KATHMANDU, Jan 6: The government has come up with a relief package for banks and financial institutions (BFIs) that among other things extends the timeframe for reducing the real estate lending bar to 25 percent of the total credit portfolio by a year, and raises the personal home loan threshold to Rs 10 million. In addition, the government has also allowed housing developers to categorize apartment blocks as serviced apartments, and initiated steps to arrange cheap home loans for civil servants. These decisions were taken during a meeting of the High Level Financial Sector Coordination Committee convened by Finance Minister Barsha Man Pun on Thursday. They come at a time when severe risks have crystallized in the real estate market, which have forced BFIs to put a record number of properties on auction to recoup the loan amounts that have gone into those projects. The package introduced by the government Thursday allows banks and financial institutions till mid-July 2013 to reduce their exposure to the real estate sector to 25 percent of total lending from 30 percent at present. In September 2010, Nepal Rastra Bank, the central bank, had issued a circular asking all BFIs to meet the 25-percent target by mid-July 2012. “We decided to provide the extra time to BFIs after assessing the market situation, which is pretty worrying,” Baikuntha Aryal, joint secretary at the Ministry of Finance, said. Under the package, BFIs can also extend credit of up to Rs 10 million as personal home loans. Currently, this ceiling stands at Rs 8 million. Moreover, the relief package allows developers to categorize regular apartments - that are complete or under construction - as serviced apartments. “This provision on switching groups will allow BFIs to place these buildings under the heading of services from the present category of real estate,” Aryal explained while acknowledging that the current measure will only transfer the risk and not address the core problem. To address the core problem -- which is stagnation seen in the real estate market -- the government has decided to offer soft housing loans to all civil servants and office bearers of constitutional bodies so that they can purchase homes at affordable prices. To initiate this process, MoF has decided to form a committee, which will evaluate investment that has gone into the real estate sector and the market value of properties. According to MoF, the committee will comprise a deputy governor of Nepal Rastra Bank, the director general of the Housing and Urban Development Department, an administrator of the Employees Provident Fund, the presidents of Nepal Bankers Association and Nepal Real Estate and Housing Development Association and the executive director of the Citizens Investment Trust. “The committee has been asked to submit a market assessment report speedily,” says an MoF statement. To stimulate real estate transactions, MoF has also asked the Ministry of Land Reform and Management to submit to the cabinet guidelines on opening the apartment sub-sector to foreigners, by the middle of this month.
Source:myrepublica