On the proposed bill of Real Estate Business Transactions Act, 2065

(This is excerpt of welcome note delivered by Dr. Bipin Adhikari as Chairperson of Nepal Constitution Foundation in a Bill Review Programme on the Bill of Real Estate Business Transations Act 2065 organized by the Foundation on August 19, 2011)

It is great that we all are assembled here to provide civil society inputs to the bill of Real Estate Business Transactions Act 2065 being considered by the parliament at Singh Durbar.

In this programme, we have the representatives of noted real estate experts and practitioners, and some lawyers and pressure group representatives who have professional interests in this bill.

Before we begin, let me point out that the real estate sector is a very important growth sector in Nepal having significant linkages with several other sectors of the economy. In Kathmandu, the capital city, which is living with the worst aspects of unplanned, unregulated urbanization, the issue of real estate growth is no less challenging. The sector is unregulated on dimensions of quality, terms of delivery, information provided to potential buyers, and protection of the rights of common people. On other dimensions such as land use, there have been little efforts in building norms by way of legal requirements such as low floor space indices. Similarly, there is little investment in roads and security systems. Our cities are woefully short on drinking water provision, public toilets, sanitation and sewage services, and other public health measures. These issues have never been seriously looked into by the administration.

With high growth and the emergence of larger players, often assisted by commercial banks, there is a need for manpower formally trained for the sector. There is lack of transparency among the companies operating in the sector. The process of healthy urbanization has suffered due to this situation.

As we see, there is almost no linkage in Nepal between area/land use planning and transport planning. The movement in Kathmandu valley city areas has become problematic and provision of roads and communication links ex-post development has become difficult or very expensive. Operational management of cities is without any scientific basis. Thus there is little scientific regulation of parking, hawking, road use, allocation between public and private transport use, etc so that overall capacity for movement measured in terms of person trips is adversely affected. Road and street geometrics are so poorly and unscientifically maintained or executed that roads are a major safety hazard. The movement of traffic in cities is so unsafe that on that count alone, for all who can afford, there would be attempts to minimize their exposure as pedestrians on the road. In this background, both the real estate boom and unplanned urbanization have affected each other, and the rights of common people.

The bill of Real Estate Business Transactions Act, 2008 addresses only a part of these problems. It has been drafted with the intention to regulate and meet the demand for property or housing in urban areas or areas in process of urbanization, conduct the business of real estate in an organized manner for the optimal usage of land and to promote private sector in the real estate business by means of a legal regime. It takes stock of the fact that organized settlements are a necessity in populous urban areas. Due to growing population density, migration from rural areas, geographical situation, fragmentation of lands and the lack of organized settlements, urban areas are becoming uglier by the day and inconvenient to live in. To resolve this problem, the government has taken up the policy to promote professional real estate business in cooperation with the private sector to develop organized settlements. It devotes itself to licensing issues, and the thrust is to regulate the haphazard development in this area.

As we find, Section 2 (c) of the bill defines "real estate business" as a venture with the intention to conduct sale-purchase or leasing of real estate but does not include selling of property without plotting or sale purchase of property for personal usage. The applicability of the bill is limited to real estate business only. Section 3 makes it mandatory to obtain a license in order to carry on real estate business. The applicant must have the necessary technical capacities in order to qualify for the license according to section 5. The license is valid for 5 years and is renewable (Section 8). The license may be cancelled later if its conditions are not followed, if a direction according to section 21 is not followed or if any provision of the act or other law violated. According to Section 10, the licensee must get permission of the building authorities before starting any project. The building authorities may set the standards and grant permission if the plan does not include a restricted area.

According to Section 12(1) the licensee can even include or lease property belonging to other people and include it in the plan. If the project to be completed requires the inclusion of public or government property, then the licensee can take the permission from the local authority and Ministry which owns the land. The authority, if deems fit may grant permission according to Section 13. The licensee must include the necessary infrastructures and facilities in the project as mentioned in the prior plan. If part of government or public land has been included in the plan, then the historical or publicly used structures must be kept intact according to section 20. If the licensee does not proceed with the work within 6 months of obtaining the license, the project may be cancelled by the building authority as per Section 24. According to Section 25 concessions may be granted to the licensee regarding land ceiling by the Land Reforms Ministry if the licensee can present reasons for it.

Penal sanctions have been provided in the proposed instrument for engaging in real estate business without license or violating this act or rules made hereunder by section 30. It will be the responsibility of the licensee to compensate the buyer if the property sold turns out to be uninhabitable or restricted. The building authority may monitor whether the construction follows the rules and regulations, according to Section 33.

It is a matter of concern that allowing private sector to take over government and public land may lead to the abuse of such provisions, keeping in mind the fact that already there are many cases where public property has been misappropriated. Another matter of concern is the fact that the Land use Policy is soon to be formulated and this bill if enacted may contradict that policy. Section 20 (4) which allows the licensee to allocate the portion of public road which falls upon the planned area and which has no use, for any other public purpose, contradicts with a provision of the Muluki Ain – the national code.

As I noted, the proposed statute does not capture all regulations and legal codes which generally pertain to real estate business. Even if it assumed that the statute is aimed at licensing issues only, it does not deal with all important aspects of it. Aspects of real estate business like professional valuation services, brokerages, land development or improvement, net leasing, property management, real estate marketing, investment of real estate, relocation services, etc, are left to the judgment of the regulatory authority, and there are little institutions and procedures to check their exercise of power, or to prevent it from being arbitrary. I think this issue is no less significant.

While I am not an expert in this area, we have an experience lawyer, Advocate Shyam Dhungel, who has reviewed the bill for the Nepal Constitution Foundation and is going to present his section wise analysis here; I call upon everybody in the room to take part in the discussion. We have provision to recommend any inputs that we generate here to the parliament. We believe that this exercise will help improve on what the government has so far proposed.

Thank you very much!

Bipin Adhikari
Nepal Constitution Foundation

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