Call to relax realty lending provison

With the banking sector affected due to slowdown in realty, stakeholders are pressuring the government. Housing developers and bankers, at odds with each other a few months ago, now share the same opinion on how to ensure smooth recovery of realty lending.

Bankers have suggested that Nepal Rastra Bank (NRB) relax the ceiling on real estate lending as slowdown in real estate has affected them. They have also asked for reduction in capital gain tax.
 Last year, the central bank had directed banks and financial institutions (BFIs) to reduce lending exposure to real estate to 25 percent within two years. The new monetary policy told the banks to reduce the housing sector lending to 25 percent and lending on lands to just 10 percent of total loans.

“After the central bank directive, banks are not in a position to provide home loan,” said Parshuram Chettri, chief executive officer of Bank of Asia Limited on Wednesday at an interaction programme of the Nepal Land and Housing Dealers’ Association (NLHDA). According to bankers, the central bank policy of keeping both home and housing loans under the same head has created problems. “Home loan is good and secure,” said Ashoke Rana, president of Nepal Bankers’ Association (NBA).

In order to deal with the fast inflating realty bubble, the central bank introduced tough directives to control excessive lending. “Everyone knows huge investment has been made in this sector,” said Rajan Singh Bhandari, vice-president of NBA. “Now, all should think about the problems if this loan turns into bad debt.”
According to the central bank’s first quarter statistics, commercial banks’ exposure to real estate and housing sector stood at around Rs 100 billion. And, a large chunk of this is in the real estate sector. Bankers say the default on real estate loan is gradually increasing.

They have also demanded that they be allowed to restructure the real estate loan. “The loan can be restructured at least once without imposing any provision,” said Chettri. “This would solve the present problem to some extent.” According to him, India’s central bank—Reserve Bank Of India—allowed such restructuring when the Indian real estate witnessed a slowdown following recent global economic recession.
The current slowdown in realty sector, according to bankers, is due to mismatch in demand and supply. Bankers say that there has been construction of more apartments but their sales have been dismal. “Housing business has turned into an industry but its sales have taken a hit,” said Bhandari. “How long can it survive if the industry continues to produce but can’t sell?” He added that the decline in sales was due to NRB’s directive.

Bankers claimed that the government could introduce an alternative arrangement to curb unnatural price rise in the realty sector. Stating that unnatural rise in realty prices can be controlled, real estate developers asked the government’s assistance in this regard.

“If the timeline of land registration is followed as mentioned in law, abnormal price rise can be discouraged,” said Min Man Shrestha, NLHDA general secretary. NLHDA Secretary Bhesh Raj Lohani
said that the provision of providing license to land brokers could also address the problem.
The slowdown in realty has also affected revenue that the government used to get from this sector. According to realty businessmen, the imposition of capital gain tax by the government has affected revenue collection.

Keshav Acharya, chief economic advisor at the Finance Ministry during the Madhav Kumar Nepal led government, said that the then government had mulled bringing a policy to allow developers to sell apartments to foreigners also.  “I hope the current government completes the process,” he said.

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