--BY REBATI ADHIKARI
Before March 2020, Green Hill City Developers had planned to launch a new housing project at Duwakot in Bhaktapur. But the project has been stalled for the last one and a half years due to the Covid-19 pandemic. Likewise, more than fifteen projects of CE Construction have been delayed by the disruption in construction work caused by the pandemic and the lack of timely approval from land revenue offices.
The problems faced by these two prominent construction companies indicate how the real estate and housing market has gone into a deep slump in the last one and a half years since the start of the Covid crisis.
Thakur Prasad Bhattarai, managing director of Greenhill City Developers says that sales of housing units and apartments have reduced dramatically, and customer inquiries have declined drastically. “Unless it becomes a necessity, buying a home is the least priority for most people at the moment as they are concerned about their well-being and livelihood,” he says.
However, Bijay Rajbhandary, chairman and managing director of CE Construction, says that the situation is improving for his company. According to him, property sales are down only by twenty percent at present. “We have been affected like any other business, but things are not as ugly as it may seem in our case,” mentions Rajbhandary, adding, “People have been locked in their homes for a very long time which has given them enough time to decide on their housing choices. We are receiving plenty of inquiries on our projects even now.”
Another housing and real estate company, PK Son & Developers is also reeling through a similar situation. According to the company’s Chairman Rinche Sangpo Sherpa, housing demand has slumped by 70 percent compared to the pre-Covid period. “The deadline for the completion of many of our under-construction projects has been pushed by at least a year,” he shares.
Developers and real estate traders say that the impact of the pandemic has been felt in every segment of the property market ranging from site visits, sales, launches and construction of housing units.
Certain real estate segments have been more seriously affected by the pandemic than others. Commercial rental space has been hit the hardest due to the lockdowns and restrictions imposed by the authorities. This situation led to the ‘work-from-home’ practice with remote working becoming the norm with many businesses and organisations giving up their office space temporarily to minimise the risk of transmission and also to reduce their operation costs. “The demand for commercial rental space has dropped by fifty percent. Existing businesses are closed and entrepreneurs lack confidence to start new businesses and expand the existing ones,” says Santosh Pradhan, CEO of Property360 Nepal, a real estate management company.
According to him, the residential space rental market has witnessed a decline of 20 percent in terms of both demand and prices. “Customers are attracted to low-priced property at the moment. Prices of commercial rental spaces have also dropped by half,” he mentions, adding, “The first wave was harsher to our business as there was uncertainty in terms of moving ahead.”
Laxman Karki, general manager of Sheetal Real Estate says the demand for rental space and sales of properties have not declined much, but the current situation has changed the way people think about pricing. “Customers believe that home prices and rates of rental spaces have become cheaper due to the economic slowdown. Many are now asking for property at half the price,” he says. According to Karki, there was big uncertainty in the property market during the first wave of the pandemic, but the situation has improved with the real estate and housing companies better prepared this time.
Real estate agents expect the slump in the commercial space market to continue for some time before normalcy resumes in the market. According to Ishwor Prasad Kharel, president of the Real Estate Agent Association Nepal, commercial real estate will rise only when economic activities revert to the pre-pandemic levels. “The next few months will see a surge in residential demand due to the altered lifestyle of work-from-home. The present-day realities like physical distancing have made people realise there is no other safe place than one's home to prevent a health crisis like Covid-19, so the demand for homes is set to go up,” he says.
Data published by the Department of Land Management and Archives shows that a total of 1,452 land related transactions were registered in the month of Baisakah (mid-April to mid-May, 2021) at the Kalanki Land Revenue Office, a drop from 3,244 in mid-March to mid-April, 2021. Similarly, the Land Revenue Office at Chabahil recorded 1,097 land related transactions during mid-April to mid-May from 2,561 a month earlier.
Buddhi Bahadur Karki, Information Officer at the Land Revenue Office in Dillibazar informs that around twenty cases related to land splitting, land and homes ownership transfer, blocking and release of land are being registered on a daily basis after the relaxation of the prohibitory orders. Before the government imposed prohibitory orders, the office would handle around 40 land transactions daily.
Impact on Construction
PK Son and Developers had to stall the construction process of its housing projects at Budanilkantha for seven months in 2020. The company had also planned to launch a new housing project in Pharping in September 2020 which got deferred to September 2021. The construction of CE housing projects in Kathmandu, Biratnagar, Pokhara and Bhairahawa has gone on at half capacity as the company has deployed just a few workers at the construction sites following the health safety protocols.
According to real estate developers, workforce shortage and short supply of construction materials is taking a toll on project deadlines adding to overhead costs. Time and cost overruns for the projects means a rise in the total cost of the project. “Labourers have migrated to their home cities due to the fear of contracting the virus. Social distancing rules and other safety guidelines make it difficult to keep all the workers at the construction sites resulting in labour shortage,” says Bhattarai of Green Hill City Developers.
In order to address the slowdown in the real estate market, Nepal Rastra Bank set the loan-to-value ratio at 60 percent for housing projects through the half yearly review of the monetary policy for FY2020/21. This provision also applies to first-time buyers of residential homes. Offering a relief to borrowers, NRB also directed banks and financial institutions not to publish any auction or debt collection notice during the prohibitory order period and until one month after the restrictions are lifted. Soon after the lockdown was imposed for more than four months in 2020, banks had to deal with an excess amount of liquidity which also gave opportunity to loan borrowers to take loans at a relatively low interest rate.
The pandemic has changed the way real estate developers and agents carry out their marketing activities. They are focusing on virtual promotional activities and using digital means to communicate with customers. “As site visits are not possible due to the health risks involved, we have resorted to virtual tours of the construction sites to attract customers. However, they can cancel the deal if they are not happy with our products when they see it in person,” informs Rajbhandary of CE Construction.
According to him, the pandemic has compelled developers to reflect on future house designs. “The pandemic has forced people to spend more time at home which has changed the way we work, live and exercise. So, it is very likely people will look for houses with more workspace, proper playing grounds, outdoor and gyms spaces,” he says.
Bhattarai is pinning his hopes on an effective vaccination drive for the revival of the real estate market. Meanwhile, Kharel says the market will now see a rise in demand as investors who were financing property backed by bank loans will gradually start to sell their property as real investors were left without any backing and relief packages from the government. At the same time, Pradhan believes the market will rise to pre-Covid levels in the next couple of months if a new coronavirus variant doesn’t thwart the country’s economic recovery.