Real estate downslide ends

Real estate downslide ends
eKantipur.com, 18-Aug-2007
by Milan Mani Sharma

The downslide in the real estate business seems to have halted, and there are even signs it is gradually picking up again.

Realty business plummeted by about 15 percent during the fiscal year 2005/06 but land prices have gone up in a range of 5 to 10 percent in some parts of the Valley over the year, according to real estate dealers.

The annual report of the Nepal Real Estate Dealers Association shows that prices of land along the Araniko Highway up to Bhaktapur and in the city areas have risen in a range of Rs 10,000 to Rs 25,000 per ana. In the outskirts, the prices have not gone up, but they have not gone down either.

"The present rise is a natural rate of growth," said Raju Niraula, proprietor of Om Sai Property Dealer. He attributed the growth to the political instability, tarai unrest, continued insecurity in rural areas and rising remittance inflow. In the meantime, the real estate cycle also may have begun to turn upwards.

However, Rup Narayan Bhattarai, chief of the Land Revenue Office (LRO), Chabahil, doesn't buy the argument that real state has begun to turn upwards. He argues that the nominal rise in prices of land in the Valley is due to big property dealers' resistance to plummeting prices. "Property dealers, who hold a fair chunk of land and largely determine the movement of prices, have withstood the downward pressure on land for the time being."

He argues that the low volume of real estate transactions does not justify claims that the real estate downslide has stopped. Figures at some of the land revenue offices tend to support this argument.

Officials at the five LROs in the Valley said that the volume of transactions at present is far less than that recorded in 2005/06.

In fiscal year 2006/07, land registrations went down to 81,740 from 95,900 in 2005/06. It also dragged the revenue collection figure down by 2.5 percent to Rs 1.56 billion in 2006/07.

Except for the Dillibazar LRO, none of the LROs in the Valley met the annual revenue target, which was fixed at about 10 percent over the huge growth recorded the previous fiscal year.

"Transactions were down, inquiries had plummeted, lending institutions were wary and were putting pressure on dealers, and most importantly, interest dues were mounting fast. The situation was so tough, dealers would have succumbed had the initial euphoria lasted for another quarter," said Niraula.

What supports the "worst-is-gone" theory in the real estate sector then? "On year to year comparison last fiscal year was far worse than 2005/06, but things have now improved slightly compared to last year," said Narayan Suwal, accountant at LRO, Bhaktapur.

The real estate dealers also argue that the ongoing unrest in the Tarai, continuing political instability, and rising remittance flow have put a break on the downhill slide, if not reversed the trend gradually.

Dealers said that some 5 percent of new transactions recorded at present have been by people of hill origin but currently residing in the tarai.

Collateral for financial institutions and individual lenders and also the partition of land among siblings make up another 40 percent of present transactions, according to Janaki Ram Sharma, chief of LRO, Kalanki.