“We want to play the role
of a master developer”
Om Rajbhandary is the Chairman and Chief Executive Officer (CEO) of The Comfort Housing Pvt. Ltd. that has been introducing new concepts in the housing business in Nepal. He shares his observations on the industry and his company’s plans. Excerpts from an interview:
What is the current situation of Housing Business in Nepal?
Perhaps it’s been only 8-10 years since the housing business started being taken as a business in itself in Nepal. Over this period, the business growth has been high and satisfactory. The number of companies involved in this sector currently stands at about 150 according to the membership roaster of Nepal Land and Housing Association. Since this Association is currently active inside Kathmandu only, this number can be higher if we include the housing companies active outside the valley.
Housing business is more than just selling a house. It also comprises of people who are in the business of land acquisition for housing and eventually selling them as well as those who develop houses on these lands. As far as I remember, the number of the companies registered as housing developers is about 40-50. Out of them, 8-10 companies are now embarking on new projects after completing the previous ones, while some have launched their maiden projects and others are either on the pre-sale or sales stage of their maiden projects. Hence, in general, the industry is at an optimistic stage.
Another fact about this industry is that there are large numbers of individuals buying, developing and selling housing properties without forming a company. This is because the business has been offering good opportunity to make capital gains.
How has been the progress of The Comfort Housing?
Comfort Housing was established in 2001 AD and we are now into our ninth year of operation. In stand alone housing, our first project was in Sitapaila where 76 houses were constructed on 43 ropanis of land with sales amount of around Rs 332 million. That was followed by the project in Buddhanilkantha with 42 houses in 29 ropanis of land and sales amount of Rs 242 million. Our third project was at Ichangu with 76 houses in 37 ropanis of land with an investment of about Rs 432 million. After the successful completion of our stand alone housing in Kathmandu, we came to realize that we have prospects outside the valley as well. Consequently, Dharan was identified as the feasible site for our next project. In Dharan, we have already launched a medium project, but we haven’t been able to enjoy much success because the government of UK has granted Permanent Residence facility to most of the former Gurkhas, attracting them to go to UK. However, the project is still to complete. Meanwhile, as the vertical living concept started gaining popularity in Kathmandu, we have implemented a vertical housing complex project at Panipokhari which has received encouraging response. Now we have a vertical housing project at Sitapaila and stand alone housing project at Thaiba. Both are sold out though the construction is still at progress.
There are two strategies for growth in a business. One is aggressive growth and the other is safe growth. Our company focuses on safe growth and we have been very consistent in attaining it. We hold a strong market share as our brand is well established.
What are the most recent trends in the housing sector?
The recent trend is that the housing companies generally erect apartments within the Ring Road while the stand-alone houses that require wider space are built outside the Ring Road.
I have also observed that increasing number of customers buy apartments as an investment rather than for self consumption. Many buyers have been renting out the apartments. As per my assessment, the user/investor ratio stands at somewhat 30:70. The secondary users may discontinue the use any time. We developers need to do something to encourage buyers himself to live in the apartment because that is necessary to ensure growth in the housing business.
The quality of the houses made by the developers is of high standard. These apartments have enhanced vicinity, proper planning and adequate amenities. In fact, the products from Nepali developers have all the features that international standard apartment have. And it may sound strange for many, but in Nepal, the developers are delivering their products at a very low profit margin. This is because of a strong competition and high uncertainty. As we all know, when one takes high risk or runs one’s business amidst a high uncertainty, it’s natural that one will anticipate higher return and increase one’s profit margin. If you take a look at the international housing business, no developer works below 25 percent profit margin. But here, even if a project yields mere 10 percent, we consider it as decent and deem our management as efficient.
It is observed that the apartments are classified into deluxe, premium etc? What are the criteria?
There is no such classification but housings are perceived as high end products. Thus, the target group of such products are naturally high income people. A house is priced high or low depending upon its location and cost of construction. Our houses are built with cement and iron bars. Additional amenities add to the cost. In high rise buildings, the cost of the equipment (such as lift) adds to the cost further. The structural cost increases with rising elevation of the house. Given the physical and legal limitations, till now, we have succeeded to build 8-10 storied apartments. With this experience and updating on technology we are toward looking to go even higher. But the more higher we go, more will be the risk involved in doing this business.
It is heard that a company is about to bring low cost apartments as well in the market, which is a good thing. However, its maintenance and functional aspect should not be compromised. Also, a customer should be educated on how to use such an appartment before handing it over to him.
What do you think are the priorities of customers while selecting a house to buy?
Obviously, their foremost concern is that the house should be well-built. As to their order of preferences, what matters the most is the location and the structure of the house followed by the availability of the infrastructures and amenities. The third priority goes to the finishing and interior design.
How do you comment on the efficiency of the housing projects in using the space?
Talking about our own, in Sitapaila project, we managed to build 76 houses on 43 ropanis of land. That gives about 60-70 percent efficiency in space use. Even in Buddhanilkantha project, the ratio is same. In Ichanghu, we managed to increase it to about 80 percent. Finally at Thaiba, we were able to bring in 100 percent efficiency without compromising with on the land road width. This efficiency in designing and using the space helps to reduce construction cost.
What factors are considered by housing companies while designing the houses and apartments?
Designers are asked to design the houses considering the latest taste of the customers. Yet, there are few additional criteria which we follow on our own. The first criterion is that the design must ensure that the infrastructure will not have any future obstruction. The second is related to the source of energy and proper ventilation. Recently, Vaastu is also given proper attention as much as possible due to growing concern among the customers about Vaastu. However, in our projects, we have followed Vaastu only in the overall structure, as it is not possible to follow it on each and every unit. Finally, though we use RCC structure, for roofing we use tiles to give a Nepali look.
What are your plans in TCH?
After whatever success The Comfort Housing (TCH) has achieved till date, we want to play the role of a master developer in developing Model Housing. We want to develop a well managed small town involving all the developers. In this, every developer will be free from conventions to give shape to their imagination. The focus would be on bringing low cost houses and apartments within a small area affordable to middle income customers. I have plans to include in this model housing a school and a hospital which may be operated either by us or somebody else. It will also have stipulated area for different activities including sports, library, shopping mall, transportation connectivity to the city etc. We want to have in that town not only one specific group of people but a mixture of different groups. The project is envisaged for an area like Godawari or Dakchhinkali. We want to facilitate the migration of about 10,000 people into that model township. This project will need around 500 ropanis of land and investment of about Rs 40-50 billion. Land and cost constraints and political volatility have restricted us from discussing about it in the community of developers. Furthermore, this project requires formation of a different type of solidarity among the housing business companies which will involve complicated legal documentation and financial agreement. That may be another constraint. But I believe that even in the midst of these limitations, we have the potency to execute the project.
We are also thinking of developing a housing project specially designed for the elderly people. It will be located in the core city area and will have special amenities needed by such people. On my recent trip to the USA, I gathered some information regarding such housing and upon return discussed it with my friends and counterparts. I have received an encouraging response.
How is the involvement of foreign expertise in Nepali housing industry?
The best thing about Nepal is that we have adequate resources to improve our country. I haven’t heard of any housing company associated with foreign companies or having foreign consultants. The architects and construction crew are all Nepalis.
How is the competition in the housing business?
I don’t feel competition or threat from other housing companies. Neither do the other companies feel a threat from us, as for as I know. It is good.
What are the challenges being faced by the housing business?
The uncertainty over drafting a new constitution is a major concern. This has also increased the level of uncertainty over the completion of our own project. If our political state of affairs takes a nasty turn, the entire business may collapse.
What about the clarity in policies?
We are not the ones to adjudicate over the rules and policies of the country. However, I believe there is clarity to a moderate extent. But when it comes to addressing complexities, the policies fail. Our policy makers, administrators and consumers need further understanding of the housing business. They need to learn from the experiences of developed countries. Besides that the government must consult with businessmen for formulating policies. Nevertheless, despite numerous changes in the government, the authorities have been very proactive toward supporting our business.
Amid all the rumours about housing business, how should a customer decide on a housing product?
What buyers need to see is whether the project is approved under community housing (Samyukta Awas) or not. Just because a housing company is selling houses and apartments, it doesn’t mean that the houses are legally approved.
How is this approval obtained? How much hassle is involved in the process?
In the beginning, a planning report is to be submitted to the Town Planning Committee who will then grant a planning permit if the planning appears to be reasonable. Then a detailed project report with descriptions of each component of the project is to be filed at the Urban Planning Committee. After that, the project proposal will be scrutinised by Nepal Environmental Impact Assessment Association. The association assesses and evaluates safety measures adopted by the project, examine its components of infrastructure to ascertain if they fulfil the requirements as prescribed, evaluate commitment of developers and designers, study the policy regarding the purchase-sale agreement and assess a few more obligations. Subsequent to these appraisal activities, if the project is found feasible, it gets a certificate of approval. The final review is made by either Municipality or VDC for final authorization. Though the process seems lengthy, it is easier to get an approval letter these days than in the past.
What role should the government play to facilitate progress of housing business?
There is multiple ownership of land in many cases due to the tenancy rights. The government should help the developers to settle such issues. No sooner a developer thinks over a plot of area for his project, the owners of the land in that area haul the land price up. This should be controlled. The hassles involved in acquiring land must be reduced. I don’t mean that government should apply force. There are a number of other ways to convince the unwilling land owners to sell their land and government needs to act accordingly. Government must think of the investment we can bring in and should protect our reasonable interests.
Problems are compounded when the government announces impractical decisions and policies to gain popularity. For example, when Matrika Yadav was the Land Reforms Minister, he talked a lot about Revolutionary Land Reforms and Scientific Land Reforms. The result was downturn in real estate business. People feared that the government may impose ceiling on individual property. So the house sales were down. The government must do enough homework involving all the stakeholders concerned before coming up with any policies.
What sort of remarks and grievances do you receive in general from your customers? How do you respond to it?
The feedbacks from the customers come forward differently. Some instantly express their dissatisfaction without trying to understand the issue properly. And there are others who draw our attention to really sensitive issues which can harm the credibility of the company if swift and serious action is not taken.
Normally, the complaints are about malfunctioning of amenities like the lift and the sanitary systems. While building a complex or a house, we pay a very high attention to the sanitary, electricity and safety systems. We meticulously check each of the appliances, test their applicability and confirm whether they are effectively fitted or not. And when problem arises, we make the corrections immediately. The other complaint is related with workmanship. The problem is that the consumers don’t try to understand that every product loses the shine and performance after a period of continuous use. We also receive complaints which are vague and nothing can be done about them as they are out of our control.
What is your comment on recent announcement of Finance Minister that an individual must reveal his source of income while acquiring a property?
It’s simply an announcement for now. We have to see how it is implemented. So until we receive official directives, we cannot comment on it. However, what I believe is that the directives must be specific in its interpretation regarding how to ascertain the authenticity of the income source, places where it is applicable (city or village) and other technical issues.
It is an issue of transparency. Such policy had to come sooner or later. One can debate about whether this was the appropriate time for such policy to be implemented.
Who do you think will be affected with this? How do you think you will be able to help government in this regard?
The housing companies and their customers will be affected by this. At initial phase, it will be difficult for the customers to absorb the policy, which may hamper industrial growth, government’s revenue, prospects of banks, employment opportunities etc. So, the government should reduce flaws in the policy if these are any. For this, the professional associations should identify the flaws and errors and suggest rectification.
Talking about Vaastu, how much emphasis is given to it by the customers?
Vaastu concept is not emphasized here may be because of lack of awareness or lack of belief in it. Whatever has evolved in the mind of the people concerning Vaastu is simply because of media sources. Generally, Vaastu principles are applied in custom made houses. In housing business, since we deal with erecting a number of houses, it is not possible to design each and every house as per Vaastu principles.
What are the factors you think can pull down the prospect of a housing project?
I think selection of wrong location, wrong market identification and lack of team work, are some reasons which can breakdown housing business company. To overcome this possibility, I have been stressing on the need to arrange a system that enables rescue of any down falling company or a project through collective effort of all associated companies. We should not let the collapse of a project to threaten the entire housing business.
It is that your housing company is about to initiate a project in Dubai. What is the status of that project?
Well, we aren’t about to initiate any project in Dubai. Taking our success and long experience into account, a housing company of Dubai has invited me to visit their construction site and has sought my advice. The project hasn’t been started yet. It is still in the conceptual phase.
What are some important lessons you have learnt through observations of housing business in various parts of the world?
I have come to realise that housing business has a huge prospect and managing its various aspects such as finance and marketing, we can take it to even greater heights. Right now, our presence is only in Kathmandu, which means our business hasn’t covered even one percent of Nepali market. Looking at the progress of China in terms of housing business, we know there is a lot left to do in this business.
Different markets have different practices from which we can learn a lot. For example, in Dubai banks and financial institutions don’t lend money to developers to acquire lands. They fund the project only after the completion of pre-sales stage. According to the condition of the loan, the sales revenue is to be deposited in the respective banks. Banks then disburse the loan as per the projections made by the developers. Even if the developers quit the project, the bank can complete it with the money that is deposited in it from sales. Even in Nepal, banks don’t provide 100 percent funding to a housing project. Moreover, only credible developers and feasible projects are funded by the banks.
Banks provide Generally up to 80 percent of the land price.In the construction stag, the loan equity ratio is maintained at 50:50. Before the stage of sales, this ratio is 30:70.
Is there any plan to turn TCH into a public limited company?
We are a private company but we have been already employing public resources. So, we are thinking to go public as the housing companies are elsewhere. As a Founder President and CEO of TCH, I have a personal mission to turn it into a public limited company. We have already started the groundwork in that regard in consultation with our legal and financial consultants and Board Members. But it will take time as it requires stability within the country.
Housing business elsewhere is regarded as being in the control of the Land mafia. What is your take on that?
We are into this business because we have guts to do it and unkind remarks are the expression of envy of our success. That’s it. In India, housing businessmen are too much involved with politicians but that’s not the case in Nepal.
Do you see any possibility of the housing bubble to burst in Nepal?
Well, there is no immediate risk of such crisis in Nepal as our housing business size is much smaller and only limited to Kathmandu. Here our buyers have secured source of income. Property market crashes only when buyers are on the verge of being defaulters and there are no buyers to buy properties. We have still not been in that stage where we lack buyers. In one or two projects, customers may surrender their booking. But that shouldn’t be taken as a symptom of crisis.
It is said that the ongoing housing industry boom in Nepal is due to the remittance money. What is your evaluation?
Remittance from Gulf countries and Malaysia isn’t adequate to purchase a house from a housing company. That isn’t a market for us.
The cost of the major construction materials has decreased by 25-30 percent recently. How is this affecting the housing business?
I believe that business is a gamble to some extent because a project takes 2-3 years to complete and there may be price fluctuation. At present context, it has decreased but not up to what it should and who knows what will happen later. Besides that, housing involves many components with various nature in terms of cost. So it is all about taking risk and price decrease is not going to bring any huge change in our profitability.
