Explainer: Why is the Mandatory Real Estate Brokerage Rule On Hold?

The government had made it mandatory to process all property transactions with a value exceeding Rs 30 million within metropolitan cities and sub-metropolises exclusively through licensed real estate companies starting March 9.

However, nearly a week before the rule was to take effect, the government abruptly announced a stay on its implementation.

According to a notice issued by the Department of Land Management and Archives, the provision, as per the amended Land Revenue Rules, requires licensed individuals to operate designated land service centers and conduct property transactions through the land information system. The implementation has been suspended until further notice because licensed individuals have not yet obtained permission to provide these services. The rule was initially set to apply to the country's six metropolitan cities and 11 sub-metropolitan cities.

Why Haven't Businesses Obtained Permits for Land Service Centers?

The government's directive on operating land service centers requires real estate companies to deposit a security of Rs 200,000 per district with the Land Revenue Office to obtain permission for each transaction location. Real estate entrepreneurs protested this provision, arguing that it is financially unfeasible for licensed companies to deposit that amount for every district, leading to the government's decision to suspend the rule.

Deepak Kafle, chair of DN Group of Companies Ltd., a licensed real estate firm, stated that despite already paying hefty sums for their licenses, the additional requirement of a per-district security deposit creates an excessive financial burden.

"Some districts even have more than one Land Revenue Office. Having to deposit Rs 200,000 for each office to get permission is a huge economic strain," Kafle said. "That's why we've asked the government to amend the directive before moving forward."

Bishnu Ghimire, president of the Nepal Land and Housing Development Federation, believes the problem arose from the government's attempt to regulate both large businesses and small brokers under a single rule. "The government needs to have separate laws for real estate businesses and brokers," he argued.

Ghimire also suggested that transactions below Rs 30 million, which do not require licenses or land service centers, should not be burdened. He added that the real estate market is already sluggish due to the economic slowdown and the government's inconsistent policies.

What Does the Government Say?

The Ministry of Land Management, Cooperatives and Poverty Alleviation stated that the stay was issued after businesses requested an immediate revision of the directive. Joint Secretary Gajendra Prasad Bhatta explained that they received feedback from entrepreneurs to make the directive more practical.

"After entrepreneurs raised concerns about needing permission for every Land Revenue Office under the directive, we have put the rule on hold and started discussions on how to make it more workable," Bhatta said. He assured that the licensing provision for real estate transactions will be implemented soon after making the directive practical.

How Many Companies Have Licenses So Far?

Aiming to make property dealings more organized, transparent, and technology-friendly, the department has granted transaction licenses to 36 companies under Section 26 (A) of the Land Revenue Act, 2034. According to the ministry, out of 197 companies that applied for licenses, 36 have received them so far.

Why is Licensing Necessary?

The government has been under pressure to regulate informal real estate transactions. The Financial Action Task Force (FATF) has consistently raised concerns about the regulation of Nepal's real estate sector. Nepal was placed on the greylist by FATF’s regional body Asia Pacific Group due to weak enforcement and institutional capacity in combating money laundering. Bhatta noted that this situation makes it imperative to improve the sector, which is why the government is keen to effectively implement the licensing provision.