 |
||
|
||
COVER STORY |
|
||
|
||
COVER STORY |
CONSTRUCTION Thousands of people who
have migrated to the capital city following the intensification of the conflict in
countryside have triggered a rise in the real estate prices and construction of houses.
Nearly a dozen housing companies have made investments of more than a billion rupees,
offering apartments and blocks that are selling like hot cakes. But this is merely one
side of the construction coin. Thanks to the same conflict situation, the government has
slashed the development budget by half. Two-thirds of the construction companies are out
of business, as the opportunities of building development infrastructures fast vanish. As
such, the construction sector, which constitutes 11 percent of the total GDP, is in a
strange fix By SANJAYA DHAKAL Ambika Gautam (name changed on request)
lived a relatively comfortable life in a village in the western district of Lamjung. A
local landlord, Gautam, 52, was considered rich because he owned large tracts of land and
big house in the village.
But four years ago, Gautam made a big
decision. Frightened by the growing lawlessness in the village, he sold his land and
houses and decided to shift his base to the capital city of Kathmandu. "I was not
happy to make that decision, but given the condition, I had no choice but migrate to safer
locations," said Gautam. In Kathmandu, Gautam bought a 6-aana plot
in Thankot and constructed a small house. "I came here because being a capital city,
there is some semblance of security here. Out there in the villages, you never know what
is going to happen to you," he said. The story of Lalit Thapa (name changed) is
no different. Fearing the situation in his native village in Gulmi, he sold his property,
packed his bags and came to Kathmandu a year ago. "I have already bought a small
piece of land in Bansbari. Right now I am staying in a rented apartment, but I intend to
build my own house soon," said Thapa, 46, who has started a small grocery shop.
"I was a reputable businessman back in my village. But due to rising insecurity, I
closed down my shop and came to Kathmandu along with my family." Gautam and Thapa are among thousands of
internally displaced people who have chosen to leave their native for safer locations.
Whereas the likes of Gautam and Thapa, who have some money, build houses in the capital
others, those who don't either live in rented apartments or live a miserable life in the
cities. The target of most of such displaced people
is the Kathmandu city. But many even settle for emerging urban centers like Pokhara,
Biratnagar, Chitawan, Birgunj and Nepalgunj. Although there is no exact data available on
the number of such internally displaced people, observers say it runs into tens of
thousands. Likewise, hundreds of thousands of youths have already left their villages for
work in India. Increase In House Building A cursory look around the outskirts of the
capital valley is enough to indicate the rise in the volume of construction of private
houses. Like Gautam and Thapa, there are many people who have flocked to the city,
shooting up real estate prices. "The same plot of land in Panauti, 25 kilometers to
the east of the valley, which used to cost around 2 -3 hundred thousand rupees per ropani
only a few years ago are now fetching more than 700,000 rupees," said Gopal Khadka, a
real estate broker.
According to Khadka, the real estate
values, which witnessed a boom around 2052 and took a big plunge in subsequent years, is
recovering. "Mostly the value of land in the outskirts of the city and those near
roads has increased considerably," he said. Officials at the municipalities agree that
applications for the approval of building designs, a pre-requisite for building houses,
have risen considerably. "But as most construction may be going on within the
surrounding VDCs, its record is not available," said an official at the Kathmandu
Metropolitan Corporation (KMC). The slow recovery of real estate is also
proved by the data made available in the Economic Survey for the fiscal year 2058/59.
According to the survey, revenue collection from the land revenue and registration was at
the peak of 1 billion rupees in fiscal year 2052/53, when there was real estate boom. This
figure came down to 610 million rupees in 2057/58. However, compared to the first eight
months of 2057/58 when the collection was just 300 million rupees, the collection in the
same period of 2058/59 rose to 574.2 million rupees. Another pointer to this fact is the gradual
increase in the construction materials price index. According to the report of Central
Bureau of Statistics (CBS), the price index of construction materials in the first half of
the current fiscal year 2059/60 increased by more than 4 percent compared to previous
year. The price index of construction materials like cement, iron rods, sheets and labor
all showed a gradual increase. "This shows that there has been increased activities
in the building sector," said Srijana Baidya, a statistics officer. According to a recent study conducted by
economist Dr. Biswombhar Pyakurel on the Investment Policy Environment for Joint Venture
Industries (JVI), out of eight different sectors like manufacturing, tourism, banking
& finance, agro & plantation, food & beverage, energy & construction,
information technology and others, energy & construction constituted among top one JVI
with the percentage share of 19 followed by banking & finance (14 percent), agro &
plantation (14 percent) and food & beverage (11 percent). The study covered almost 13
percent of the total operating JVIs.
"The products of these JVIs
address the local market and half of the interviewees considered the market as very
important. This clearly shows that there is prospect of expansion of construction
industry," said Dr. Pyakurel. Around 64 percent of the foreign
entrepreneurs intended to increase their business even in the present political and
security environment. "This means, the current problem ha not affected this sector as
presumed," said Dr. Pyakurel. Housing Boom The commercial housing and apartment
complexes are a recent phenomenon in the country. As per the Group Housing Act 2054,
nearly a dozen big housing companies have entered the fray. Companies like Ansal Chaudhary, Comfort
Housing, Sunrise Homes, Grace Apartments, Civil Homes, Indraprastha and so on have
invested more than a billion rupees in developing apartment complexes. Each big company
has invested an average of Rs 200 million-250 million in different parts of the valley.
While Ansal Chaudhary has its complexes in Bagdole and Harisidhhi, Sunrise Homes is
located in Balkumari and Grace Apartments in Naxal. "With the manner the Kathmandu city is
witnessing the rapid urbanization, such commercial housing complexes had to come now.
Their entry should be a welcome development as they now offer quality buildings,"
said Sushil Prasai, an architect. According to him, as lifestyles change in
the urban centers, people are less inclined to engage in constructing their own houses.
"Besides, they do not want to compromise on quality and therefore feel they will have
a better deal in buying professionally built houses that are equipped with all modern
amenities," Prasai said. The apartment complexes in the capital
offer from average flats to expensive and luxurious buildings. "The cost ranges from
just over a million rupees to nearly ten million rupees," said Udaya Shrestha,
project manager of Sunrise Homes (See box). Currently, these apartments cater to middle
and upper middle class families as well as professionals. "We are encouraged by the
tremendous response of the public. We are almost sold out," said Shrestha. Not only
his apartments but all others, too, have similar positive response. Urban planners and experts say that
flourishing of commercial housing complexes is good for the city. It will give rise to
planned residential areas unlike the existing haphazard building of houses without giving
concern to the infrastructures, they say. Construction Gloom On the other hand, the overall construction
sector, which constitutes whopping 11 percent of the total GDP, has been going through a
terrible gloom. The government has slashed its development budget from 60 to 38 percent of
the total annual budget. "All construction works come under the development budget
and hence we are extremely affected," said Sukunta Lal Hirachan, president of the
Federation of Contractors' Association of Nepal (See box). Currently, there are 14,000 professional
contractors in the country and Hirachan says almost 80 percent of them are out of work
thanks to the slashing down of development expenditure. "There are no projects to
work on," he said. According to Hirachan, the boom in private
house building does not touch the professional constructors. "People still prefer to
hire unskilled dakarmi or unorganized masons to build their houses, which is neither
economical nor of good quality." Apart from recession in the sector,
Hirachan also complains that the government always delays in the payment of dues to them.
"We are in a tight spot. There is a huge investment in this sector and we are feeling
the most painful pinch due to the present political instability." On the other hand, economists believe that
construction entrepreneurs have very good prospects. "If the current peace talks
succeed, the country will require huge investment and great reconstruction efforts, which
will surely trigger a boom in this sector," said an economist. According to reports, 20 percent of
existing bridges in the country require immediate reconstruction. In the past seven years
of insurgency, the country has lost infrastructure worth over USD 300 million including
basic facilities like roads, bridges, telephone towers, power projects, etc. Since the country has to engage in massive
reconstruction operation once the political situation stabilizes, the sector stands to
grow many folds in the coming days. 'People Should Realize The Importance
Of Professional Constructors' — SUKUNTA LAL HIRACHAN
Sukunta Lal Hirachan
is the president of the Federation of Contractors' Association of Nepal (FCAN). Hirachan
is also the chief of United Builders, a reputed construction company. He spoke to SANJAYA
DHAKAL on various issues relating to the construction industry in the country. Excerpts: How is the state of the
construction sector at present? The current situation of insecurity and political instability has hurt the construction industry the most. Compared to a few years ago, the government has slashed the development budget from 60 percent to 38 percent of the total annual budget. That means one third of development work has been affected. As a result, two-thirds of construction entrepreneurs are currently out of job and lying idle. In the period between 2051-2055, this sector witnessed a considerable and sustained growth. But now it is in recession. But there is a boom-like situation
in the house building in the capital? You are right. Not only in the capital valley but also in urban centers like Birgunj, Bhairahawa, Biratnagar, Pokhara and Nepalgunj, there is a considerable increase in the volume of construction of private houses. This is because a lot of internally displaced persons have started flocking to safer locations and they are buying lands and houses there triggering a boom in the real estate as well. Then, how can you say all is gloomy
in the construction industry? Because these private houses are not built by organized construction industries. People just employ dakarmi (masons), who are unskilled and unprofessional, to build their houses. There is popular misconception that employing dakarmi is cheaper than seeking the help of classified contractors/constructors. This is not true. In fact, classified constructors, who come with skills, expertise and professionalism, can complete buildings at cheaper costs. Besides, they can also guarantee minimum safety requirements of the structures. In addition to that, when one hires professional and classified constructors, the income taxes, VAT and other revenues will be duly paid to the state whereas this is not the case when hiring crude masons. There is a dearth of public knowledge on this issue. People should realize the importance of hiring professional constructors even when building private houses. What is the contribution of the
construction industry to the national economy? The construction sector alone contributes 11 percent of the national GDP, according to the latest data. Likewise, there are 14,000 registered and classified contractors in the country. The industry provides employment to hundreds of thousands of people. What is the scale of investment in
this sector? There is no exact data on this. But the figure is in the tens of billions of rupees. There are scores of 'A' class contractors who even own 50-70 million rupees worth of heavy equipment each. So, one can easily estimate the enormity of the investment in this sector. How are the contractors classified? At present, there are four categories of contractors - A,B,C and D. A contractor is classified based on experience and resources. Out of the total of 14,000 contractors, currently, there are 178 in the class A, 450 in B, 3450 in C and the rest in D. The classification of contractors is a rigorous process involving a lot of legal and other applications. How do you rate the expertise of
Nepalese contractors? We are reasonably expert in building any kind of big or small infrastructures. Roads, bridges, big and sprawling buildings, irrigation infrastructures, you name it and we have done it. Many of contractors even own heavy equipment required in the big construction projects. So we are fairly able to carry out any kind of construction works. But the only hitch is in the construction of super-specialty facilities like big underground tunnels that are required in hydro-power projects and huge dams. We have been asking the government to make provisions for foreign companies who come here to construction such super facilities to include Nepalese partners in joint ventures. That way we can have experience and develop expertise in such construction. There is similar provision in place relating to Nepalese consultants but not the contractors. Otherwise, a large chunk of money as well as experience will be earned by foreigners only. What are the big projects handled
by Nepalese contractors independently? There are many examples. We have been engaged in building small and micro hydro projects for long. Projects like rehabilitation of Arniko Highway, construction of airports (except Tribhuvan International Airport), big roads, scores of irrigation projects including Bagmati irrigation have been carried out by domestic companies. Even when the contracts are awarded to foreign cases, invariably they employ local companies to carry them out. My own United Builders is currently constructing the building of Sanchay Kosh in Sundhara, which is going to be the largest single building in the country. What are the major problems
encountered by this sector? Well there is a Construction Entrepreneurs Act 2055, which still lacks many things. We also suffer from illogical and improper provisions of financial management regulations. There have been lot of irregularities in this sector brought about by legal and policy loopholes that needs to be rectified. For long, we have been proposing to the government that they should give contractors the work on the basis of Design and Building (D&B). If it happens, we contractors will be responsible for designing as well as building of infrastructures. This will bring down cases of inconsistencies. Otherwise, currently we have to face blames for things which are not responsible for. The consultants and clients decide on design and structure, we just follow their orders but in the end, if there is something wrong people tend to point fingers only at us. In other countries like USA and Japan, too, the concept of D&B is getting popular. It not only increases the professionalism of the entrepreneurs but fosters the entire sector as well. The schemes like housing companies and† apartment complexes are also based on this concept. It reduces the chances of irregularities and lays responsibility where it belongs. 'Growth Of Construction Sector Is
Tied With National Economy' — DEVENDRA RIMAL Devendra Rimal is the
spokesperson at the Ministry of Works and Physical Planning. He spoke to SPOTLIGHT about
the present situation in the construction industry. Excerpts: How do you find the situation of
construction industry at present? The growth of construction sector is tied with that of the national economy. At a time when the national economy itself is witnessing slow growth, it is natural to see the construction sector also getting affected. Unlike in Nepal, a large chunk of construction work is carried out by the private sector. Here, the government is still the biggest actor in the construction sector because major projects are handled by it. Has there been a significant growth
in the construction of houses because of the influx of internally displaced people to
Kathmandu? Well, it is true that large number of people have been internally displaced due to current situation in the country. Many have come to Kathmandu. It is but natural that many of them have bought property and houses here. But these things rise and fall owing to the particular circumstances. What does the construction sector
encompass? It includes developing roads, bridges, buildings, factories, townships, dams, canals, other power infrastructures and so on. The construction is spread out to many ministries apart from the Ministry of Works and Physical Planning. For instance, water resources ministry carries out power projects whereas civil aviation ministry carries out building airports and so on. What is the prospect of this
sector? Again this depends on the overall national economy. If the economy of the nation goes up, there is every reason to believe that construction sector will pick up. Since we are a developing country, we need to invest a lot in constructing infrastructures and as such, this sector has good prospects. 'There Is A Growing Demand For
Apartments' — UDAYA SHRESTHA Udaya Shrestha is the
project manager of the Sunrise Homes - an apartment complex undertaken† by the
Oriental Construction and Development Company. He spoke to SPOTLIGHT about the present
growing trend of businesses of housing companies. Excerpts: How many housing companies are
there and how much have they invested? There is nearly one dozen big housing companies active in the Kathmandu valley. Their average investment is in the range of Rs.200 million-250 million. Is there a boom in the housing
sector? Well, there is a boom-like situation but only in Kathmandu valley. There are two reasons for that. One is a lot of people are building houses in the capital valley having migrated from other districts due to security reasons. The second, which is important in terms of housing projects, is the increasing awareness among middle and upper middle class people and professionals regarding facilities and service. In order to escape hassles of engaging oneself in building houses, they prefer ready-made flats, apartments and even blocks of houses that are tailor-made and equipped with all modern amenities. Their preference to quality and comfort have triggered the boom in housing sector. As Kathmandu is already getting congested, buying property in housing projects also makes financial sense. How many apartments does Sunrise
Homes have and what has been the public response? There are 116 units including 88 apartments/flats and 28 independent block units. The public response has been tremendous. We are almost sold out and we are planning to start second phase of construction soon. As the ownership is transferred to the client, people have little hesitation in buying apartments. What is the average cost of
apartments and blocks? At Sunrise the independent blocks cost between Rs.3.3 million to Rs.3.7 million while the apartments cost between Rs.1.2 million to Rs.2.8 million. Other housing projects have varying costs with some whose independent blocks cost up to Rs.8.5 million. But our prices reflect the average cost. We also provide financing services to clients who need it. Are there legal problems in the
operation of housing projects? We are governed by the Group Housing Act 2054. But in the absence of regulations, we are facing a lot of difficulties. It is also very hard to convince clients due to the absence of clear-cut regulations. We have been demanding the government to formulate regulations. If such legal obstacles are cleared, I see the future of housing projects bright here. Because house is a basic need of people, there will be no dearth of potential consumers. Relation Between GDP and
Construction Sector Fiscal Year GDP (in billion Rs) Construction Sector's
Contribution 2058/59 428.03 43.98 2057/58 410.19 39.57 2056/57 379.52 37.37 2055/56 342.03 33.26 2054/55
300.84
30.48 Source: Economic Survey 2058/59 |
Send your feedback to the
editor: spotligh@mos.com.np |
