NRB guv says strictness must be on Real Estate

Central bank might separate home loan from the limit fixed on the loan to real estate sector by the central bank, giving a breathing space to the cash-strapped banks and real-estate sector.Nepal Rastra Bank Governor Dr Yubaraj Khatiwada indicated that the central bank does not want any sector to be hurt due to its directives and intends to continue to bring changes for a healthy financial sector.

“Adding the investment from finance companies and credit cooperatives, the investment in the real estate sector could come roughly to around Rs 200 billion,” he said, addressing an interaction on Real Estate Sector and Its Contribution on Economy, organised by Nepal Land and Housing Developers’ Association (NLHDA) in the Valley today.

He also advised the bankers to asses risks before lending in a single sector.Only profit bench-marking should not be the criteria,” he said, indicating that the mid-term review of the Monetary Policy might separate the home and real estate loans.

The bankers and real estate entrepreneurs have asked the central bank to separate home loan and real estate loan. “The ceiling on real estate investment of 40 per cent has to be separated from housing loan for developers and home loan users,” said Om Rajbhandari, vicepresident of the NLHDA.
Supporting the real estate entrepreneurs, Rajan Singh Bhandari, vice-president of Nepal Bankers’ Association (NBA) said that the developers are not getting the buyers for their housing units due to ‘no access’ to credit. “The developers, who have borrowed from the banks, could not sell their housing units and apartments that has put a pressure on the lending bank,” he said, adding that the banks’ non-performing assets (NPA) would shoot up in case of the borrower developers’ inability to pay
back the loans.

Commercial banks have roughly lent Rs 50 billion in the sector. “In case of inability of payment for six months, the banks have to provision 50 per cent of the loan,” he said, adding that the situation will hit the already cashcrunch commercial banks are facing.

Real Estate  be it in Nepal or the most developed countries as USA tends to follow a definite cycle.Analysing the real estate development cycle post-1990, it faced a favourable climate fuelling the land transactions high up. “It was the recovery phase of real estate,” Rajbhandari said.“Till 2007, the sector reached its peak phase with many new housing and apartment projects being launched every other day.

However, in 2009, there were amendments in the Financial Policy like income source to show in case of ownership of land worth Rs 2.5 million and above and land plus house worth more than Rs 5 million, new Capital Gain Tax, Voluntary Declaration of Income Source (VDIS) and VAT.

Because of these policies, from 2007 till 2009, the Real Estate reached the stage of Recession. Banks also faced difficulties, as the surplus money made in transactions did not go to banks, and this was, in fact a major catalyst for the liquidity crunch.

“With the introduction of NRB directives one year ago, the environment for the housing sector was not favourable and it faced controlled mechanism,” her said, adding that currently the Real Estate has reached the phase of Depression and moving further towards the Bottom, with no Real Estate transactions taking place.
In the year 2000, the sector touched the prosperous phase because land transactions increased and housings in well developed lands were also in demand.

source: The Himalayan Times(2011),"Housing may get breather from loan-cap ", The Himalayan Times,10 feb 2011

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