"Beyond Appearances: Delving into the True Nature of Nepal's Real Estate Market"
Real Estate Hike in Nepal began majorly due to the Civil War when people started to migrate to urban areas from rural areas for their safety. The simple Price Mechanism of Economics would say higher the demand higher the price if the quantity is limited. The Causes of the Real Estate hike might seem natural but has a really dark side to it. It is the reason for corruption in Nepal, lack of development and income disparity. An average house 500m away from Golfutar of 4.5 Anna costs Rs. 32 million. Again if we take into account the Salary of an honest government officer, the highest post of Chief Secretary(not the Nayab Subbas or Kharidars) it takes 444 months to just earn that amount which is over 37 years, forget any sort of expenses. According to Nepal Rastra Bank, a 27.7% rise is seen every year in the Real Estate Market which means every 3.5 years the Real Estate Prices double. So, what caused this issue?
*Image Source: https://www.newbusinessage.com/MagazineArticles/view/3067*
One of the major and direct reasons for price hikes is the lack of legal regulation in the Real State Market. This means it is open for black money to flow in as well, as there is very little legal framework to question the funds present in the real estate. Why is there no regulation? Why would there be? For the people at the top, it's a safeguarded spot to convert their black money to white and also double their money in 3.5 years. The lack of regulation allows more money to flow in which affects the honest middle class as the price of real estate property rise(Price Mechanism).
Another reason for the hike can be attributed to lack of regulation again, but this time bank regulation. Banks are allowed to Loan out as much money as they want in any sector, which makes banks give out “safer” loans to people in real estate rather than a business. It causes a slump in economic growth as the growth isn't in a business but in real estate. Even the Government asked for loans like Agricultural loans are given out to buy more real estate again raising the prices. Initially, the price hike was seen in urban areas but it is present everywhere in Nepal. This lack of regulation of Banks allowing them to make more money is really an issue for the development of the country.
Another factor is consumer confidence. “Get a house” and “Invest in Real estate son, you will earn more money” These arguments can be suggested to be true depending on who you ask but this consumer confidence that we will never lose money in real estate really makes the individuals buy real estate as a safe option and not purchase anything else. There seems to be societal pressure as well to buy real estate to show that you have done something in your life. The NEED for your own house, instead of it being a want, makes people put in whatever they have or even what they don't have in terms of loans into Real Estate. Again more the money more the prices rise in the market.
*Image Source: https://basobaas.com/blog/nepal-real-estate-sector-buying-selling-declining/*
Why bother with this issue, people are getting jobs and earning money. Apart from the issues already mentioned, it also harms our country in another way. When government plans a development project, the information gets leaked. The Real estate cartel purchases land in that area and doesn't sell the land at all until their required price is met, this increases expenses for the government unnecessarily and hinders the development process for a country.
So what are the solutions? Here is the entire list:
Regulating Real Estate Investment and adding taxes to Invest
Increasing capital gains taxes from 5% to a higher amount like 7.5% in the Real Estate Market
Regulating and Penalising banks for investing in Real estate and adding a higher quota to invest in businesses
Increasing wages for government employees to decrease corruption(Click Here to know more)
Questioning the investment coming into the Real estate market and asking for income verification
A more severe solution would be to add a ceiling and update it every year in a balanced amount
Another severe solution is using government power to fix the cost of real estate when purchasing land for development projects and seizing the land if no compliance
Making an entirely different regulatory body like NEPSE for the Stock Market.
These solutions are bound to cause uprising, riots or strikes but it is a necessary set of solutions for the development of the future of the country, improve the lifestyle of the general citizen, stopping the money hogging by the real estate cartel and decreasing income disparity. The backlash on this shall be present but its just more fair to the honest and white money part of the country.
-Bibhas Pantha
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