After a year-long decline, the country’s realty sector is slowly gaining momentum with real estate transactions surging by 20.66 percent last month. The statistics of the Department of Land Management and Archive show 49,150 realty transactions took place in Chaitra (mid-March to mid-April), the highest monthly transaction in the current fiscal year.

According to the department, 40,734 realty transactions were recorded in Falgun (mid-February to mid-March).

The revenue collection from the realty transaction also increased in Chaitra. The government collected a total of Rs 4.51 in revenue from land transactions in the last month, the highest in this fiscal year.

With the economic downturn and restrictive measures of the government and the central bank, the real estate market hit a low in the current fiscal year. According to people in the real estate and housing business, property transactions have fallen by over 60 percent in the last one and a half years after prices peaked two years ago.

The downturn in the realty sector was visible from the start of the fiscal year. 33,834 property transactions were recorded in Shrawan, the first month of FY 2022/23. The transactions remained subdued in every successive month till Falgun. With the market going through a recession, housing developers even resorted to schemes to attract buyers, offering cars and scooters.

During the Covid-19 pandemic, the abundance of cheap money in the financial system fueled asset class investments boom causing massive growth in sectors such as real estate and the stock market. In addition, businesspersons invested the money they received as working capital loans from banks in real estate.

“As the financial system was flooded with investment-grade liquidity, banks even asked to take working capital loans. The money went to the real estate market and fueled the demand for land and housing properties,” said a real estate entrepreneur.

As soon as the liquidity crunch hit the banking sector, the flow of cheap money stopped and the market eventually went into a deep recession. On the other hand, the central bank also tightened lending of banks and financial institutions (BFIs) to the real estate sector, reducing the loan-to-value (LTV) ratio in the Kathmandu Valley to 30 percent and 40 percent outside the valley in the monetary policy for the Fiscal Year 2022/2023.

The government restriction on land plotting due to the delay over the classification of lands also hit the realty market hard. The Land Use Regulation (2022), introduced by the Ministry of Land Management, Cooperatives, and Poverty Alleviation, includes the mandatory classification of lands for buying and selling purposes. The land has been classified into 10 zones including agricultural, residential, commercial, industrial, mines and mineral zone, forest zone, public use and open space zone, cultural and archaeological zone, and others. However, the majority of local-level government are yet to classify the lands.

As the realty sector went through a recession, the revenue collection from land transactions has been on a decline in every month of the current fiscal year. In Falgun, the revenue collection dropped to Rs 3.56 billion from Rs 6.26 billion a year ago, a decrease of 45.5 percent. In Mangsir, revenue collection dipped by 62.5 percent from Rs 7.06 billion a year ago to Rs 2.64 billion.

The improvement in the land transactions in Chaitra, according to realty entrepreneurs, is due to an improvement in the banks’ liquidity position and a gradual decline in interest rates in loans. As the majority of land and house transactions in the country are financed by the BFIs, the interest rates play a crucial role.

Of late, the government also has assurances to the real estate businesspersons saying that restrictions on land plotting will be lifted soon. Prime Minister Pushpa Kamal Dahal has said that as a huge amount of money is stuck in real estate properties, it is important to make the sector vibrant again to end the sluggishness in the economic activities in the country.

source: the annapurna express, 19 april 2023