having said that, Nepal’s real estate market is facing a triple tension right now: growing deal activity, shrinking affordability, and sluggish capital flow.

On the financing side, real estate remains deeply linked to credit. NRB data shows that real estate loans increased by over 72% between 2020/21 and 2024/25, residential home loans rose by more than 61% during the same period, and total real estate and housing-related credit reached approximately Rs 693 billion by FY 2024/25.

This confirms that Nepal’s property market is still largely bank-driven rather than income-driven, making it highly sensitive to liquidity and interest rate cycles.

“Interest rates are not that much of an issue. People are taking loans for homes and land. NRB even introduced the ‘First Home Loan’ so that people can have their own house, with loans covering up to 70% of the commercial value. During times such as the pandemic or the earthquake, NRB also provided subsidies,” mentions Sarayu Thapa, Junior Officer at Himalayan Bank.

At the same time, affordability pressure has widened sharply. Urban housing prices in key cities now often exceed a couple of lakhs per square metre, while mortgage rates fluctuate in the 7%-11% range, far above what many salaried households can comfortably sustain.

“After Covid, affordability has become an issue due to high land prices. A few years ago, even a bank employee could easily get a home loan that would allow them to buy a house and even purchase additional land, as prices were around Rs 15-20 lakhs per aana,” she adds.

“But now, even land that used to cost Rs 20-30 lakhs per aana some years ago has increased to Rs 60-70 lakhs, making it impossible for us to even think about buying one. Say a piece of land costs three crores. Even if a bank finances 70%, the remaining 30% still amounts to a huge sum, making it difficult for any middle-class household,” states Thapa.

What emerges is a structurally strained market consisting of high activity, weak affordability, and credit-dependent demand.

“The market is all about demand and supply, but the reason the real estate market is down is price. People want to sell land but fail to adjust their prices, while buyers want to negotiate and sellers remain adamant,” shares Pandey. “Things become stagnant again.”

When Land Became the Safest Dream

For nearly two decades, real estate in Nepal was not just an investment sector. It functioned as a national savings system. Remittance inflows became the foundation. With money sent home by migrant workers accounting for roughly one-third of GDP, household liquidity steadily flowed into land and housing.

Urban expansion reinforced this pattern. Migration toward cities turned agricultural land into speculative assets, where value depended more on future expectations than present productivity. After the 2015 earthquake and the Covid pandemic, reconstruction demand and rising material costs added further pressure on prices. Banks expanded credit during the same period, making land-backed lending a dominant financial channel.

“Also, after the Gorkha earthquake, the real estate construction business started operating within Nepali standards, which were developed after the earthquake. Earlier, we used to follow Indian standards. This was a remarkable policy-level change in the real estate and construction business,” highlights Pandey.

More importantly, after the Maoist conflict and the political transition that followed, land markets entered a phase of rapid and often unregulated expansion.

“Haphazard plotting in urban areas became a parallel economy of its own. For many households, buying land was not only about investment, but also about security in an uncertain post-conflict environment,” states Pandey.

At the same time, urban development globally followed a different path. Cities expanded through planned housing, apartment blocks, and residential colonies.

“In Nepal, however, this transition remained incomplete. Apartments appeared, but never fully replaced land as the dominant form of wealth,” he adds.

“The appeal of apartments declined after 2015. After the earthquake, people feared living in high-rise buildings. The main concern was probably safety,” Pandey says. “In technical terms, we call it load-bearing capacity, and we all witnessed the safety concerns people living in apartments had back then. Now, people are becoming more attracted to housing developments and colonies,” he adds.

Regardless of whether people preferred land, residential buildings, or commercial properties, one assumption became deeply embedded over time: real estate does not lose value; it only pauses.

When Movement Slowed but Expectations Did Not

Despite the numbers on paper, the slowdown arrived in the form of hesitation. Transaction volumes weakened first. Brokers report longer inquiry cycles and fewer confirmed deals. Buyers visit, compare, delay, and often withdraw without closing a deal.

Monetary tightening added pressure. Higher interest rates and stricter lending reduced borrowing capacity across middle-income households. Banks also became more cautious about real estate exposure, slowing the flow of credit into housing projects.

“Earlier, the focus was barely on tax. But issues in the grey economy made the government and Nepal Rastra Bank tighten the rules, making it mandatory to show taxable income for loans.

This did have an impact,” says Thapa. “A bank, after all, confirms the security of any large project through real estate, which is the safest form of collateral. But it would be great if people could invest in other productive sectors rather than only in real estate and land.”

Developers began facing delayed cash flows as pre-sales slowed. Construction timelines stretched, and several projects were paused mid-cycle. The structural gap between wages and property prices widened further. Entry into the housing market has become increasingly restricted to high-income or inherited-asset households.

“We lack proper policy in real estate. The existing policies are also strangely difficult to implement because there are many loopholes, and one policy creates a roadblock for another,” states Pandey.

“Regarding major projects like hydropower plants and hospitals, banks provide consortium loans. For a hydropower project, one bank acts as the lead bank, and other participating banks operate under its leadership. This involves a lengthy process,” says Thapa.

“It requires field visits, site reviews, determining which components to finance, reviewing the PPA, and more. Because large sums are involved and banks are investing public funds, they thoroughly verify every aspect of feasibility before financing a project. Consequently, this also causes delays in funding,” she adds.

Speculative demand has also cooled. Investors are now more likely to hold than buy, waiting for clearer signals that never fully arrive. Yet prices remain sticky. Instead of adjusting sharply, the market has entered a phase of rigidity, where sellers resist downward revisions and buyers resist upward ones. Urban land supply constraints and regulatory delays continue to slow adjustment.

“People are sceptical and scared about the market. There is so much uncertainty. Political instability and the changing rules that come with changing governments make things uncertain. One project prioritised by one government is ignored by another,” Pandey adds.

The result was not a collapse but a suspension.

Why Prices Haven’t Fallen Sharply

Despite reduced demand, Nepal’s property prices have not corrected sharply. One key reason is emotional attachment. Land is usually inherited, not just owned, so selling below expectations feels like a loss of status rather than simply a financial loss.

Expectation anchoring reinforces this behaviour. Many owners still reference past peak valuations as the “real value,” which delays adjustments. Low holding costs also matter, as land does not visibly depreciate or require significant upkeep, allowing owners to wait indefinitely.

Informal valuation systems and non-transparent transactions further distort price discovery. Additionally, inherited wealth reduces the pressure of forced selling, allowing assets to remain off the market even during periods of low liquidity.

“Having worked in this sector for almost two decades now, many people come to me seeking advice. I recently met a woman who wanted to sell her ancestral land but refused to lower her price. When I asked her why, she explained that she also had to pay high agent commissions, which would reduce her final cash share,” shares Pandey.

“They could not agree on the price at which she was willing to sell her land, and she refused to adjust to the buyer’s demand. This is the story of so many landowners, especially in peri-urban and remote areas,” adds Pandey.

As a result, the market does not crash sharply. Instead, it stiffens.

Those Outside the Property Cycle

There is a distinct generational gap in attitudes toward ownership between older generations and younger ones, including Gen Z. Beyond sheer inaccessibility, the concept of owning land or property has evolved for younger generations, many of whom now prefer renting over buying.

However, renting is no longer transitional. It has become structural. Skyrocketing prices and stagnant incomes have pushed property ownership further into the future, contributing to continued migration. Consequently, overseas employment is often viewed not just as a source of income but as the only realistic route to eventual property ownership.

“But the current problem is not migration toward cities but migration abroad. Many skilled workers are choosing to leave Nepal for foreign job opportunities, creating a gap in the local market. Nepal is surviving on the remittances they send back home,” states Pandey.

Rental markets remain highly unstable, characterised by limited long-term security and periodic price adjustments. Meanwhile, small contractors face irregular project flows as construction cycles are no longer continuous, reducing income predictability. Workers and suppliers across the construction ecosystem now experience fluctuating demand and significantly less stability than they did during the boom period.

“Additionally, the recent conflicts between Iran and Israel, as well as Russia and Ukraine, have created difficulties because we are heavily dependent on other countries for most of our resources. The Iran-Israel tension, especially, has impacted us due to challenges involving raw materials, transportation, customs and other factors,” adds Pandey.

Brokers now operate in a low-transaction environment where price expectations remain high, but liquidity remains low. The deeper shift is structural. Land is no longer universally viewed as an accessible path to upward mobility.

The Uncertain Path Ahead

Nepal’s real estate market currently sits in a phase defined by uncertainty rather than clear direction. One possibility is prolonged stagnation, where prices remain elevated but transactions stay thin due to affordability constraints.

Another scenario is a gradual correction driven by demographic changes, as younger buyers prioritise liquidity and alternative investments over land accumulation. Policy direction will also heavily shape outcomes; credit regulation, taxation, and urban planning reforms could either unlock liquidity or deepen the current stagnation. Additionally, apartment-based housing may gradually gain importance if safety concerns do not persist, while organised housing developments and colonies might also gain momentum.

At its core, the question is no longer just about price movements. It is whether Nepal’s long-standing assumption that land equals security will continue to hold or slowly begin to dissolve. For decades, land served as savings, security, and status all at once, a certainty that is now undergoing a quiet revision.