Property rental segment has taken a major hit as tenants and business owners are vacating apartments and shutter spaces unable to pay rent.

Last week, Anil and his wife, Bishnu, decided to vacate their rented room at the end of this month.

The couple came to Kathmandu three years ago and have been renting a single-room at Chabahil.

“The monthly rent for the first two years was Rs 4,500.

Last year, the landlord increased the rent to Rs 6,000,” said Anil, who works as a daily wage worker at construction sites. “Paying the rent on time wasn’t a problem because I had regular work.”

But then the Covid-19 pandemic hit, and Anil was left without work for months.

“From April to June, I didn’t work for a day, and from July, I did start getting work, but what I am earning now in a month is no way close to what I used to,” said Anil. “To cut our expenses, we decided to move to a cheaper place. Until we find a place, we will be living at my brother’s two-room rented apartment in Sukedhara.”

When the couple vacates their room at the end of the month, they’ll be the fourth tenant in the building to do so in the past few months.

“Two tenants moved out and returned to their villages because they had lost their jobs and could no longer afford to live in the city,” said Anil. “The other tenant moved with his relatives.”

What is unfolding at Anil’s building is not a one-off case, say real estate experts. Ever since the pandemic hit, which has caused businesses to suffer and people to lose jobs, Kathmandu has seen a huge increase in tenants at both residential and commercial buildings vacate, revealing the brutal impact of the pandemic on Kathmandu’s real estate market.

“A few months into the pandemic, it became evident that it isn’t going to end anytime soon. The devastating impact of the pandemic on the economy was here to stay,” said Santosh Pradhan, CEO of Property360Nepal, a real estate brokerage firm. “When that realisation started sinking in, it had an immediate impact on the real estate market. We saw a huge number of Kathmandu’s daily-wage migrant workers leave the city, a trend that’s still continuing to this day. Such mass exodus has now meant that the rooms they once rented are now empty.”

The situation, says Pradhan, is similar at higher-end residential and commercial buildings.

“If you go to commercial places like New Road, Thamel, Baneshwor, you will see many to-let signs. Many businesses in these locations have been hit hard due to the pandemic, leaving business owners unable to pay high rent. Many have folded their businesses or moved out as a result. Meanwhile, the existing business owners at commercial buildings are finding it challenging to pay rent,” said Pradhan. “Faced with the unprecedented challenge of retaining tenants, landlords of city’s many commercial buildings are offering significant discounts.”

But there are a very few takers of now vacant spaces, says Pradhan.

“Due to the uncertainty surrounding the pandemic, people are hesitant to start new businesses, meaning there are not enough people renting vacant commercial spaces in the city,” said Pradhan.

And all of this means that real estate brokerage firms in the city are seeing their business decline sharply.

“We are only doing around 25 to 30 percent of the business we normally do at this time of the year,” said Pradhan.

A month ago, Pradhan’s Porperty360Nepal made its first major deal in many months.

“The deal was for a 11,000 sq ft commercial space. The contract starts from 2021, and the landlord gave a 50 percent discount on rent for the first six months and a 25 percent discount for the next six months. The tenant will only have to give the space’s full rent only from 2022,” said Pradhan. “Discounts have become the norm in the industry these days.”

In August, Tenzin Norbu Lama, the manager of Limi Complex, a new commercial complex located at Ramhiti, Boudha, announced that bookings of the complex’s 17 shutter spaces were now open. Lama knew that it was going to be tough to find tenants in the midst of a financially debilitating pandemic, but he had no clue how challenging it would be to find new tenants.

“Normally, in a place like Boudha, demand for commercial spaces is so high that a complex like ours would get booked out within a matter of weeks,” said Lama. “But these are anything but normal times.”

Three months after announcing bookings were open, only 10 shutter spaces at Limi Complex have been booked. “We were able to secure bookings for 10 shutter spaces only after offering tenants between 20 to 30 percent discount on rent for a year,” said Lama. “Despite offering such attractive discounts, we are yet to get bookings for seven shutter spaces. People are still hesitant about investing in new businesses.”

Boudha, where Lama lives, is one of the most densely populated areas in the city, and ever since the start of the pandemic, Lama says, sights of trucks loaded with household belongings of families moving and relocating have become all too common. “Many families unable to pay rent are moving out to cheaper locations,” said Lama.

The pandemic’s impact on real estate so far, say experts, has been limited to the rental segment.

“So far we have seen prices of rental spaces go down, but the same has not happened when it comes to prices of land or buildings that have been put on sale,” said Pradhan. “But if the uncertainty around the pandemic prolongs, it might impact that sector of the real estate market as well.”

source:Tsering Ngodup Lama, the kathmandu post, 23 november 2020