IMAGE: KARMA RESIDENCES
LAST MONTH the Nepal Rastra Bank did something it had seldom done before. It published a comprehensive report on the country’s housing market, complete with price indices, regional breakdowns and a subtle acknowledgement that something had gone awry. Real-estate lending had surged by 72% in the five years to mid-2025, the document noted, while transaction volumes had tumbled sharply from their pandemic-era peak. The intervening period, it concluded, had been one of “cyclical fluctuations, regional disparities and gradual structural shifts”. A less careful reader might have missed the import. Kathmandu’s heady apartment boom had left behind a hangover, and nobody quite knew when it would lift.
The numbers are awkward enough to make a developer wince. Roughly one in five mid-range apartments in the city’s more congested corridors sits unsold, with absorption periods stretching to two years in places like Baneshwor, Koteshwor and Tinkune. Prices have slipped 12-18% from their 2023 peak yet that has done little to bring them within reach of the locals who actually need housing.
A civil servant taking home the median monthly wage of Rs36,000 ($237) could not come close to servicing a mortgage on even a modest flat. With banks charging 10-12% on a 20-year home loan, a Rs5m mortgage—insufficient to buy anything in the city centre—would cost about Rs55,000 a month in repayments, assuming the borrower could scrape together a 25-40% deposit. The maths just does not work.
And yet the cranes kept swinging through 2024 and into 2025. The reason is not mysterious: it is geological. Kathmandu sits in a bowl, its flat land finite and ferociously priced. The metropolitan government now values plots along Durbar Marg and Putalisadak at Rs5m per aana, a unit of land about the size of a small London parking space. When a single aana costs more than a decade of a civil servant’s gross salary, building outwards becomes absurd. So developers build upwards, packing as many sellable square feet onto each precious plot as regulations will permit. The shift from individual houses to apartment towers is a mathematical consequence of land scarcity.
The inventory that has come onto the market since 2023 was conceived in headier times. Between the covid-hit fiscal year of 2020-21 and 2024-25, residential lending by banks and finance companies jumped 62%, while total real-estate credit swelled by nearly three-quarters. Developers assumed that whatever they built would find a buyer, because for two decades that assumption had held true. They concentrated on the top end and the upper-middle, chasing the highest return per square foot. The upshot is a city-centre price of around Rs25,000 per sq ft with premium spots like Gyaneshwor fetching double that. A modest 1,000 sq ft flat in a decent neighbourhood starts at about Rs25m—roughly $169,000 in a country where GDP per person is $1,447.
Predictably, the buyers who can meet those prices are rarely salaried workers earning in Nepal. They are far more likely to be diaspora Nepalis, foreign-income earners, business owners, political elites or investors treating apartments as stores of wealth. Remittance inflows hit $10.15bn in the first eight months of the current fiscal year alone, a 31% jump on the same period a year earlier. “No one buys for rental income,” one estate agent told the Katmandu Journal last year. “They buy because they think the price will keep going up.” The same agent might now admit that the second half of that sentence has become harder to defend.
The consequence is a market that operates on two separate logics. One logic belongs to local families whose housing budget is tethered to a monthly payslip. The other belongs to non-resident Nepalis parking capital in an asset they trust more than the stockmarket or the banking system. These overseas buyers tend to leave their flats empty, visited once a year during a holiday. That explains why Kathmandu can simultaneously suffer from a glut of unsold units and a chronic shortage of homes for the people who live in it. A 2025 academic study of apartment occupancy in the Valley put the matter starkly: “Only higher income group and middle income group” households could afford formal apartments; lower-income groups were “structurally excluded” from both purchase and rental markets.
That exclusion persists even though rents, by any normal investment yardstick, are pitiful. A one-bedroom flat in the city centre rents for an average of Rs26,783 a month. A three-bedroom unit fetches about Rs64,863. Those sums eat up 40-60% of a median household’s income, which makes them expensive as a living cost. As a yield on the landlord’s capital, however, they are a joke. A Rs30m flat generating Rs40,000 a month in rent yields 1.6% gross, before maintenance, tax and void periods.
Even under optimistic assumptions, the figure rarely breaks 3.6%. Borrowing costs run at three to five times that. An investor who finances a purchase and then rents it out incurs a negative carry of 8-10 percentage points a year. The only imaginable return comes from selling later at a higher price.
Saugat Dangal, a Kathmandu-based property professional, sketched the absurdity on LinkedIn: a Rs30m home renting for Rs35,000 a month gives a gross yield of 1.4%, against a cost of bank finance above 10%. The Katmandu Journal last year called the city’s typical yield of 1.7% “the lowest in the region, bar a few Chinese cities”. Comparing Kathmandu with Indian metros makes the point with almost cruel clarity. Chennai delivers gross yields of 4.2%. Delhi manages 5.8%. Dubai, which competes for the same diaspora savings, offers 5-11% plus tax-free income. A Nepali entrepreneur in the Gulf can buy a flat in Dubai that pays for itself from day one, or one in Kathmandu that leaks money every month. The fact that so many still choose the latter says something about the pull of home, status and the expectation of eventual return. It says nothing positive about the allocation of capital.
The geography of the glut is uneven. Baneshwor, Koteshwor and Tinkune—transport corridors that saw a rash of new builds during the cheap-credit years—are the sore spots. Oversupply in the mid-range segment there runs to an estimated 18-22%. Buyers are scarce, and the units that do shift take 18-24 months to clear.
By contrast, the old-money enclaves of Lazimpat, Maharajgunj and Baluwatar have held up better. Prices have softened less, but so few transactions take place that the stability is partly an illusion of slim trading. The newest frontier is the periphery: Imadol in Lalitpur, Bhaktapur, Budhanilkantha. Land there still changes hands at Rs3.2m-3.8m per aana—scarcely cheap but well below the speculative peaks of the core. Infrastructure improvements and a product mix tilted towards genuine owner-occupiers have kept absorption healthier.
The correction that began in 2024 has been orderly and for that very reason ugly. Prices have subsided and not crashed. The central bank’s credit tightening between 2023 and 2025 squeezed out speculative flippers. Real-estate-backed overdraft and commercial loans contracted by over Rs17bn. Transaction volumes plunged: the government’s revenue from land deals fell from Rs23.7bn in the first quarter of 2021-22 to Rs8.2bn in the same quarter a year later, and has recovered only to the Rs10-15bn range in the most recent fiscal year. The buyer who remains is an end-user, more price-sensitive and slower to commit. Developers who need to sell are trimming prices, often perhaps through side deals, rather than slashing headline rates.
Monetary policy has turned mildly stimulative. The central bank cut its policy rate to 4.25% last year while lifting the home-loan ceiling to Rs30m and easing the loan-to-value cap to 80%. These moves have nudged sentiment but not fundamentals. Marginal rate cuts cannot bridge a gap that is structural. The price-to-income ratio in Kathmandu sits at 36.6, second only to Colombo in Asia and ahead of Hong Kong, Shanghai and Beijing. The average home costs $274,000. The average wage-earner would need to work for decades, spending nothing, to afford it. Remittances have filled the void but it is volatile. A shock to Gulf labour markets or a sharp appreciation of the rupee would expose the emptiness beneath the edifice.
The central bank knows this. More than 80% of all bank loans in Nepal are backed by real-estate collateral. A forceful price correction would clean the market as well as undercut the value of that collateral, forcing distressed sales and setting off a feedback loop that could shake the financial system. This is the scenario that keeps regulators awake. It helps to explain why policy responses have been tentative: ease at the margins, avoid a crunch, hope that inflation and population growth gradually eat into the overhang over the next five to ten years.
That muddling-through approach has a soft logic. It also entrenches an allocation of capital that serves almost nobody well. Three distinct classes of city-dwellers have emerged from the post-boom settlement.
At the top sits the remittance class, holding flats as assets and often leaving them empty. A banker says: “They send money back, the family buys a plot, maybe builds a house. It is safe, it is status.” These buyers prop up the luxury segment but add nothing to the rental stock or the life of the streets. Below them is the squeezed middle: households earning Rs35,000-60,000 a month who cannot buy but must rent, and who watch rents consume half their income while empty apartments gather dust. And below them is the excluded majority, living in rented rooms, informal settlements or peripheral sprawl, for whom the new towers might as well be on a different continent.
International comparisons are useful but imprecise. China’s ghost cities share the combination of vacancy and sticky prices, but the scale is orders of magnitude larger—perhaps 65m-80m empty units—and the root cause was state-directed lending rather than diaspora cash. Indian cities, with their deeper mortgage markets and larger renter populations, generate yields roughly double Kathmandu’s. Dubai competes directly for non-resident Nepali capital and offers a genuine income return. Kathmandu’s anomaly is its combination of ultra-low yields, extreme dependence on remittances and a price-to-income ratio that would look dangerous in a far richer country.
What Kathmandu did over the past five years or so was build apartments for a buyer class whose purchasing power did not come from the domestic economy. The apartments are real. The buyers they were designed for are largely absent. The result is not a panorama of half-finished towers and bankruptcies, though both exist. It is a city in which homes get built and then sit idle while the people who need them crowd into rooms on the outskirts. The hangover will not be cured by waiting. Kathmandu overbuilt—not for its people but for their remittances. ■
