The conventional system of owner-built housing is still predominant but with the growing demand for land-for-house, the Kathmandu Valley is experiencing a space-constraint in recent times. It is becoming increasingly difficult for people to find suitable land to build individual residences on. However, inducing paradigm shift is a substantial challenge to overcome the tradition of building one’s own house. Vertical living, due to its sheer nature of accommodating multiple units, promises to become the preferred lifestyle option for many. Currently, the housing industry of Nepal is worth an estimated whopping Rs 200 billion.

 

A total of 54 companies have received permission for construction of community or collective housing so far in the three districts of the Kathmandu Valley. These companies have received the nod to build 3,633 units of family residences against a demand of 30,000 units which is expected to exceed well over 40,000 units each year in the valley by 2020. While fiscal years 2007-08 and 2008-09 saw the highest number of new projects registration, 2009-10 had very few registrations and 2010-11 has no new projects initiated owing to lack of investment on the part of banks and financial institutions (BFIs). Om Rajbhandary, the CEO and Chairman of Comfort Housing Pvt Ltd reveals, “Some approved projects have continued to progress while some others have slowed down, delayed or downsized.”

 

Current Scenario

The overheated housing market has shown signs of meltdown intensifying the apprehension of the speculative investors leading to the BFIs losing sleep over huge loans issued to the housing developers. With the BFIs tightening issue of new loans and aggressively pursuing recovery of past loans, it will take a while before the now stagnant housing market bounces back, a developer opines. The BFIs had invested aggressively to begin with but the current slump has left them anxious due to their huge loan portfolio for the housing sector.

 

Even though the housing industry is going through a difficult period, entrepreneurs take solace from the fact that scarcity of land along with a sense of security ensured by apartment complexes is bound to hold the business in good stead in the foreseeable future. The intended dwellers too are gaining confidence and slowly gravitating towards the concept of community living of late. On an average, the prices of apartments vary from anything between Rs 6 million to well over Rs 10 million. However, some companies have recently introduced economy flats costing about Rs 1.7 million.

 

Realtors’ Perspective

It’s about time the term ‘realtor’ came into force with obtained legality if Nepal’s housing sector were to register a positive growth. The Nepal Land and Housing Developers’ Association (NLHDA) has proposed the government to issue ‘licence to operate’ tag so that only the licensed realtors have the right to ply the trade. It will regulate the housing sector to a great extent and bring the realtors within the taxation bracket. Till now, the sector has been operating on an ad-hoc basis in the absence of concrete bylaws, says Ichha Raj Tamang, the President of NLHDA. He adds that the private housing projects have also been suffering from lack of proper legislation on housing development – an effective ‘code of ethics’ and ‘property transaction act’ are much desired for.

 

Majority of the construction work is being carried out in a haphazard manner and in unplanned areas. NLHDA has urged the authorities to strictly regulate the construction business to address the ever-growing demand of urban construction and check the blatant use of landscape for its vertical growth. NLHDA has recommended that housing development be sought through land pooling projects. It will help plan a particular area right from the outset and thus ensure desired infrastructure required for residential colonies and apartment complexes. The painfully lengthy process of acquiring licenses is another impediment towards the smooth functioning of the sector. To address this issue, the developers have been asking the government to facilitate a one-door licensing process.

 

The ceiling imposed on realty lending by the Nepal Rastra Bank (NRB) resulted in a slowdown of the housing sector’s growth. The central bank had directed BFIs to limit lending exposure to the housing sector to 25 per cent of their total investment portfolio. It had done so to deal with the fast inflating realty bubble. At odds with each other not too long ago, housing developers and bankers now collectively look at ensuring smooth recovery of realty lending. According to bankers, the current slowdown in the housing sector has much to do with the mismatch in demand and supply. The construction of apartments has continued unabated while their performance in terms of selling the properties has been dismal. Building trust among the targeted buyers is of vital importance too because people still haven’t come to terms with trusting realty developers.

 

Housing entrepreneurs who resisted selling for fear of descending price levels have now started to slash prices – as much as 30 per cent – to tempt buyers and recover their investments. Despite transactions nose-diving, the developers had hoped for a recovery but are now finding it hard to entice buyers even at reduced prices. The slowdown in realty has affected the BFIs’ performance as their loan portfolio is hugely dominated by the housing sector. Quite naturally, despite committing long-term lending to the sector, the banks have now started to exert pressure for early repayment in an attempt to minimise their realty loan exposure. Currently, the total investment in the housing sector is Rs 97 billion which is 18.9 per cent of the total investments made by the BFIs, states Bhaskar Mani Gyawali, the NRB’s Executive Director – BFI Regulation Department.

 

Central Bank’s Influence and Government Policies

The housing industry has been facing a crisis-of-sorts ever since the NRB issued stern directives in an attempt to prevent simulated skyrocketing prices of housing properties. The mandatory provision of declaring income source for purchase of properties worth a certain amount is another major hiccup. The hike in interest rates on loans from 9 to 17 per cent has further compounded the prevailing miseries. These are just a few among the many bottlenecks that have blocked the desired growth of the housing sector, industry entrepreneurs lament.

 

The government’s imposition of capital gains tax on housing transactions, too, has drove away buyers. It is but understood that revenue mobilisation through taxation is the primary objective of the government. Therefore, it comes as no surprise that the government has hiked property tax as well. Besides, the NRB also wants to minimise the speculative aspect of the housing business to prevent the bubble burst.

 

Buyers’ Viewpoint

Unreal prices of apartments coupled with increasingly higher interest rates on home loans have made it extremely unaffordable for the general public to purchase new properties. And those who can afford are not too sure about the safety standards of these vertical structures especially with the imminent threat of an earthquake hitting the country anytime. They know that there are some developers who are out there to make a fast buck ignoring the threat to people’s lives in the event of a natural calamity.

 

However, the central bank’s decision to create a separate category for home loans of up to Rs 6 million as ‘personal home loans’ has come as a respite and is widely appreciated. It has also provided a fresh lease of life to the low-lying housing sector. With some developers claiming to have sold a good number of units the moment the properties are opened for booking, rumours of artificial transactions have kept the consumers at bay. “The buyers also expect a certain amount of transparency on the part of the developers to avoid the situation of investing money where the developers haven’t put any,” says Ashoke SJB Rana, the President of Nepal Bankers’ Association. Having a transparency mechanism will enable the buyers to assess the developers’ strength and give them confidence to invest.

 

Building Parameters

The Department of Urban Development and Building Construction’s (DUDBC) monitoring mechanism ensures that the apartment complexes are designed as per established specifications to meet safety requirements. It also warrants the size of open space, size and number of units, road access and ground coverage among others. The department is responsible overall to guarantee the completion of procedures on part of the developers before commencing construction. Nepal is the 11th riskiest earthquake zone in the world and the Kathmandu Valley itself is located in one of the world’s most seismically active zones. This makes it imperative for the developers to plan appropriate structural designs and adhere to the National Building Code.

 

The housing companies acquire their licenses only after fulfilling the required procedures. The developers get planning permit from the Town Development Committee (TDC) based on existing regulations and by-laws. The apartment buildings’ plans and designs that meet the National Building Code on safety, electricity, parking space, fire, other disasters and structural design are later approved by the DUDBC’s division office, informs its Deputy Director General Shivahari Sharma. The projects also need to pass the Environmental Impact Assessment (EIA) for big scale ventures and Initial Environment Examination (IEE) for the smaller ones.

 

Housing for the Masses

While the housing companies have been primarily catering to the needs of the wealthy, the lower middle class and the poor still cannot afford the properties developed by these companies. Therefore, though the housing business is providing shelters, it has overlooked the needs of the urban poor. In contrast, housing projects in a lot of countries look at addressing the needs of the economically weaker section of the population on a prioritised basis.

 

Housing for Foreigners

Nepal can very well attract foreign direct investment (FDI) by allowing ownership of apartments to the expatriate community living in Nepal. The government has floated an idea to this effect to let foreigners buy apartments for residential purpose. A preliminary plan has already gathered shape for this purpose. If this turns into reality, it promises to resurrect the housing industry and lend dynamism to the construction sector. Since the housing sector needs fresh capital injection to keep the momentum going, allowing foreigners to buy apartments could hold it in good spirit. This will make the sector more financially viable and generate greater employment courtesy the construction boom.

 

Looking Forward

“The government must give the housing sector the importance it deserves and treat it as a national priority,” says Rajbhandary of Comfort Housing. Provision of affordable housing in partnership with the private sector and making newly constructed and under construction buildings safe for residential purpose will be critically important in the days to come. Quality urban housing is at the heart of the struggle to accomplish enhanced living standards. Till about a decade ago, there were limited developers but today, the consumers have a varied choice in the nature and price of the products. Along with the demand, appropriate products, for example, low priced houses are bound to enter the market sooner than later.

 

If all existing problems settle with time, investing in a developer-built property can prove to be a sound idea because it spares one the hassle of managing sewage, construction materials and labour, water, electricity and TV cable connections and is more secure and comfortable, in general. The developers too would do themselves no harm if they adhered to safety standards and practiced customer satisfaction for a market that is on the course of getting matured. The hugely untapped potential of budget housing holds much promise because that’s what the largest section of buyers is waiting for.

 

Given the scarcity of land and the ridiculously high prices of the little land available within the city limits, there will be no option other than to grow vertically, says Umang SJB Rana, the CEO of Westar Properties. Nepal’s urban population is expected to rise 18 per cent by 2015 and 30 per cent by 2030 which underlines the huge potential and a promising future for the housing sector. By correctly identifying the target segment, developing feasible projects, introducing right products at the right time and strategising marketing efforts in accordance will certainly ensure that the housing business is here to stay. Investors who are buying properties only for secondary transactions instead of residing in them end up creating ‘ghost houses’ galore. It would be great if the apartment complexes and housing colonies find buyers who are actually interested in turning them as their ‘homes’. The day is not too far when we shall see vertical structures dominate Nepal’s urban landscape all over. n

 

Brihat Community Living - Sitapaila

 

“Eco-friendly home” is an achievement for the urbanization, to achieve one goal - to create a home which is ‘friendly’ to its inhabitants and sympathetic to the environment in which we live. Our Project incorporates a range of eco-friendly products and concepts.

Its main features include:

1. Solar electricity provision – for streetlights

2. Rain water recharge for water conservation

3. Proper garbage disposal system for waste reduction

4. UV protection sticker on south facing windows

5. Use of concrete lightweight blocks in place of bricks- for reduction of carbon monoxide emission and conservation of clay

 

Owned & Marketed By:

 

TCH Tower - IV, Ground Floor, Block - A

Sitapaila, Kathmandu, Nepal

Tel: +977 1 4282086/4286821

Fax: +977 1 4288820

E-mail: [email protected]

www.brihatinvestments.com