Text by Avant Shretha
Real estate is the ever-appreciating asset. From ancient history land as property has been the literal base of human civilisation. It has been a motivator for expansion, a stimulator for progress and the origin of all resources. It’s been fought over, developed, bartered, bought and sold for as far back as we can remember. And to this date at least latter trends (buying and selling) still stand.
However, the difference from just a few hundred years ago to the modern era is that today landowners have more power over personal property than ever before. Personal autonomy has become what drives current capitalist economic models as the individual – who is both the producer of goods and a consumer of them – work toward goals incentivised by an aim to further personal well being.
The real-estate industry exists as a provider of one of the most important commodities – ‘shelter’. In the grand scale of scheme, housing colonies and apartment complexes solve multitude of problems of creating a home out of scratch. It takes care of contracting workers, construction costs, material costs and registration hassles. These are taken out of the equation with the help of specialised individuals who have gathered years of experience in the field of developing and selling land and property.
Besides the obvious personal purposes of land owning, real estate developers hold the more pragmatic and business oriented view of land. Land is seen as an ‘always safe’ mode of investment. This asset after all has lower fluctuations and at least in Kathmandu has been experiencing a steady rise in the past few decades.
Potential of Real Estate
Owning a property contributes to the social stability of the family unit. It’s a single large investment and personal residences are accounted for 75 to 90% of household wealth in emerging market countries. This housing also represents 15 to 40% of the monthly spending for households worldwide.
Though one has to look at specific areas and regions in order to identify the correct value of specific locations.; from a regional perspective the mortgage markets in South Asia are small and fragmented although they have grown significantly in the last few years. All of these countries have a miniscule percentage in mortgage values when compared with Western economies.
In recent years, according to real estate developers in Nepal, the demand and sales of plotting and individual houses in the valley have doubled. Consequently, with the increase in demand, the price of both residential buildings and land prices have increased. According to reports, on average the price of land has increased by 40- 50% while the cost of residential buildings has increased by 20-30%.
In terms of potential, the demand for land is as always on the rise as more people flock to the capital and other developing urban areas where employment opportunities, good infrastructures and facilities are available. This migration creates a demand for affordable yet comfortable living conditions within the city.
The GDP and per capita income of the nation does not expect that every individual will own a house. Even among stronger economies, state run living facilities like those in Singapore are a common with arguments that such accommodations are preferable in terms of overall footprint and efficiency.
According to statistics provided by one of the leading real estate company’s in Nepal, at present there is a demand of 140,000 apartments and living quarters. However, Nepali construction companies and developers can only construct about 25,000 units on a yearly basis. The lack of supply in relation to demand is clearly visible in the unplanned urbanisation of the capital. According to Nepal Land and Housing Developers Association (NLHDA), Kathmandu valley accounts for 42% of the organised real estate sector. The fact that more than half of the country’s real estate is not organised and properly accounted for indicates that there is a huge gray area that needs to be properly monitored, recorded and organised.
However, the potential is clearly visible. Now more developers are displaying due diligence in the process of acquiring and developing plots of land.
The rise in real estate prices in the past 20 years began during the people’s war as people migrated to relatively safer confines of the capital. Though this is where the initial boom seems to have occurred, an NRB report in 2011 stated that the growth in the sector was consistent for seven years though the rate was variable.
On the cusp of the 2015 twin earthquake that shook the nation, there were multiple large high-rise apartment complexes dotting the city skyline. Though far from what would constitute a skyscraper in the rest of the world, these buildings were a signifier that the nation could and would reach further. So when that earthquake destroyed many infrastructures and claimed so many lives, it left a mental scar among the denizens. Many buildings that promised to be resistant to such natural phenomena displayed that they were not. Bijay Rajbhandary, Chairman and Managing Director of CE Construction claims, “The real estate sector was really good, there were a significant number of projects, community living, independent housing, apartments flourishing, high-rises increasing but after the earthquake, the psychological threats in the psyche of the people prevented further development in that direction.”
But public perception is once again changing. “The public perception of these high-rises as death traps has waned in the past few years,” states Rajbhandary.
As with every other industry, stakeholders in the real estate industry have many issues over the adequacy and inefficiency of government’s policies. Lack of clear-cut demarcation of authority between local-government and the Nagarpalika, leads to a difficulty in obtaining approval for any acts pertaining to land whether it be for acquirement or development. The constant back and forth for approvals hugely effects the efficiency of the projects leading to a loss of time and money.
There are several challenges that plague the real estate business, primarily lack of proper data. In a developing nation like Nepal where there is no real organised real estate market, lack of clear policy and implementation has led to chaotic trade development. Several news reports claim that dispersed individual brokers and real estate agents make deals under the nose of the authority. Since there is no proper collection of buyer and seller information, the pricing of land and properties are made on sheer assumption. As a result, a large share of the investor’s wealth ends up in arbitrary sector.
However, the Central Bureau of Statistics (CBS) is preparing to conduct a ‘real estate survey’ for the first time in the country in a bid to trace the real picture of the sector and its contribution to the national economy.
There’s also an issue over conflicting data in what’s known as the cadastral map, ‘Lal Purja’ and actual field measurements. These challenges, claims Rajbhandari, are the reason so few people enter into real estate business. The simple fact that the Nepali real estate procedure is highly dependent on the slow and inefficient bureaucracy and paperwork is what has slowed down a high potential industry.
Investing in Real Estate
Currently, the real estate industry is experiencing a steady rise but planners and developers such as Rajbhandari admit to the existence of a speculative bubble in the market. The speculative nature of housing prices has been one of the main reasons for the uncapped rise in prices for land. Simply put ‘bubble’ is when an asset is valued much higher than what it should be worth.
One case would be of the 2008 housing crisis in the U.S. Though the speculative increase in value for housing market can be seen here as well, since a large deal of the Nepali transactions do not occur off the back of mortgages and loans; parallels end there.
According to Bijay Rajbhandari there should be no problem with investors jumping into the market as long as they understand what they are getting themselves into. For instance liquidity is not a trait of this asset for obvious reasons. Projects on the land are difficult to carry out due to unavailability of skilled manpower, the required raw and processed materials as well as government inefficiencies when it comes to trading assets.