Land and housing prices, which are on a downtrend for the past four years, will not improve for at least another two years, a government study shows.

The study, which was commissioned by the privatization unit under the Ministry of Finance to prepare Business Confidence Index, has revealed that realty market will not improve at least until 2015.

Though the team led by Basudev Sharma, under secretary at the unit, found some improvements in business confidence of realty entrepreneurs, the confidence level of real estate and housing sector has remained at the lower end.The study, the first of its kind in Nepal, was based on the universally accepted OECD model.

“The study, which was carried out to measure business confidence level of entrepreneurs, found that confidence of realty entrepreneurs is at the lowest level,” Sharma told Republica. “Most of the realty entrepreneurs we talked to told us that they don´t expect land and housing prices to improve until 2015.”

According to Sharma, less than two percent of the respondents said they expect land and housing prices will increase in the coming days. “Likewise, only a few of them said they expect the prices to go further down,” Sharma said, adding that majority of the respondents was hopeful that prices will improve after 2015.

The team talked to people involved in varied sectors like hotels, financial institutions, wholesalers, retailers, realty entrepreneurs, and infrastructure developers, among others. It found lowest level of confidence among realty entrepreneurs, according to Sharma.

“Some realty entrepreneurs think the existing downtrend will continue for at least two to three years,” said Sharma.The study has found that entrepreneurs involved in infrastructure, pharmaceutical, hospitals and agriculture sectors have high confidence level. In course of the study, the researchers had asked five questions to more than 300 business firms.

Land and housing prices increased exponentially in the past as people put their money on land and houses due to commercial reasons. About four years ago, people used to purchase land plots and houses not for residential purposes but to make fast bucks. Though land and housing transactions, they could make profit of 10-15 percent in just a month.

Global realty market slumped to recession in 2007 and its impacts were seen in Nepal after about two years.Sharma blamed that Nepal Rastra Bank (NRB) did nothing to shield the country´s economy from global economic meltdown. “When global realty market slumped to recession, land and housing prices in Nepal were increasing,” he said. “NRB swung into action only after banks and financial institutions started facing liquidity crunch due to over exposure to the realty sector.”

Sharma further said this type of slowdown generally persists for five years. “It is likely to improve after 2015,” he added.He also said the study shows that land and housing prices have come down by 20-40 percent after downtrend in realty sector began in 2009.

Despite drop in prices, Sharma said realty transactions have dropped by up to 80 percent. He, however, expects transactions to improve by around 20 percent in the next fiscal year.

Land and housing prices had started declining after NRB instructed banks and financial institutions to put a cap on lending to the realty sector in 2009 to cool the heated realty market.

source: republica,7 July 2013