After resisting price cut for almost a year, real estate dealers have finally lowered the prices bringing residential plots prices down by around 33 percent and also injected new life in the long-stagnant property market in the Kathmandu Valley.

In the first week of July, Bishnu Bahadur Bogati and Arjun Faju who jointly held a stretch of land in Thankot sold their property at the rate of Rs 500,000 per anna (i.e. 342.25 square feet). A year ago, they had refused to sell it even when buyers offered Rs 650,000 per anna for the same plot.

“We finally decided to accept what the buyers offered because the market is not buoyant, on one hand, while our liability, on the other hand has consistently gone up,” said Bogati.

People like Bogati and other dealers who developed residential plots in the western part of the Valley said prices of land in their areas have gone down in a range of 25 to 30 percent in recent weeks. Prices in the eastern and northern part of Kathmandu too have gone down in similar range.

Land developers operating in Lalitpur said they have slashed the rate of their plots by as much as 33 percent. Similar extent of price cut has been recorded in urban blocks of Bhaktapur as well.

Moreover, officials at Land Tax Office (LTO), Bhaktapur, informed Republica that prices of land in outskirt VDCs of Bhaktapur like Chhaling, Jhaukhel, Changu, Bageshwori and Sudal - which once lured buyers like never before -have dipped by well over 50 percent.

Not just in the outskirts, officials keeping track of regular transactions said landowners within the ring road too have started selling their property at one-third less prices than the previously set rates after they failed to find buyers.

“We have information of land owners selling their property in area like Buddhanagar in Kathmandu at Rs 2 million per anna in June, whereas previous transactions had benchmarked the value of land there at Rs 3 million per anna,” said Tulasi Ram Vaidya, official of DoLRM, who keeps track of realty transactions and pricing in the Valley.

Thanks to the cut, the reality market, which cast depressed look for well over 15 months since the Nepal Rastra Bank (NRB) imposed cap on realty loans, has lately found new signs of life.

Officials at Chabahil LTO said the office was presently registering transactions of more than 100 clients a day, whereas few months ago it had dropped to less than 70 a day. Data of Dillibazar LTO also cites similar rise in number of transactions.

Officials at all five LTOs in the Valley said transactions have picked up particularly after mid-June and LTOs have started receiving flurry of buyers and sellers since about a month.

“The obvious reason behind the cut in prices and subsequent rise in transactions can be attributed to year-end pressure felt by the land developers to repay their principal and interest,” said Vaidya.

According to NRB data, the realty sector still has absorbed credit of more than Rs 60 billion from the commercial banks alone. If the figures of financial institutions are included it exceeds Rs 100 billion.

Given that realty slump affected repayments, disfiguring non-performing assets and profits of the BFIs, they had exerted intense pressure against developers for the repayment of loans.

As BFIs are yet to make public their financial statements, it is still unclear how the rise in transactions impacted their recovery. But what has already become clear is that the rise in transactions enabled the government enjoy sharp rise in revenue collections from realty.

“Owing to the rise, our revenue collections from fresh property deals in the Valley jumped to Rs 1.78 billion in 2011/12,” said Raju Basnet, officer at DoLRM. The government had collected Rs 1.54 billion in revenue from such deals in 2010/11, whereas in 2009/10, when the real estate boom was at its peak, the government collected over Rs 3 billion from realty transactions in the Valley alone.

Nepal´s real estate business has been jittery since January 2010, particularly after the central bank imposed a cap on the loan exposure of banks and financial institutions (BFIs) to the sector. The move was aimed at cooling the overheated market.

While the imposition of a capital gains tax and income disclosure on property transactions above Rs 3 million discouraged commercial buyers, rise in the lending rate that jumped from 9 percent to 17 percent amid the liquidity crunch also drove away buyers.

“But lately, some of the banks have lowered the home loans interest to less than 9 percent. This too made significant contribution in moving the market,” said Basnet.

source: republica,22 July 2012