Banks' loans in realty triple in two years
Despite price volatility and central bank´s wariness, commercial banks´ lending in the housing and real estate business has more than tripled over the last two years. Latest statistics of Nepal Rastra Bank (NRB) shows that commercial banks´ loans to residential construction and real estate sector have jumped to Rs 59.72 billion in July 2009. The figure was Rs 37.14 billion in July last year and Rs 18.87 billion in July 2007. The figure soared most sharply in the last fiscal year and despite NRB´s warning to the banks to refrain from investing on the sector, given the unnatural rise in the prices of land and houses. Realty prices have more than doubled during the period. Of the total loans, commercial banks have pumped in a total of Rs 34.95 billion in the construction of residential houses, issuing fresh loans of well over Rs 8.50 billion in 2008/09 fiscal year alone. Investment growth in the real estate business too matches well with the boom the sector went through during the period. The figure of investment jumped to almost Rs 25 billion as of July 2009. With more than two dozen housing companies unveiling stand-alone houses and apartments, investment in real estate crossed over Rs 14 billion in the last fiscal year alone. Total loans going in real estate sector was just around Rs 2.5 billion till July 2007. Officials at Department of Land Reforms and Management attributed the growth to rapid migration and also to the change in lifestyle of growing high-end and middle income groups. While migration and preference to live in highly opportune and secure Kathmandu valley soared residential constructions, sharp growth of professionals and high-end middle income groups, who preferred developed houses and apartments over self constructed buildings, caused the boom of real estate. "There is a distinct dichotomy in the way the sector boomed. First it is the forced migration and secondly, preferred migration and shift in lifestyle by choice of the able and better-earning segment of the society," said Raju Basnet, planning officer at the Department. While the former is creating unorganized residential clusters, latter is giving rise to organized modern-amenities equipped residential areas and apartments. This is set to dramatically change the landscape of Kathmandu in the next five to 10 years. The demand for loans has opened a strong investment avenue for the banks and financial institutions. Besides, they argue that the investment in the sector remains well within their lending limits. Thanks to this change in living standard and also soaring spending capacity of the people, the commercial banks have found yet another lucrative avenue to invest: malls and departmental stores. The NRB report states that commercial banks have invested well about Rs 7 billion in non-residential constructions, including modern shopping buildings and malls as of the end of the last fiscal year. This figure too is three-fold rise in investment over the span of two years, just as in case of investment growth on housing and real estate. Commercial banks had invested just about Rs 2 billion in non-residential construction till July 2007.
Source: www.myrepublica.com By: MILAN MANI SHARMA
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