Real estate sector in Nepal struggles despite positive indicators

KATHMANDU: Despite positive internal and external economic indicators, Nepal’s real estate sector continues to grapple with stagnation, impacting various stakeholders. Despite some policy-related reforms, the anticipated progress in the real estate sector has yet to materialize, leaving many concerned about the sector’s future.

According to statistics from the Department of Land Management and Archive (DoLMA), while indicators suggest positivity, the real estate sector has not fully rebounded to its previous state. Business owners within the sector have expressed their concerns about the sluggishness observed.

The real estate sector in Nepal commands nearly Rs 350 billion in capital from banks and financial institutions, constituting about four percent of the total debt amounting to Rs 250 billion. Despite significant capital infusion, the sector’s performance remains below par, reflecting the prevailing challenges.

Despite approximately 18,000 registered real estate entities with the Office of the Company Registrar, the turnover rate remains sluggish, indicating underlying issues within the sector.

An analysis of data from 2079 BS to 2080 BS reveals an unsatisfactory turnover despite apparent growth in real estate stakeholders. From mid-July 2022 to April 26, 2023, approximately 949,008 land transaction documents were processed, generating revenue exceeding Rs 28 billion.

Comparatively, from mid-July 2023 to April 26, 2024, around 1,139,114 real estate transactions were recorded, yielding revenue of about Rs 34 billion. However, the Nepal Land and Housing Developers’ Federation and DoLMA assert that this increase in transactions does not necessarily signify an uptick in real estate business activity.

Bed Prasad Aryal, spokesperson and director of DoLMA, acknowledged some progress but emphasized that real estate transactions remain below expectations. Aryal highlighted issues such as land classification and recent challenges in cooperative-related matters, which have impeded real estate transactions.

Despite revisions in land use regulations and positive policy changes introduced by the Nepal Rastra Bank, sustained growth in the real estate sector has not been realized. While over Rs 68 billion in revenue was collected in the past year, current trends indicate a slowdown, with only half the expected revenue being generated.

Business leaders express concerns over the government’s inadequate response to the real estate sector’s slowdown, citing its significant impact on the overall economy. Bhesh Raj Lohani, president of Nepal Land and Housing Developer’s Federation, called for more supportive policies to boost confidence and activity in the sector.

Lohani proposed increasing the loan-to-income ratio for housing loans and adjusting the loan-to-value ratio to facilitate real estate investment. Currently, these ratios stand at 60 percent for housing loans up to Rs 5 million and 50 percent for those exceeding Rs 20 million, which businessmen argue do not align with market realities.

Advocating for an 80 percent loan-to-income ratio and a 70 percent loan-to-value ratio, the Nepal Land and Housing Developer’s Federation stresses the need for policy adjustments to stimulate real estate activity and address the sector’s challenges.