Is Kathmandu Real Estate in a Bubble?

Realty boom continues, revenue grows 147 pc
MyRepublica.com, 24-Feb-09
MILAN MANI SHARMA

Realty transactions and subsequent revenue collections by the government has more than doubled over the past one year, as more speculative buyers rush to invest in land and houses.

Figures at the Department of Land Reforms and Management (DoLRM) show that land transactions in the cities and urban centers almost doubled over the first seven months of 2008/09 compared to same period last year. It generated for the government revenue of Rs 3.85 billion, which was up by some 150 percent compared to the collections made in the same period last year.

“The collection made during the period is already about 20 percent more than the target, which itself was 45 percent more that the target set for the last fiscal year,” said Raju Basnet, planning officer at the Department.

Though many staff at the Department say that they were initially worried about meeting the huge revenue target set by the Ministry of Finance, but given the tendency of the land transactions, they appear confident about meeting the target easily. “We are confident now of exceeding this year’s revenue target of Rs 4.80 easily,” Basnet said.

Officials at the Land Revenue Offices in three districts -- Kathmandu, Lalitpur and Bhaktapur -- attribute the rapid rise in land transactions to profit-taking and say land prices have more than doubled over the period. “Increased transactions along with upward revision of land prices contributed to the sharp rise in revenue collections,” they said.

In some parts of Bhaktapur and Lalitpur, the government had increased the official valuation of land by as much as 100 percent. In Kathmandu, official valuation in the outskirts was increased by up to 25 percent.

Rush at the five LROs in the Kathmandu Valley suggests that people’s desire to hold land has continued to grow, irrespective of the imposition of income disclosure policy on land and house transactions exceeding Rs 3 million and Rs 5 million respectively.

“The rush for holding land is so high that we are registering as much as 450 transactions every day,” said Krishna Prasad Niraula, under secretary at Chabahil LRO. He said that the office would deal with about 150 transactions per day in the past.

A report by LROs to DoLRM says that only about 25 percent of the transactions now are done for building private residences. The rest (75 percent) is done for reselling purpose, it says.

“Land price more than doubles in a year, so who would invest on gold or shares or other securities,” said Radhika Aryal, a resident of Babarmahal.

Radhika, who bought 5 annas of land at Gothatar in Kathmandu three years ago at Rs 1.4 million (Rs 280,000 per anna), is planning to pocket Rs 4.5 million from its sale now (at Rs 900,000 per anna) soon. The money, she said would go on to buying a larger stretch of land for reselling purpose.

The case of Radhika is just an indicative of how the city residents are responding to the present boom and capital gain opportunity it has created, noted LRO officials.

“Four anna land pieces are most preferred for residential purpose and fetch a good resell value as well,” said Tej Prasad Dahal, official at Kalanki LRO.

Contrary to the past, LROs reported that the transactions backed by commercial banks have dropped over the past one month, particularly as the central bank has directed them not to bet their money on the bubble created in the sector.

“However, finance companies and cooperatives have rapidly filled the gap and have moved aggressively to finance land deals,” said Dahal.