The Bhutanese Leading the way.
Thimphu last saw land rates reaching a record high in late 2011 and early 2012, before an economic crisis hit in the form of the rupee crisis and the resultant curtailment of credit.
Economic growth also reached a historic low of 2.1 percent in 2013.
The result was a crash in land prices all over Thimphu. What made the situation worse then was that as banks stopped giving loans people desperately sold land for money leading to the presence of more sellers than buyers in the market.
A prominent real estate dealer who is engaged in multiple land deals on a commission basis, but did not want to be named, said that after the economic crisis land prices fell by 30 to 40 percent from late 2012 till 2014 compared to the peak 2011-12 prices.
“Land prices stabilized in 2015 and then started shooting up from there with the situation now being that the 2011-12 rates have not only come back but they have also been crossed,” said the real estate agent.
Another one of Thimphu’s largest real estate dealers, Hemant Pradhan of ‘Hemant Bhutan’ said that since 2015, the sharpest spike in land prices in Thimphu have been between the two years of 2017 and 2018.
Both the real estate agents said that there are currently more buyers and investors than sellers in the market.
Illustrating the demand for land in Thimphu, Hemant Pradhan said, “Recently I put up an advertisement on my business Facebook page for a piece of land in Babesa, which is located much beyond the Olakha workshop area, below the Expressway. The rate was Nu 855,000 per decimal but it got booked within four minutes. The same piece of land last year was valued around Nu 500,000 per decimal.”
Hemant said he is personally aware of three such similar deals along the Expressway.
For land in Babesa, that is not as prominently located along the Expressway, one could get it at around Nu 600,000 per decimal.
High value properties like this in the 2013-14 slump years had even reached the lows of Nu 300,000 to Nu 400,000 per decimal.
Hemant said he is aware of one case where a private land owner near the current Shearee square was demanding Nu 1.5 mn per decimal, though the land is yet to be sold.
Similarly, land prices have rocketed up in the past three years all over Thimphu.
In Thimphu’s most desired residential address of Motithang, land could be had at Nu 500,000 to Nu 600,000 per decimal in 2014-15. Now the rates are at an average of around 700,000 to Nu 1 mn per decimal.
Hemant said that one particular land owner in Motithang recently asked for Nu 2.1 mn per decimal for a prime plot of land with commercial possibility in lower Motithang, close to the Ministry of Information and Communication roundabout.
Another even more pricier location is the core town area that includes Norzin Lam, Sabzi Bazar, Hong Kong market, Chang Lam and others. This area, due to its sheer location and commercial potential, commands the highest land prices in Bhutan.
In 2014-15 land rates here were around Nu 1.2 mn to Nu 1.5 mn per decimal. This shot up to Nu 2.6 mn to Nu 2.7 mn per decimal by 2017. In 2018 this has further gone up to Nu 3.5 mn to Nu 4 mn per decimal. In an indication of the times, a seller recently demanded Nu 5.2 mn per decimal for his land in the Norzin Lam area, though it is yet to be sold.
In the residential Changzamtog area the price of land in 2014-15 was around Nu 400,000 to Nu 500,000 per decimal. Now prime areas like near the ring road go for up to Nu 900,000 per decimal while less expensive plots come to around Nu 600,000.
It may still possible to get less prime areas in the interiors at around Nu 500,000 per decimal.
Land rates in Taba was around Nu 250,000 in 2014-15. Now it is around Nu 400,000 to Nu 500,000 per decimal.
To illustrate the point, rates in Taba had reached a high of around Nu 300,000 per decimal in late 2011 and early 2012 before the crash.
Therefore, Taba, as a case example, shows that land prices have not only recovered to the highs of late 2011 and early 2012, but have also well exceeded it.
The real estate agent, who did not want to be named, said that one of the fastest acceleration in prices has taken place in Debsi. He said that in 2014-15 a decimal of land land was going for around Nu 160,000 to Nu 200,000. However, now the same land would now cost around Nu 350,000 to Nu 400,000.
The rate in Lanjophakha is 600,000 to Nu 800,000 per decimal but prices can drop sharply based on the proximity to the cremation ground. In 2014-15 average rates were Nu 500,000 to Nu 600,000 per decimal.
In Zilukha, the land price around the roundabout area after crossing the Golf course was around Nu Nu 400,000 to 500,000 in 2014-15. Now the price is Nu 700,000 to 800,000 per decimal.
Land in the Royal Thimphu College is valued at Nu 250,00 to Nu 300,000 per decimal compared to Nu 140,000 to Nu 180,000 in 2014-15.
The lower end and stable prices are only in the absolute extremes.
Namseling has a current price of around Nu 200,000 to Nu 250,000 per decimal compared to Nu 140,000 to 200,000 in 2014-15, while in Dechencholing it is around Nu 300,000 to Nu 350,000 per decimal compared to Nu 200,000 to 250,000 in 2014-15.
Another lower priced zone is the E4 zone that is environmental and steep sloped zones mostly above the ring roads around Thimphu. This is especially in the upper Semtokha area where the minimum plot size must be 25 decimals and one can only construct on around 20 percent of it, or around 5 decimals. Here the price in 2014-15 was Nu 180,000 to 200,000. It is now of Nu 230,000 to Nu 290,000 per decimal
Another area where land prices are currently low is Kabesa since there is a construction restriction due to the yet to be implemented Local Area Plan and land pooling is yet to be done. The downside is that an investor’s money will be stuck for a while due to the LAP taking time. The price back in 2014-15 here was 140,000 to 180,000. Now it is at Nu 160,000 to 250,000 per decimal.
Giving a qualifier to the land prices the agent said that the above rates are average rates but it would be possible to get cheaper land rates in the same areas depending on road connectivity, land type and also the financial need of the seller.
On the other hand, he also pointed out that some of the areas currently do not have any land on sale.
Land value in Dzongkhags
One would expect that land prices in other Dzongkhags would also be at a high but in reality the big surge in land prices is restricted to mostly Thimphu.
The same real estate agent said that land rates in Phuentsholing are also very high, but unlike Thimphu there is no additional land available in the prime areas of Phuentsholing and the value of land depletes fast as one moves away from the core area due to E 4 plots.
In the case of Paro, the agent said that the Paro core town area and areas close to it are valued high, but the rates are comparable to Namseling.
He said that investing in rural Paro like near Drugyel Dzong may mean that it is difficult to find buyers though prices are lower there.
The agent, giving the case example of land deal in the Bumthang core town area, said that while land in other Dzongkhags outside Thimphu are cheaper and so may seem like a good buy, but it takes a long time to dispose off them and this is a disadvantage if one needs money quickly.
Land rates in Gelephu have also dropped compared to its hey days, though prices here are expected to recover in the long run.
Advertisements in the social media show low land rates for rural land in other Dzongkhags, but even then they struggle to get buyers.
This is compared to Thimphu which the agent said is a much more attractive destination with it scheduled to grown even more in the coming years and so it is possible to sell land quickly, and in the process make a big margin.
Return on Investment
However, what puzzles both the real estate agent and Hemant is that while land prices are at a record high, the return on investment after building a structure there is well below the international norms.
The real estate agent said, “The international standard is a return of one percent per month which means that if a person builds a building for Nu 35 mn then he or she should be collecting a rent of around Nu 350,000 per month, but in reality the rent will be less than half this amount and so the return is below 0.5 percent which is very low.”
In other words, a person constructing a building should be able to recover his or her cost of construction or investment within 8 years and four months by basic international standards, but in Bhutan the norm is more like around 20 years.
The agent said, “I know of a family which constructed a building on loan, but they have to pay all the rent and a big part of the father, his daughter and her husband’s salary to the bank every month.”
He said that people assume the family to be rich as building owners and expect them to sponsor events, but in reality they have a tough existence.
The agent concluded that, in effect, many tenants and building owners in Thimphu are ultimately working for the banks. He also cited the many cases where banks have taken over buildings and land as owners struggled to meet payments.
In this light, the two percent reduction in loan interest rates by the RMA, on the request of the government, has eased the situation which was even tougher a few years ago.
The agent said that the best scenario is if the land is owned by the person in the first place and he or she builds it with only around 40 or 50 percent loan from the bank, otherwise it is a tough existence due to the low return on investment in Bhutan.
The reason for rising land prices in Thimphu
Though the simple reason for sky-rocketing land prices in Thimphu is demand outstripping supply- there are many causes linked to this.
Both the real estate agents agreed that the economic downturn of late 2012 and particularly in 2013 badly hit land prices.
As a consequence, when economic activities and growth started picking up from 2014 onwards then gradually land prices also started recovering.
For example, some of the major land buyers are contractors, but the economic down turn hit them the hardest with delayed payments from the government, work drying up and lack of access to finance.
Another major factor seems to be the access to credit. Following the rupee crisis of 2012 the Central Bank at the time responded by curtailing loans with the aim of cutting down imports. Suddenly there was no money in the system and many started selling their lands to get money.
The central bank reopening credit and reducing loan interest rates means that there is more money in the economy, and also that landowners don’t need to sell land like before to get cash.
A major factor has been remittances, with many Bhutanese who go to Australia and USA choosing to invest their money- mainly in land.
“These youths go there and make millions and when they come back the first thing they want to do is to buy land,” said Hemant.
Hemant said that the majority of his clients are people who have gone to Australia, America, Taiwan and other places.
However, here the other agent said that around 70 percent of his buyers were local businesspeople from the private sector and only around 30 percent were foreign returned buyers. He said that role of the Australia returnees is being overblown.
This shows that while foreign returned buyers are playing a big role in pushing up prices- local business owners are still the big buyers.
Both though agreed that salaried employees in the civil service, corporate sector or the private sector did not buy land.
One cause that both agents agreed on strongly was that land is essentially running out in Thimphu, which is the hub of economic activities in Bhutan and positioned for even more growth.
“Everything is happening here and everyone wants to come here so the prices will keep going up,” said the agent.
Another major factor is that given the lack of adequate investment avenues in Bhutan and the low deposit rates, many prefer to park their money in land holdings.
“If a person had invested around Nu 10 mn in land around just three to four years ago that person would be worth five times as much today,” said the agent.
Hemant brought in an additional angle. He said that people prefer to buy their own land and build rather than buy apartments or readymade buildings. He said, in the past, people have felt cheated by real estate companies either by not getting their apartments or getting poorly made apartments. He gave his own example of how he had bought a building in Babesa from a buiding owner but he was having difficulty in selling it even at its cost price of Nu 35 mn.
The other agent, on the other hand, said that real estate agents are only a small part of the flats sold as many private people are successfully selling some of their apartments to help finance the building construction. He agreed though that there would be less buyers for a building given that it would cost more and also given the low returns.
Another reason seems to be the tendency to fix the price of the land deals at the last highest price secured in an area.
The agent said that this is a factor and has played a big role in pushing up land rates overnight.
He said that one factor could also be how some land agents keep a hefty margin for themselves.
Advice for buyers and investors
The real estate agent said, “There could be cheaper land to be explored beyond Namseling and beyond Dechencholing, but my advice to investors currently is to invest in Thimphu and specifically in land between Namseling and Dechencholing.”
He said that if a family has disposable saving of Nu 3 to 5 mn, that is not required, then they are best-off buying land. His logic was that in buying an apartment the property developer usually keeps a 100 percent profit margin.
He said in case a family does not have such savings, but has some additional income and is paying high rent, then the family can buy an apartment on loan and pay the rent to the bank instead and eventually own the apartment.
For buying apartments, the government and Thimphu Thromde needs to step in to ensure quality apartments are built and sold and that bye laws and regulations are created to govern various aspects of apartment buying and living. Currently apartment buying and selling is not regulated, leading to mistrust and at times legal problems in this sector.
Bhutan’s financial market and economy will also have to offer more options for investments. Otherwise continued investments in land at this rate will not only trap much needed capital and inflate land prices, but also yield very low returns when somebody actually tries to do something with the land.
The agent said that he cannot rule out a bubble in land prices in Thimphu, on one hand, but on the other hand there are more buyers than sellers, as land in Thimphu is a limited commodity.
