Om Rajbhandary, chief executive officer and chairman of Comfort Housing Pvt Ltd, chairman of Brihat Investments Pvt Ltd and third vice president of Nepal Land and Housing Developers' Association has recently been appointed as the coordinator of Urban Development Forum under Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

Rajbhandary, also an associate member of FNCCI, talked with THT Property Plus on the current situation and prospects of real estate and housing sector.

Excerpts:
What is the condition of transactions of real estate and housing sector?
The transactions are lessening each year because people are losing confidence in this sector. Today, we are at the bottom of the curve, which indicates that business is moving at a sluggish pace. In comparison to the last three years, the government revenue collected from this sector has reduced drastically. The revenue has dropped from approximately Rs 6 billion two years ago to Rs 1 billion at present. The data itself indicates that housing business has slowed down and the market has not picked up, due to which transactions are non-existent. If planned urbanisation of this sort is halted, the sector will be pushed into a unplanned and chaotic state.

What are the hurdles being faced by this sector?
For every sector to prosper, political stability is a must. This is sorely lacking in our nation. Besides , this, the housing sector is badly , affected by liquidity crisis and the policies formulated by Nepal Rastra Bank (NRB). For instance, , because of capital gain tax, there are evidences of individuals under valuing their transaction to avoid paying the tax. This does not only affect the housing and real estate, but also the revenue collection. To f overcome this scenario, capital gain tax should either be scrapped or t minimised. Concerned authorities should provide taxation privileges f for home buyers on a first-come first-served basis. Similarly, the amount of transfer charge also needs to be reduced.

But in recent months, the valley has witnessed a spur of new projects and home prices are also decreasing. What do you have to say about it?
The prices are going down because of financial liabilities of some developers. Real estate sector is not a hobby, it is a business and business is always done for profit.

So, developers and investors need to be professional. But today the situation is such that developers are forced to sell their projects at minimum prices, withholding only nominal profit for themselves. The situation has worsened so much that developers are just aiming to get their principal amount returned.
Some of them are in the business just to sustain and meet the cash flow. This is the golden time for buyers, as they have the upper hand in buying and bargaining.

Does that mean prices may fall further?
How can prices be reduced when costs of construction, labour and materials are rapidly increasing?
Though land prices have dropped, projects on the market were inititated way back, so the fall in prices does not affect them. Land price, construction and overhead cost and profit to be earned by developers are the determining factors that increase housing prices. Who are the main competitors in this sector?
Though there are three parties -government, private players and individual owners -engaged in the sector, government does not play any substantial role as it is entangled in its own political problems.

There is almost no competition among players of private sector, because we are involved in barely two per cent of the total transactions. If any competition exists, it is only between private players and individual owners, as the latter are involved in almost 95 per cent of the transactions. The involvement of individual players is also one of the reasons behind unplanned urbanisation.

Analysing the present situation, what is your prediction for the future of this sector?
It all depends on the political situation. The major issues are the agreement on peace process, drafting of constitution on stipulated time and stakeholders involved in government. In case all goes favourably, the curve of the housing sector will go upwards in a V.

I foresee the future as very bright, as the demand for houses is unabated. Even if 500 private players enter the market, it will make no difference because there is enough scope for competition. But the situation is not conducive for investment.

source: The Himalayan Times(2011),"This is the golden time for buyers, as they have the upper hand: Om Rajbhandary", The Himalayan Times,28 May 2011