The housing business is here to stay

Prakash Bajracharya is managing director of Bajra and Bajracharya, which has interests in sanitary ware and housing. Bajracharya is currently constructing two housing projects with partners – Sun City and Mero City. The Kathmandu Post talked with Bajracharya about the housing business, its current situation and the future. Excerpts:

Prakash Bajracharya

How is the housing sector doing currently?

The housing sector has been affected by the liquidity crunch the banking system is facing. The imposition of capital gains tax and land ceiling measures by the government has also hit this sector. The central bank's move to tighten lending exposure to real estate and the housing sector has made the situation worse.

With the tightening of loans to real estate and housing, has it become tough for developers to get loans from commercial banks?

We the developers have been hit hard by the central bank's move to tighten the loan exposure of commercial banks to this sector. Managing funds for the projects has become really tough with banks and financial institutions reluctant to lend to this sector. Banks have even stopped providing loans which they have already committed to the developers.

Is it Nepal Rastra Bank's strict measures against lending to this sector or the imposition of capital gains tax that has affected this sector?

I would say it is a combination of both. It started with the current budget imposing capital gains tax on this sector. Then there was some confusion about the land ceiling. After that, the central bank asked commercial banks to tighten their exposure to real estate and the housing sector. The central bank's directives plus the liquidity crunch pushed up interest rates.

Your group entered the housing business with Sun City. Now your second project is also going to be launched. How are the two projects doing?

Though we entered this business with Sun City, we had already been involved in smaller housing projects. Yes, Sun City was our first major project in terms of scale. Sun City is the largest housing project in the country. We've launched it targeting the middle class, and have already sold more than 400 units. Mero City is basically targeted at those who dream of having a house or apartment in Kathmandu at an affordable price. The idea of Mero City is to provide apartments to this large section of people who can't afford individual houses given the high land prices in Kathmandu.

How has the response to Mero City been? And what other projects are you coming up with?

Given the political situation at the time of launching, the response has been overwhelming. When we opened booking, the Maoists had already announced their indefinite strike. But our pricing and location both were attractive which helped us to sell all the units. Our next project is Bajra Shangri-la, a posh apartment in Sanepa. We're planning to launch it before Dashain. This will be a 100-apartment project basically targeting the upper class.

Given the mushrooming of housing projects in recent times, how sustainable will this sector be? How do you see its future?

There is no option other than to grow. Shelter is one of the basic needs. With growing urbanisation, demand for shelter will continue to rise. Yes, there will be ups and downs; but this business is here to stay. The housing business in Nepal is only 10 years old. The challenge is to identify the target mass and come up with projects that satisfy it.

With the number of high-rise apartments expanding in Kathmandu, how do you, as a developer, assure customers about their structural security and safety?

Yes, there has been a surge in the number of high-rise apartments in the capital. We the developers have fully complied with the building code and standards set by the government. The standards are mandatory for all the developers. The future of this business also depends on developers being committed to safety.

What are the factors that customers generally look at while buying an apartment? Does the price of land play an important role in the pricing of housing projects?

Generally, customers take into consideration three facts -- the cost of the apartment, its location and financing options given by the developers. In comparison to the last one and a half years, more people are purchasing properties to live in, whereas earlier they were buying them as an investment. The price of land is, of course, one of the important factors while setting the price of apartments. But other factors such as construction costs also influence the price.

Your group is one of the leading players in the sanitary business. Has the surge in housing projects expanded the size of the sanitary business in Nepal?

Yes, the size of the sanitary business has gone up. And housing projects have played a vital role in this expansion. But there are other factors that have also contributed to the growth. With Nepal Tourism Year 2011 coming up, major hotels are in the process of renovating their interiors. The construction of more shopping malls and business centres in the capital has also contributed to the expansion.

1Ropani