Why Due Diligence Matters: Urbano’s Approach to Safe Property transaction in Nepal
When you hear a 2.5-story house in Bhaktapur is for sale at NPR 3 crore, it’s easy to assume all similar properties carry the same price tag. However, both customers and real estate professionals often overlook critical details, such as the property’s right of way, legal status, and the quality of construction materials. For instance, toilet fixtures range from NPR 8,000 to NPR 50,000 based on brand and quality. Exterior paint costs vary from NPR 50 to NPR 200 per square foot, depending on whether it’s waterproof or premium-grade. Even building openings, like doors and windows, show stark differences—Nepali agrakh wood can be ten times more expensive than aluminum or uPVC alternatives. These discrepancies can mislead buyers and professionals, leaving end-users with substandard properties despite investing their life savings. Globally, due diligence by registered professionals is a mandatory practice, ensuring thorough scrutiny from entry to exit, exterior to interior, and maintenance to quality. Yet, despite Nepal’s access to technology and skilled professionals, due diligence remains largely absent. Urbano Real Estate Nepal is set to change this by introducing a groundbreaking due diligence service, and this blog explores its transformative potential.
Nepal’s real estate market is thriving, fueled by rapid urbanization, infrastructure development, and growing investment interest. However, the lack of standardized practices like comprehensive due diligence exposes buyers, investors, and renters to risks such as ownership disputes, structural defects, and regulatory non-compliance. Headquartered in Pulchowk, Lalitpur, with a branch office in Banepa-6, Kavre, Urbano Real Estate Nepal is addressing this gap with a detailed due diligence framework for land, buildings, and rental properties, as outlined in their document 01_Due Diligence For Land and Building.pdf. This blog highlights Urbano’s innovative approach and its role in redefining real estate transactions in Nepal.
The Need for Due Diligence in Nepal’s Real Estate Market
Nepal’s real estate sector is dynamic but faces significant challenges, including unclear land titles, informal rental agreements, and inconsistent regulatory enforcement. Unlike global markets where due diligence is standard, Nepal lacks widespread adoption of such practices, leaving stakeholders vulnerable to:
Legal Disputes: Unverified ownership or encumbrances can lead to costly litigation.
Structural Issues: Poor construction quality or seismic vulnerabilities, particularly after the 2015 earthquake, pose safety risks.
Financial Losses: Overpaying for properties or facing unexpected maintenance costs can erode investment returns.
Rental Challenges: Informal lease agreements often result in tenant-landlord disputes.
Urbano Real Estate Nepal is committed to mitigating these risks by introducing professional due diligence services, a practice currently absent in Nepal. Their comprehensive checklist ensures thorough property vetting, aligning with global standards while addressing local nuances.
Urbano’s Comprehensive Due Diligence Framework
Urbano’s due diligence process focuses on three key areas: Legal Due Diligence, Physical Inspection, and Regulatory Compliance. By assigning performance percentages to critical components, their checklist ensures a systematic evaluation. Below, we explore how this framework applies to land, buildings, and rental properties.
1. Due Diligence for Land
Purchasing land in Nepal demands careful scrutiny due to complex ownership laws and environmental risks. Urbano’s checklist emphasizes:
Legal Due Diligence :
a. Ownership Verification: Confirming the seller’s right to sell through the title deed (lal purja) and Encumbrance Certificate (Malpot Tiro Rasid) from the Land Revenue Office. Urbano verifies the trace map to ensure alignment with the title deed and reviews additional legal documents for clarity.
b. Proper Right of Way: Ensuring legal access to the property is critical, as Nepal’s building code mandates road access of at least 20 feet. Issues arise from unclear road right-of-way (ROW) demarcations—highways require a 50-meter ROW, feeder roads 30 meters. However, local governments and residents often overlook these standards, building within ROWs, as seen along Nagarkot’s feeder road and BP Highway, where structures face future demolition risks.
Physical and Environmental Assessment:
a. Conducting site visits to verify boundaries, terrain, and access roads, supported by surveyor services for precise measurements.
b. Assessing environmental risks like landslides or flooding, common in Nepal’s hilly regions, and performing Environmental Site Assessments to detect contamination risks.
2. Due Diligence for Buildings
Buildings, whether residential or commercial, require additional checks for structural integrity and operational compliance. Urbano’s checklist includes:
Legal Due Diligence:
a. Verifying building permits, Building Construction Permit, and Nirman Sampanna (completion certificate) from utilities and local authorities.
b. Ensuring no outstanding property taxes or legal disputes, which are common in urban areas like Kathmandu.
Physical Inspection:
a. Structural Integrity: Evaluating the foundation, walls, paint, doors, windows, roof, and flooring for defects, with a focus on seismic compliance per post-2015 earthquake standards.
b. Mechanical Systems: Inspecting plumbing, electrical, and HVAC (heating, ventilation, and air conditioning) systems for functionality and safety.
c. Identifying latent defects (hidden issues like cracks) and patent defects (visible damage), supported by detailed engineer remarks.
Financial Analysis:
a. Reviewing maintenance records to identify recurring issues or deferred maintenance costs.
b. Assessing insurance requirements (e.g., earthquake, fire) and operational expenses.
c. For commercial buildings, analyzing lease agreements and tenant income potential.
3. Due Diligence for Rental Properties (Flats, Apartments, Rooms)
Nepal’s rental market is largely informal, with frequent disputes over lease terms and property conditions. Urbano’s due diligence for rentals includes:
Legal and Contract Review:
a. Reviewing lease agreements for clarity on rent, duration, maintenance responsibilities, and termination clauses.
b. Verifying the landlord’s ownership or rental authorization to prevent fraudulent listings.
Property Condition Assessment:
a. Inspecting units for structural issues, defects in walls, paint, doors, windows, roof, and flooring, as well as pest infestations or utility problems (e.g., inconsistent water or electricity supply).
b. Ensuring essential utilities like internet and waste management are functional.
Financial and Market Analysis:
a. Comparing rental rates with market benchmarks using digital platforms and consultations with neighborhoods and local authorities.
b. Evaluating additional costs like utilities or security deposits to ensure affordability.
Neighborhood Evaluation:
a. Assessing proximity to amenities (e.g., schools, workplaces) and safety concerns like crime or flood risks.
b. Analyzing traffic congestion, a key factor in cities like Kathmandu.
Urbano’s Innovation: Urbano will introduce standardized lease templates and tenant screening services, fostering trust and professionalism in Nepal’s rental market.
Why Urbano’s Due Diligence Matters
Urbano’s comprehensive due diligence framework, with its emphasis on ownership verification and right of way, addresses critical risks early. By integrating legal, physical, and financial checks, Urbano’s approach:
Enhances Transparency: Clear title verification and regulatory compliance reduce fraud risks.
Mitigates Risks: Thorough inspections prevent costly surprises like structural failures or legal disputes.
Attracts Investors: Professional due diligence makes Nepal’s market more appealing to domestic and international investors.
Supports Renters: Standardized processes protect tenants from unfair practices or substandard properties.
In a market where such practices are virtually nonexistent, Urbano’s initiative is transformative, aligning Nepal’s real estate sector with global standards.
Conclusion
Nepal’s real estate market holds immense potential, but its growth hinges on adopting modern practices like comprehensive due diligence. Urbano Real Estate Nepal’s detailed checklist sets a new benchmark for land, building, and rental transactions. Whether you’re a buyer seeking a clear title, an investor evaluating a commercial property, or a renter looking for a fair lease, Urbano’s services empower you to make informed decisions with confidence.
