— Dr. Shankar Sharma
Vice chairman of National Planning Commission (NPC) Dr. SHANKAR SHARMA is a well-known economist. Having had a long experience at the country’s apex planning body, Dr. Sharma is also closely monitoring the economic progress of the country. Dr. Sharma spoke to SPOTLIGHT on various issues regarding the present boom in real estate. Excerpts:
How do you see the burgeoning investment in the real state?
There could be three or four different factors that are helping to boost the real estate sector in urban areas. Number one is economic growth of this year and the last quarter of the previous fiscal year following the beginning of recovery process in agriculture sector as well as tourism. Interestingly, the tourism sector is also growing at the rate of 37 percent in the last six months. The export sector is also growing. There is certain growth, rise in income and improvement in overall economic condition.
What about the role of remittances?
It is another important factor. It continues to grow in increasing rate. It is quite obvious that remittance is a major part of economy. That also has probably contributed in increasing the price of real estate especially in urban areas. Then, another important reason is the conflict. Following the intensification in conflict in rural areas, particularly far west region, there is a shift of investment to urban areas. There is also a cycle of real estate boom and bust. If we talk about other countries, we find similar situation.
Why are people investing in land?
If people cannot invest in other areas like stock market, they will invest in real estate. Nepal’s stock market is not doing well, it has stagnated and the capitalization rate has not increased. This is one aspect that one cannot invest more in stock markets. The second area of investment is the service sector and industry. We have seen certain improvement in these sectors. Now people have the capability for investment in these areas but people would like to watch and wait for a while. People are now investing in gold. The investment in the gold is increasing significantly in the last few months. Now the gold market has stagnated. Because the options available in the various sectors shrink, people finds real estate as an option. Even in the foreign exchange, the US dollar has actually depreciated. These may be some reasons for people to think that the real estate is best.
What is the economic significance of the investment in the real estate?
Economically speaking it is not very productive. If we had investment in the industrial sectors, it would have been much more beneficial. This one is basically speculative since people probably will like to make some money by reselling land in later stage. We have to analyze this trend whether that is the case or people really would like to invest some money to do the construction activities for example the development of residential areas or build the house. We have to separate it out if second is the case, in which case, it will be productive since it has certain value addition. But if the transaction has increased only due to speculation and with the unavailability of other avenues in the investment, then that is not very good. But in any case, it has not boomed like what we had seen seven -eight years ago. The economy is also doing slightly better. So this is quite positive.
How does it benefit the government revenue?
If there is higher transaction in land and construction of residential area, local bodies as well as government will increase tax and that will be beneficial to the country. If we see in the construction sector, which is affected by number of factors, they can have multiplier impacts to the overall service and construction industry in the country.
Do you have any plan to divert this investment from real estate to other more productive areas?
We do have certain plans. More investment are going in manufacturing sector, infrastructure areas since we introduced BOOT Act (Build Own Operate Transfer). We are tying to do a number of things. Even in the trade and industrial sector, the government has adopted a study called Trade Competitiveness Study in Nepal, which opens up more avenues and scope for investing in the manufacturing and trade sector. We are serious on this matter and have adopted it. We are not in a stage where we have to worry too much about the investment that is going to the real estate field.
Economic survey has indicated that there is high growth in urban area. Does it have any relation to the investment in real estate?
It will have strong relations. We have also give consideration to the rural areas. If the majority of the GDP, especially non-agriculture, is coming from only a few sectors, we have to give consideration to its development. It will have the multiplier effects, too, in urban economy. But gradually, we have to move away from those premises and that consideration and try to attain the balanced growth in the country.