The most tangible form of property is the real estate. The real estate industry, though not developed in an organised manner, has been growing rapidly in Nepal. Huge investments are being made in the construction of big houses for business, or residential purposes, as is evidenced by the construction boom taking place. These investments are being made by the private sector rather than public sector. Investments are obviously made expecting returns in the future and especially the private sector investors seek considerable amounts of profit. People prefer to invest their capital in the sector which provides them a handsome return at a minimum risk within the shortest time possible. This behaviour of an individual investor is consistent with behaviour of the general populace.

In the Nepali context, apparently there is no sector which is as prosperous as the real estate. The sector that could come the closest would be food products. But this industry is laced with its own set of complications. Nepali food products have to compete with varieties of imported packaged foods.

The competition does not merely end with the quality of products but they also have to compete with the highly budgeted advertisements, among other factors. Along with that, people’s loyalty to foreign products further discourages the investors to spend in such

risk-prone sectors.

Currently, the rate of migration of people from rural to urban areas is increasing

and people long to own a piece of land in urban centres. This trend has led to the boom in the real estate business. At the same time, most of the income coming in from foreign employment is invested in real estate. As the incomes of lower- and lower-middle classes through remittance are on the rise, they are keen to invest their capital in the real estate. This sector is fast replacing traditional investment options such as bonds, debentures, securities, shares, gold, fixed deposit, etc.

People prefer their capital to be invested in safe and high return sector. In the Nepali context, investment in real estate is now seen as good risk diversifier that generates excellent risk adjusted returns. It means investment in real estate means the returns are very high but with very-low risk factor. The potential gains are higher, faster and are derived from tangible holdings.

Investing in capital stock, bonds and mutual funds is a good alternative to real estate. The return from the stocks is better than the return from land holdings. But the volatility of the share markets could put off some investors. That is to say, the return from stocks is not as predictable as that from the real estate. Generally, the prices of the stock and land do not increase simultaneously. This is because rise in one will diversify the capital towards the other.

But this statement does not hold true in the Kathmandu Valley as the prices of stock and real estate both rise side by side. This violates the established norms of the association between the prices of stocks and real estate that generally have inverse relationship. However, investors prefer to invest their capital in real estate if they are given the option. People feel that real estate is now a safer and better investment than stocks. Migration from the countryside and high population growth rate have pulled the population figure above two million in Kathmandu Valley. This has made real estate a high-profile business.

The increasing pressure of the growing population ultimately falls on the land, the stock of which is limited. By nature, land is a scarce commodity which cannot be produced due to which the price of land appreciates and the gains from it surpass those from others.

Apart from stocks, the other traditional investment preference of investors is gold. But investment in gold is also a less preferred option as its price does not appreciate as fast as that of real estate. People, in this respect, feel that land and houses are always the ideal investment option.

The real estate sector contributes a significant share to the Gross Domestic Product (GDP). However, the investment in real estate alone brings along serious threats to economic development because it is considered an unproductive sector of the economy. It creates a bottleneck in the development of the country’s productive sectors. As stated above, investors

hesitate to invest their capital in productive sectors due to political instability and various other factors.

This implies that real estate will be flourishing as a business for sometime to come. There is also no clear government policy to enhance private sector investment in other productive sectors. If this gloomy scenario continues, the country will suffer and face a serious development impediment in the future. More people will be jobless and inequality will rise. It will again stimulate conflict and insecurity.

Dhungel is associate professor of Economics, TU