Posted by: ANS July 27, 2011
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The housing prices rise is artificial one.
I am not an expert in finance (this is not my field) but let me explain something what I believe -
There was no development activities in Nepal, and those newly establised financial institutions had nowhere to invest their money than to loan it for housing market. This means - easy loan for housing and more people became able to buy land/house.. This created artificial rise in demand, and thus price hike (remember law of supply & demand ?). This price hike means less and less people were bank defaulty (this is because they can sell the house at existing 'higher price' if they can not pay the mortgage). This gives false signals to the bank - that they have fewer records of anyone unable to pay housing loan. This means banks lower credit requirements and provide housing loans to more people. This creates more demands in housing markets and price hikes.. and this VICIOUS cycle continues...
It is just like a ponzy scheme, and under this scheme housing price keep increasing in pyramidal way ... Remember, since this is same as a ponzy scheme, those people who were at the bottom of this pyramid (i.e. early investers in this market) made lots of money.. but this can not go forever like this.. And naturally, this cycle is bound to break.. Troubles in private financial institutions in Nepal is surfacing in these days - it is just a signal that this ponzy scheme is about to break now.
You should note - housing market started booming in nepal (and hence the price hike) as soon as there was the trend of starting private bankings/financial institutions in nepal. Nothing else..
Simple financial calculation reveals that investing in house market in ktm is a huge financial loss (considering its return). For example, you should make minimun 1.1 lakh per month from a house (from rent??) if you invest 1.5 crore to buy house - (considering 10% inflation rate and to justify the 10% interest/year.)
Some people might argue - there are more people going abroad and making lots of money to keep housing demand stable at the current rate. But can anybody tell me how many of us working in USA, are able to buy a decent house in ktm under current market??? If we are not able to do it, do you mean those Nepali in arab countries (no offense) are driving the housing market in Nepal?
Kathmandu is now competing with San Franscio in housing market. Is there any logic in terms of 'value' ?
Note- I love nepal. I also love economics and logic. :)
I am not an expert in finance (this is not my field) but let me explain something what I believe -
There was no development activities in Nepal, and those newly establised financial institutions had nowhere to invest their money than to loan it for housing market. This means - easy loan for housing and more people became able to buy land/house.. This created artificial rise in demand, and thus price hike (remember law of supply & demand ?). This price hike means less and less people were bank defaulty (this is because they can sell the house at existing 'higher price' if they can not pay the mortgage). This gives false signals to the bank - that they have fewer records of anyone unable to pay housing loan. This means banks lower credit requirements and provide housing loans to more people. This creates more demands in housing markets and price hikes.. and this VICIOUS cycle continues...
It is just like a ponzy scheme, and under this scheme housing price keep increasing in pyramidal way ... Remember, since this is same as a ponzy scheme, those people who were at the bottom of this pyramid (i.e. early investers in this market) made lots of money.. but this can not go forever like this.. And naturally, this cycle is bound to break.. Troubles in private financial institutions in Nepal is surfacing in these days - it is just a signal that this ponzy scheme is about to break now.
You should note - housing market started booming in nepal (and hence the price hike) as soon as there was the trend of starting private bankings/financial institutions in nepal. Nothing else..
Simple financial calculation reveals that investing in house market in ktm is a huge financial loss (considering its return). For example, you should make minimun 1.1 lakh per month from a house (from rent??) if you invest 1.5 crore to buy house - (considering 10% inflation rate and to justify the 10% interest/year.)
Some people might argue - there are more people going abroad and making lots of money to keep housing demand stable at the current rate. But can anybody tell me how many of us working in USA, are able to buy a decent house in ktm under current market??? If we are not able to do it, do you mean those Nepali in arab countries (no offense) are driving the housing market in Nepal?
Kathmandu is now competing with San Franscio in housing market. Is there any logic in terms of 'value' ?
Note- I love nepal. I also love economics and logic. :)