Valley Homes in Pictures and Kathmandu's Housing Bubble

The other day I spent few hours photographing at Terraces, property owned by Valley Homes in Sunakothi. My deepest gratitude to Dr. Maya Battachan and Dr. Saroj Baidya for arranging my access to the housing colony. Terraces is smaller in size compared to Civil Homes, but catered for higher end market (see my earlier blog entry on Kathmandu's Housing Colony Experience).

View from Dr. Baidya's rooftop

Unfinished property in Terraces

Bal Krishna Joshi on Kathmandu's Housing Bubble

I recently met my friend Bal Krishna Joshi, who is an innovative and an successful young entrepreneur based in Kathmandu. Thamel.com is his primary business, which caters to Nepalese in the diasporas. Below you will find an excerpt as he explains to me Kathmandu's failing housing economy, over lunch. 

Bal K Joshi

More than 40% of the Nepal's GDP is sustained by remittance. That’s a shit load of freaking money. If you look at the official numbers, they say it is 20%. But another 20% is coming through the informal channels. So 40% of the total GDP, which amounts to little bit over to four billion dollars per year is coming to this country as remittance. And there is not productive use of it. One sector of the remittance directly goes into daal bhat tarkari (typical Nepali staple of rice lentils and curry, in other words for feeding families). These are generally people who have gone abroad from the villages. But more than 40% of the incoming money is going into real estate. One is, we have a cultural stigma of buying a house and buying property.

And also during the insurgency (Maoist), everything but Kathmandu was not safe to live. So people started migrating here. There are two interesting shifts in this migration. In that migration, the early adopters were the people with money from the villages. These are the people who had houses and businesses outside of Kathmandu. But they wanted to something easy to manage, like apartments (condominiums). Once these people came from outside came, it became a very exaggerated economy. Believe it or not in this place (Durbar Marg) the market price for one anna (1 anna = 342.42 sq. feet, 16 annas = 1 ropani = 5,476 sq. feet) is Rs, 10 Karod (approximately US $ 1,130,000). It is not sustainable economy. It is completely exaggerated. That means it’s more expensive than freaking Manhattan. Doesn’t make sense.

And also during the insurgency, industries got closed and shut down. The core competent export industries got reduced. People did not have jobs. So what to do? So the thought of real estate was an easy option. So everybody starting investing in real estate. In the first lot, they started catering to the upper echelon, which is just a very small segment of Nepali society. But there was a whole different need that probably wanted to spend not more than Rs 20 lakhs (US $ 22,598). These are the middle class Nepalese people who wanted a Kathmandu gig. But that sector has been ignored. So most of the apartments that you see are catered to people with money. There are very few ones that are catered to the real market. So the issue now is, those who constructed properties early on, they got cheap loans. And they constructed a lot of housing properties. 

Three housing colonies sold well. Three housing colonies mean we are talking about less than 100 people. 100 consumers are not going to set precedence for the entire economy. The three colonies that did well were Lazimpat 1 by Comfort Homes, which got sold out within one or two hours. That was around 30 or 40 houses. They did Lazimpat 2, which sold within 3 or 4 hours. And they did Budhanilkantha, which sold in a month. So everybody thought OH WOW this is a great business idea. So basically, now the government decided they wouldn’t give any more loans for real estate. As soon as that happened, financing got stopped; there was cash crunch because all the money that was going into real estate, its interest rate went up to 16 to 18%. How can one buy home and pay off the loan with 16 or 18% interest rate? These people stopped making payments. Now we have this shit load of buildings that are not complete and probably will not be completed for the longest fucking time. So that is the situation.