I need some insights from Sajha experts. Is this market real? Is it a bubble?

All the capital investments from remittence are trapped in nepal like bubble. The goverment do not have effective mandate to trap that capital and invest on infrastructure or job creating activities. Only thing happenings are dalali( speculators) are buying and selling piece of land and giving the impression to the public that value of real estate is increasing which is total bull crap.

    Somebody enlighten me please, how could ktm or any part of nepal can have so much expensive real estate when there is no civility at all, i mean neal, nada, nothing, zip.  its failed state, corrupted and it is doomed. There is no economic value what so ever on certain piece land at all beside people have bunch of multilipied money( money converted to Rs. from other currencies)and wante to go back to home country after they can no freaking longer work overseas like donkey. Value of certain realstate supposed to be based on the surrouding economic values. First of all there is no basic necessities to maintain the descent living standerd and the rest every body know how the conditions is? i am not gonna say anything about it. 

   I am freaking mad the fact that minister of labor or some stupid goverment agency are encouraging nepali youths to work overseas. those freaking greedy  fugger need to run the country and it needs alot of cash to do that, thats why. they do not express tiny effort to create jobs in nepal or how to trap the hundreds of graduates from college to work field.

      My hands are shaking in rage and i freaking no longer continue write about it anymore. My be i need to cool down and drink some cool aid.  i will continue later......

  

Mostly agree Kasto_Manche.

This market has seen exponential growth for a long time. Economic conditions, political instability, business environment and all other dire fundamentals seem to have no impact on the strength of this market. We know that the major tangible driving forces behind this are 1. Remittance and 2. Lack of productive investment opportunities 3. Lack of security and opportunities in other parts of the country 4. Limited Supply and not to mention extreme speculation. I am not sure how much leverage there is in real estate investments in Nepal. Even with such factors going for it, the price must be justified by what the population can afford. If the average price of a house in Ktm is 1 karod or something close to that, how many families can afford to buy at that price ? I am of the opinion that the market will correct itself to reflect the affordability and other fundamentals but what will trigger this correction? Anyone has any idea on real estate exposure of commercial banks in Nepal? Maybe a localized credit crunch like the one seen in the international markets will trigger it.

" There is no economic value what so ever on certain piece land at all beside people have bunch of multilipied money( money converted to Rs. from other currencies)and wante to go back to home country after they can no freaking longer work overseas like donkey. Value of certain realstate supposed to be based on the surrouding economic values. "

 

Kesto Manchhe needs a little bit lesson on economics. The price of a good doesn't (necessarily) depend on what crate /shelf/ house it is located at. It depends on how many people desire it, and how much money are they willing to pay for it. If rich people go to hell, if there are more people in hell than in heaven and if heaven and hell have equal areas, then a piece of land is going to be more costly in hell than in heaven, and that's the first lesson in economics (demand and supply).

3 million Nepali work abroad (besides India) and KTM is 24*24 Km in area. Guess the demand. The reality is the more Nepali people become wealthy, the higher the price will be, irrespective of the economic values created by the land. Look at gold, a piece of gold doesn't create any economic value, doesn't give a stream of income if you put it in your box, and yet its price has quadrupled over last two-three years.

So, is the price of KTM real estate real? Yes. If you have more than one house or more land than you need, try selling it, and you will get real cash and buy a chateau in Washington DC .

I agree with pire, I would like to add a couple of more points to append his thoughts though.

1) The population of Kathmandu has quadrupled in the past 10 years. I remember when I was in middle school back in the 90's there were hardly any people beyond the main city area; population has a very strong correlation with a spike in real estate prices.

2) In Nepali society wealth is primarily symbolized through land holdings. In the US, wealth is characterized by stocks, bank accounts and high worth houses; owning a stretch of land is not synonymous with wealth here. Therefore there is a premium on landownership in Nepal.

I probably do need some Economic classes and its a very vast to grasp the economic concepts.  I understand that i may not be totally right what i wrote and you have a point to make.

Supply and demand:: you are right on this point. There is inflow of cheap supply of money from over seas and they are willing to pay something they think they ( value) will get all the facilities. ie in ktm. healthcare, education,security,airports,entertainment and access to information are available.( Relatively better than outside the valley)

       willing to pay for something, is what somehing worth!!!!   this statement is only correct if the buyer and seller has access to same unbiased transection information. The fact of the truth is speculation of the price is not the real value of something.    i agree if it is ARTS and we wont know the price until somebody willing to pay for it. Real Estate is not an art and it shouldnt be buy and sold as an art.

   Another truth is nepal goverment do not allow outflow of the capital, only inflow. you have heard the stories of people asking here how to bring money from nepal. That is causing capital trap and is beig misused.

   Nepal's currency is pegged to indian currecy that is why we do not see the crises like in zimbabwe and we nepalies take it for granted.

GOLD:: its universally accepted means of storing the wealth and its liquid thats why it will always have demand. moreover its a alternative reserve currency next to US dollar.

 

   may be i dont know everythig correct me if i am wrong or tellme what u agree or disagree on...

yes, it is very interesting to see the real estate price going up everyday in Kathmandu.
The recession and the employment in the west did not stop to go the price.
People used to buy stocks in Kathmandu, but now it is going down like a hell everyday.
S.Chartered Bank is down to 3200 from 8000 high, BOK is down to 800 from 2500- just as an example.
So will the house price too, but may be not so bad.
In my opinion the Real Estate boom in Kathmandu is not sustainable, of course so many Nepalis overseas would like to hold a piece of land in Kathmandu for future and the people in Kathmandu who make money from corruption will keep on buying the land, but ordinary people in Nepal will not be able to buy land in Kathmandu.
Now because of higher interest rate in the banks, banks reluctant to loan for real estate, liquidity crunch and decreasing remittance will correct the price within a year- I guess as much as half the price.
 If you own the piece of land in Kathmandu it is the best time to sell it.
One more thing- the exchange rate of Nepalese currency is not sustainable against Indian rupee- see the gold price.
If the NC is overvalued against IC, there will be a artificial shortage in Foreign Currency- that is what happening now. And any time soon the NC must be devaluated against basket of currencies.
If not clear , let me know.
Roman

Roman,

What you say is partially right--but your argument that remittance is decreasing and NC can't be pegged with IC forever is probably invalid. First, it is the growth rate of remittance that decreased in the latest report, but the demand for Nepali men is as robust aboard as ever, with new markets opening up. The latest report of Malaysia increasing the demand of Nepali labor (because they banned Bangladeshi laborers), and across-the-board increase of salary in gulf states points to something positive.

Regarding IC, what you forget is Nepal rightnow has a healthy foreign currency reserve of almost 4  billion dollars. The trade deficit with India is primarily our own undoings--go to cities of Nepal rightnow and people have bought cars en masse last year. Cars have become new motorbikes and we buy almost all cars from India (even non Indian brands). Whatever industries we had were closed down by the Maoists and the remainings are harrassed. At least, 3 million people have job that pays at least 200 dollars per month, and they want to buy clothes/cars/lands and you see why we have increasing trade deficits with India. But it doesn't mean we can't purchase IC. We have purchased IC by paying dollars to Indian central bank lately, because we have enough forex to cover our purchases.

Hence, I don't see any devaluation in the offing. There has been rumors, but the rumors have been quashed by central bank officers. And I agree with them for now.

I think there will be short term land value devalution rightnow, as people are unlikely to have karods at their hands, and the banks are now constrained from investing in land. Districts outside KTM are likely to be hit harder than KTM . But unless banks can find industries that give return of more than 15% per year, they will find a way to inject money in land and encourage speculation and land price will continue to be high. However, signs of impending industrialization abound, specially with cement, rods, agro-products, hydropower industries starting to gain momentum rightnow. Let's pray these industries succeed, and people will flock to put money in other factories.

parie,

         You seems knowledgeable,

1. tell us something about monetary policy in nepal?  Is there any direct influence from indian central bank. in other words, does nepalese economy works like just another indian state. When did we have fixed exchange rate with india and who started and why?

      There will always be trade deficit in nepal for ever until it exist because we dont produce anything stuff and even if we try to do maoist wont let us and even if they behave and dont destroy the existing caveman infrastructure goverment do not have any incentives to produce anything coz they  busy exporting  youths and begging money from foregin coutries.

    To be honest i only go there to visit my relatives.....

i agree with all of you guys. but lets not forget propriety buying and selling of lands by various banking institutions in Nepal which has helped land price to skyrocket inside ktm valley as well as outside.

no wonder these banks are racking millions of profit every quarter.

Kesto_Manche
                         The reason why the Nepali rupee is pegged against the Indian rupee is primarily because more than 70 percent of our international trade is carried out with India. It is a common practice around the world where a smaller country pegs their currency with a dominant neighbor to hedge against volatile exchange rates and high inflation.

Also one thing we don't give too much thought on is that although our imports outweigh our exports to the tune of 500%, we are increasingly become self-dependent in numerous sectors, like agro-products, cement, steel, poultry, mean, garments, shoes, medicines, telecommunications and hydro. The main reasons for a sustained high trade deficit is due to mammoth imports of petroleum (48 billion rupees a year), gold (33 billion this year so far) and vehicles. We don't have any of our oil or gold and the government raises tons of revenue through vehicle imports (20 billion in revenue last year), and these will continue to put major dents in the balance of payments.

But as pire pointed out, the salary hike for gulf workers and the increased demand for workers in Malaysia, UAE, Saudi and Qatar will record a robust increase in remittances in the coming months and the balance of payments crisis will abate for now. People need to annihilate the Maoists in the coming election so that industries can open and we can reduce our trade deficit.

Kasto Manchhe,

You also asked why our NC is pegged with IC. Himalaya Shamsher, the first governor of Nepal Central Bank, has written about it in his latest book. Apparently, there was a large fluctuation in IC and NC rate, especially around second world war. (You needed to pay somewhere from Rs 60 to Rs 160 in the same month to buy IC 100). Now you can imagine the kind of mayhem such instable regime can cause: people will flock to stock imported salts and garments to avoid having to pay high for them.

To control this chaotic situation, the govt decided to stabilize exchange rate. It was considered almost impossible, (just like we do today, the skeptics used to ask "how could you do it, if your trade deficit is so high? what would you sell to India or where do you get forex to maintain such rate?") Well, so far it has been a success, and as a bonus, we get to see our own sagarmatha and rhino in our notes.

The rest of your questions have been well answered by Hakim_saab. Stay positive and may be, if politics doesn't spin out of control, we are at the cusp of industrialization.