Thread: Land Price in the present context of Nepal

The logic behind the increase in prices of land is a hotly debated topic nowadays. The increase is on the basis of sound logic which has been aggravated by speculative buying. Let us first of all see the logic side then we will go to the speculative side.

There has been and even now acute shortage of houses for the residing people in cities. Kathmandu mainly being the centre of all the business activities, central offices and the best of hospitals, schools entertainment has been the most important destination for all the citizens. Everyone aspires to have a piece of land and house in Kathmandu. With ease in transportation outside ringroad, people gradually started buying land in the periphery. As the demand increased so did the price. We should remember that distance is relative to road, if there is proper road and public transportation, the distance to the centre of city is not so important. Compared to bigger cities around the world, we have not expanded much, the constraint being proper road.

According to the Nepal Land and Housing Association, land prices have risen by 300% since 2003. The pace of increase and increment is however a totally different matter. Nepal observes spectacularly high land valuations and herein comes the speculative buying. Nepal being on a brink of disaster for so long has dried up investment areas. People are not confident to take risk in starting new ventures in this volatile situation. Even the existing business except the financial institutions is in red for a long time. Land has become a safe haven for all investors. It’s easy to buy and sell unlike a business which even if it is in loss takes a long time to even close. The continuous bull-run has made even the most conservative of people investing in land.

The price rise in many areas has become illogical. A land at Durbar Marg is over two crores and anna, Baneswor is 1.25 crore per anna. If you buy a four anna plot in Baneswor and make a 4000 sq ft building for rent, it is going to cost around 5.6 crore rupees. For servicing the interest and investment money at 12% you need Rs. 560000.00 per month, which is realization of Rs.140.00 per sq.ft. This price is very high in the present context. And profit on that, it is very difficult to even visualize. This is the scenario in the prime business locality.

Add to that, we have seen increase in land prices of agricultural land in far flung areas. The return on investment by way of harvesting high yield crops would have been logical, but people are buying just because it is increasing.

Residential area however can be seen in a different context. If one is buying a land to make a house price is not much of an issue as the increase and decrease only plays in the mind not at return in investment.

There are other types of investors and speculators who create investment. They restructure the land into plots and generally hold it till the trading season or when their real estate portfolio grows. This allows the value to increase dramatically.

Real estate boom is a mix of logic and speculation. The bubble is made by the speculation and when it fall it also pulls down the logical increment too. To mitigate this, government should gradually increase the minimum duration of ownership so as to minimize the speculative market. Gradual it should be because a drastic decision can unnerve the market and bubble may burst.

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