Friday, 29 August 2008

Bhutan : Real estate values keep going through the roof

28 August, 2008 - The government has revised the urban land rates by more than 100 percent, but a closer look at the actual rates of land transactions today reveals an altogether different story.

About a decade ago, when land prices started rising, bankers and economists warned that they would reach a saturation point, speculating that real estate values would later stabilise. But the value of land in Thimphu is rising unabated defying all speculations.

Today, to the Thimphu City Corporation’s (TCC) revised rate of Nu 1,083 a square foot (sq ft) in the “core city” area, people are selling land not below Nu 2,500 a sq ft. This is about Nu 200,000 a decimal. In the peripheral areas like Changzamtog, Jungshina and Hejo, the rate has escalated from Nu 433 a sqft to Nu 900 to Nu 1,000 a sqft.

The municipal authority has also revised the price of land in the extended city area to Nu 167 a sq ft, but prices in extended areas like Lungtenphu and Babesa have reached about Nu 400 a sq ft or about Nu 180,000 a decimal.

Those in the land business say that the official rate is followed only when the government acquires private land or pays compensation. Much of the transaction is done on market rates and the government rate is reflected only on paper when transfers are done.

Going by what people in the real estate business say, the rate, especially in the extended city area, will not stabilise any time soon. “A long as the extended areas are not opened to development, land values will soar,” said a real estate developer. “There is limited land and this pushes prices up.”

TCC brought areas from Ngabi Rongchhu in the south to Changtagang in the north under the city’s jurisdiction about five years ago. But only Lungtenphu and Olakha have opened to development as of today. “If the entire local area plan opens up simultaneously, the rate will come down,” says a real estate developer.

Town planners had said that land value would decrease if there were more transactions.

Chief town planner of the works and human settlement ministry, Meghraj Adhikari, said that the time has not come for land price to stabilise. “But it won’t be long,” he said. “Most of the local area plans (LAP) are not yet released. Once the LAPs are released, there’ll be more transactions which will stabilise prices,” he said. The town planner said that other factors like shortage of land and absence of avenues for investments have placed land at a premium.

Unlike landowners, who feel that that the value will shoot up if their land were developed, planners say that, once land is developed, it should be taxed if left vacant to increase transactions.

Meghraj Adhikari said that today it was cheap to keep land vacant. “Once government introduces the vacant land tax, it will encourage transaction, which in turn would stabilise prices,” he said.

Those who closely follow the land business said that the value of land in extended area would settle only when it reaches the level of the core city land. “There is no land available in the core city. Therefore, the rush is towards the outskirts,” said one.

Experts in the land business feel that there will come a time when land will not be recognised as an asset by financial institutes. “Value of land is inflated when it’s mortgaged with banks because it is considered the best asset now,” said a businessman. “If returns from land are low, land will become a liability rather than an asset.”

“Many people borrow 100 percent from the banks and invest in land and construction,” said Meghraj Adhikari. “But more people are finding it difficult to buy land, construct houses and repay loans. Once more people come into the land and construction business, it will stabilise.”

By Ugyen Penjore

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