Potential Impact of COVID-19 Nepalese Real Estate Sector

Nepalese Real Estate Sector
Sector Contribution to GDP :11.53% of GDP(FY 2018/19)
Sector Contribution to Employment : Employment to 17,000 individuals(0.2% of total employment)

Current and Potential Impact on the Sector

SUPPLY SIDE:
> Price variation of key raw materials
Anticipated increase in raw material cost including Iron, steel, and other equipment imported from China and India.

> Production shutdown
Profound impact on sourcing of building material and labor

> LaborForce
Significant shortage of laborforce.

> Cash flow constraints
Weakening sale velocity andrestricted  travel would impact the cash flows in the residential, hospitality and retail segments

> Supply chain disruption
Delayed construction owing to disruption in supply chain network.

> Imports (if applicable)
Nepal imports a Significant quantity of hardware used in buildings form China,which is going to be halted amid the pandemic.

DEMAND SIDE
> Lockdown/restriction impact
Weakened Sales within residential segment and lower footfalls for retail and hospitality segment.

> Consumer Sentiment
Potential change in user habits due to existing industry shutdown.

Current and Potential Impact on the Value Chain
> Given the lockdown, construction of incomplete projects has come to a complete standstill across the country. Hence the Project Deliveries will get deferred.
> Anticipated increase in raw material cost as the overall halt in the import of steel, cement and other equipment from China and India.
> The construction sector, which has already been sluggish from the early days of this fiscal year, is expected to be hit further. Nepal imports a significant quantity of hardware used in buildings from China and hardware traders have said they will be in short supply after a month.
> May further lead to Shortage of Laborforce even after the pandemic.
> Adverse impact on the prevailing liquidity crunch, a high inventory overhang, weak affordability and subdued demand conditions due to the pandemic.
> Demand risks for the housing sector are likely to increase, given the rising apprehensions on overall economic growth and contagion related fears leading to reduced walk-ins and inabilities to carry out site visits, thus resulting in some decline in new sales and the associated collections.

Potential Impact of COVID-19
Recommendations
1. Tax and Compliance related
- Short Term
The due dates for depositing tax and tax returns to be extended.

- Medium to Long Term
Tax incentive/holiday for at least a year.

2. Easing Financial Stress in the sector
- Short Term
No  interest  payments  for  three months for developers for the loans availed.
- Medium to Long Term
Reduction in  the interest rate of loans/facilities availed, and option for rescheduling and restructuring of loans.

- Others
Short Term

3. Activate a business continuity plan for real estate operations.
ii.Increase hygiene  and  cleaning measures  on  site  and  consider waste management, and also bring in more outdoor air in buildings  with heating and ventilation systems (or opening windows in buildings without)  to help dilute airborne contaminants

- Medium to Long Term
i. Continuity of mobile and remote-working enablement programmes.
ii.An increase in workplace technology adoption –sensors, air quality andoccupancy indicators –and the faster deployment and use of PropTech and MedTech to enhance workplace safety.

source:Potential Impact of COVID-19 onNepalese Economy, Reanda Biz Serve, Page 51-52, April 2020