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5 Tips To Create A Budget For Buying Land Or Property In Nepal

In June 2020 – just a few months after the onset of COVID-19 – a report in Nepa’s The Record online newspaper said that land prices in Kathmandu continue to “skyrocket”. This boom in the country’s real estate continued throughout 2020 and into 2021 due to (gradual) economic revival, public savings, excess market liquidity, and the availability of low-interest bank loans.

How can potential investors make the most of this boom? More specifically, how can they set up a budget to buy land in Nepal? This brief article explores some strategies to do it right.

1. Estimate An Affordable Price Range

Everyone defines “affordability” differently. For a well-off businessman, a piece of land worth 30 lakh rupees in Lalitpur may be affordable. The same may not be true for a factory worker in Kathmandu who earns just 20,000 rupees monthly.

That’s why, before investing in property, it’s important to estimate a price range that’s affordable for you. One way to do this is to multiply your annual gross income (i.e., earnings before taxes) by 2 or 2.5. This figure will show you how much you can realistically afford to pay for a property at your current income level.

Also, consider these aspects when calculating affordability:

  • Your credit score: The higher your score, the more loan options will be available to you (not to mention lower interest rates).
  • Research loan/mortgage rates: If rates are falling (as they did during the pandemic), you may be able to afford a bigger piece of land or a nicer house.
  • Down payment: How much down payment can you realistically afford without seriously impacting your financial stability? See the next section to know more.

2. Save For Your Down Payment

When you buy land or property, you will have to make a down payment. It’s important to estimate this payment, so you can take steps to arrange the amount. Think about how you will pay:

  • Out of your own savings?
  • By borrowing from friends or family?
  • By taking out a loan?

Always ask the seller how much down payment the seller expects. Also calculate the percentage contribution of this payment to the total purchase price (5%, 10%, 40%, etc.) to help you with budgeting.

If you can, pay a larger down payment to reduce the burden of subsequent regular payments. Simply put, the more you pay early, the less you will have to pay later.

3. Calculate Closing Costs

When buying property in Nepal, you must budget for both one-time costs like down payment and closing costs, as well as ongoing costs, so you can make the best possible financial decision.

Closing costs are expenses you may incur over and above the property’s price to close the real estate transaction. These may include:

  • Origination fees
  • Appraisal fees
  • Title insurance
  • Surveys
  • Taxes
  • Deed recording fees
  • Credit report charges
  • Loan application fee
  • Escrow fee

These costs can vary, so make sure you educate yourself on all of them.

4. Identify Possible Ongoing Costs

Your budget should also account for other costs – many of them ongoing – such as:

  • Moving expenses
  • Furniture and appliances
  • Property taxes
  • Homeowner’s insurance
  • Escrow payments
  • Home care
  • Home inspections and repairs
  • Utility payments (electricity, water, Wi-Fi, etc.)

Make a list of all these costs to organize your budget. Also set aside some savings every month to take care of these expenses. It’s also useful to have a separate emergency fund to cover for unexpected expenses.

5. Create A Budget And Start Saving

At this point, you probably know:

  • Which property you can realistically afford/buy in Nepal
  • The property’s value
  • Your actual outgoings, i.e., down payment, closing costs, and ongoing costs
  • How much you can put into an emergency fund

Add all these data points to your budget.

Two good rules of thumb to follow: Spend no more than 28% of your gross monthly income on your property. This includes spends on the loan principal, interest, taxes, insurance, etc. And whenever possible, your property debt should not be greater than 30-35% of your total debt.

To ensure that your investment doesn’t turn into a costly white elephant, here are some suggestions:

  • Cut back on discretionary expenses; instead add these amounts to your property or emergency fund
  • As far as possible, pay back other debts
  • Avoid taking on new debt, e.g., personal loans, credit card spending, etc.
  • Hire a property inspector to review the property for damages or other issues before you spend any money
  • Check the market to confirm that you’re not paying an unfair price

Conclusion

Buying property is a big decision, whether you’re in Nepal or anywhere else. Before signing on the dotted line, do your homework and prepare a budget. Also save regularly and keep up with all payments. We hope you found this article useful. Feel free to share it with friends or family!

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