Nepal’s real estate sector, which has been stagnant for the last few years, seems to have regained momentum and is expected to improve in 2014.

With the growing hope of stable government, liquidity surplus in the banks and financial institutions (BFIs), confidence up among customers and correction in related policies and artificial pricing, the real estate sector is speculated to come back on track in the coming days. Of late, home loans have witnessed flexible interest rate of eight to 10 per cent, which is yet another factor that will help boost the sector.

Moreover, as the government has recognised realty sector as a productive sector, developers are encouraged to invest in the sector.“The year 2013 turned out to be a reviving period for the Nepali real estate sector,” says Ichhya Raj Tamang, president of Nepal Land and Housing Developers’ Association (NLHDA).

“With the wrapping up of this year, the government has already corrected 80 per cent of policies that the central bank had introduced to limit high exposure to the realty sector in 2010,” adds Tamang. “Banks have not invested much in the realty sector for years and now with sound liquidity status there is ground to invest,” he adds.

Citing that there has been speculation of market correction in the sector by many folds, he says, “The sector has come on track by around 50 per cent.” He believes that with earnings from stock exchange and remittance, people will invest in the sector. “As the overheated real estate bubble has regained its real state, it is an encouraging factor for customers to invest in the sector,” he adds.

The central bank’s directives on compulsorily disclosure of income source while purchasing property, cap to limit aggressive loan exposure to 25 per cent of each bank’s total investment portfolio to the realty sector, increased capital gain tax coupled with high interest on home loans were some major factors that barred the expansion in the sector. To rescue the sector, Nepal Rastra Bank took corrective measures such as disclosure of income source for purchasing property only above Rs 10 million and 50 per cent cut down on the capital gain tax.

Meanwhile, Minman Shrestha, chairman of Downtown Housing Pvt Ltd, asserts that the situation of realty did not improve till the third quarter of 2013. Stating that the value of apartments has increased by 20 to 25 per cent annually, he says, “Price appreciation and rental options in apartments has lured customers in recent times.” Citing that the government has not been able to create a favourable environment for foreign investment in realty, he says, “If the government focuses on this issue, selling the remaining apartments would not be a big deal.” Speculating that the future of the sector would be brighter in coming days, he opines, “Focusing on first-time home buyers will further help improve the sector.” According to him, the government’s plan to purchase apartments and individual houses is another very positive step that imparts goodwill.

Economist Bishamber Pyakurel says that although there is adequate liquidity with BFIs, they have not been able to lend. Stating that financial and realty sector have to go along, Pyakurel says, “In the context of Nepal, there is no link between excessive liquidity and inflation of interest. As the lending rate of banks is low, borrowing of the private sector has also dipped dramatically.” Citing that no clear line has been drawn between the real estate sector and financial sector in the country, he says, “If interest rates on loans for developers is also lowered, they will get five to 10 years time for repayment, which will help the sector.” However, Pyakurel warns, “Days ahead would be uncertain and the economy could be degraded if the new constitution cannot be formulated,” stressing that entire economy and real estate industry depends upon political stability.

source: Awale, Sujata (2013),"Realty Sector expected to make a comeback in 2014 " ,The Himalayan Times,29 Dec 2013