The world will be talking about COVID-19 for many decades in the future. The pandemic started as a healthcare crisis, but soon morphed into a multi-tentacled crisis. For over two years now, COVID’s tentacles have affected everything from consumer habits and social connections, to national economies, supply chains, and industry.
Of the last, there’s no industrial sector that has managed to escape the impact of COVID-19. This includes the real estate sector. According to one report, the real estate sector in many countries is experiencing challenges such as low inventory, low mortgage interest rates, and limited suburban and rural living options.
The real estate market in small developing countries like Nepal is also feeling the pinch of the pandemic. This article will explore how COVID-19 has affected Nepal’s real estate sector. But first, a slight detour into the country’s real estate market…
The Real Estate Market In Nepal
In Nepal, real estate is considered one of the most secure and lucrative modes of investment, especially for the long term. There are many reasons for this.
One, as the country improves its socio-economic status and improves its national public infrastructures, the demand for real estate goes up, increasing its attractiveness as an investment vehicle.
Two, since real estate can potentially yield a steady passive income, many Nepalese prefer to invest in real estate over other investment avenues. This is especially true of young investors, and individuals who already have a steady income and are looking to enhance and diversify their investment portfolio.
Third, real estate is considered a “low-risk” investment compared to other investments like stocks. With the latter, there are numerous factors that are beyond the investor’s control but can nonetheless affect their portfolio’s value. In comparison, it’s unlikely that a buyer will lose money on their real estate investment. In fact, the value of property tends to appreciate over time, increasing the buyer’s return on investment.
Finally, the property is considered valuable, since it is one of the best collaterals to access financial services like bank loans and credit. It thus helps democratize the financial sector and brings more Nepalese under the financial services umbrella.
But how has COVID-19 impacted Nepal’s real estate sector? We explore this next.
The Impact Of COVID-19
Although real estate has always been considered an attractive investment in Nepal, however, some investors are concerned about the sector’s direction in the post-pandemic era. In particular, some new investors expect prices to fall, and will therefore be on the lookout for new investment opportunities. On the other hand, existing investors expect prices to go up, which may force them to postpone their investment plans.
The pandemic has impacted Nepal’s employment rate and foreign remittance landscape, which have then affected its real estate market. Following mass layoffs and lower incomes, millions of Nepalese are now forced to focus on more basic needs, instead of on long-term investments like real estate. The economic outlook for Nepal is also a cause for concern. According to forecasts by the Asia Development Bank, the country will grow at only 4.1% in 2021-22, down from an earlier forecast of 5.1%. In this scenario, lower demand for real estate is not exactly surprising.
In the post-pandemic era, bank-led property foreclosures or sales at distressed values are also impacting prices and demand for real estate. As the supply of available properties (e.g., homes) increases, prices fall. But if trends like remote work continue, more people will stay put in their existing homes, and less will invest in a new property – despite low prices or high supply.
Many Nepalese businesses have closed down in the wake of COVID-19, leaving business owners unable to pay rents on commercial spaces like shops and offices. Many workers too are moving out of urban centers, affecting the demand for housing in these areas. These trends have also reduced the demand for real estate in Nepal and pushed prices down.
One exception arises from the uber-rich. Nepalese with good jobs, earning high incomes, or belonging to affluent families will continue to invest in real estate – pandemic or no pandemic. As their living standards improve, so too will the demand for property from this class of investors.
The demand for stand-alone housing could also increase as more people look to move out of congested apartments in order to achieve “social distancing” between themselves and their nearest neighbors.
Conclusion
As in many other countries, Nepalese investors have always considered real estate an attractive and safe investment vehicle. However, COVID-19 has created unprecedented challenges that are affecting the sector’s performance, demand, and profitability.
As Nepal’s economy recovers and unemployment eases, the real estate market will likely step out of its slump. This recovery may be slow, but investors can expect to earn good returns from their investment in the future.
