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Infrastructural Challenges and Real Estate Market Under the Federal Structure of Nepal

The constant bickering among the political parties and frequent change in government has led to a weak governance which has ebbed the development of infrastructure in terms of quality and timely execution of infrastructure project. We often hear citizens complaining about the poor road conditions, poor water supply, poor electricity, poor communication system, poor drainage, poor waste management and so forth. Now with the successful completion of the local, provincial and federal election the economy is buoyant on receiving new investments in infrastructure thereby leading to economic growth and improved standard of living. 

Under the new federal structure, basic power for the infrastructure development is provided to the Federal, Provincial and Local Government. However, since most of the infrastructure projects are not confined to a particular locality or province the issue of coordination among Federal, Province and local governments is bound to arise. In this context, clear policies need to be drafted to demarcate authority of each level of government as well as committees that enables coordination among federal, provincial and local governments must be formed.

Allocation and distribution of adequate financial and natural resources among provinces will emerge as a key challenge under the new federal structure. Disputes relating to sharing natural resources while developing infrastructure projects may arise. Similar to what happened in India under the Kaveri River Water Dispute between Karnataka and Tamil Nadu government. Hence it is important that the National Financial and Natural Resources Commission as mentioned by the constitution is formed at the earliest.

Competition among provinces will be key to attracting investment (domestic as well as foreign) for development of infrastructure in each of the provinces. Though each of the provinces will be competing among each other by offering better investment schemes and facilities, safety and easy exit /repatriation of investment will be a salient factor in encouraging investment. Hence it will be important that proper policies are drafted for enabling safety as well as easy repatriation of investment.

Apart from investment in infrastructure projects it is seen that the new federal structure will further push the growth opportunities for the real estate sector in each of the provinces. As such decentralization of the government will prompt demographic shuffling within provinces thereby resulting in an increased demand of the real estate. The new demand for housing may lead to land price speculation and increased investment in housing projects. Putting in a nutshell, under the new federal Nepal price of the land and housing may wax, however the increment could be at rate a diminishing rate within the Kathmandu valley.

Besides land and housing, demand for the building structures may increase as the concerned government needs to accommodate many of its ministries and departments as well as quarters for the bureaucrats. Thus as a result of increased demand for buildings, the price of construction materials might further escalate in the near future.  

Raju Tuladhar
Raju is a regular contributor to Nepal Economic Forum's various publications under the Business Policy Research Center.
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