Housing developers will be at an advantage while the real estate sector will see darker days as the central bank has issued a new directive on Tuesday redefining realty and housing sectors. The directive is akin to the stand taken in the Monetary Policy this year. As per the new directive, banks and financial institutions (BFIs) will have to bring down their exposure to housing sector to 25 percent within the next two years and the exposure to realty sector to 10 percent. Only if the housing is constructed either for residential or business purposes will it be defined as housing sector. The new directive says that until construction activities for housing are started, land transactions will be considered real estate. The central bank has, however, been flexible towards both the housing and realty sectors, allowing the BFIs to gradually reduce lending to housing sector to 30 percent within the current fiscal year and 15 percent to realty sector. But, if the BFIs have exposure less than 25 percent in housing and 10 percent in realty sector, they cannot increase lending to these sectors. “Our ultimate goal is to reduce exposure to both sectors to a comfortable level within two years,” said a senior Nepal Rastra Bank official. “That’s why the directive says not to allow the BFIs to lend excessively to these sectors and those BFIs which have already done so should reduce the exposure as set by the directive.” After the country witnessed a real estate bubble for the last few years until first half of last year, the central bank took stringent measures to prevent any bust in the sector which could bring down the whole banking sector. Amid intense pressure from the realty and housing entrepreneurs, the central bank took a selective approach to housing and realty sectors. It made policy relaxation for housing sector and tightened it for the realty sector. Earlier, there was a reverse policy allowing the realty sector to get up to 25 percent loan while housing could get up to 15 percent only within a ceiling of 40 percent for the last fiscal year. President of Nepal Land and Housing Developers Association Ichchha Raj Tamang said that the NRB’s latest policy on housing sector would give some relief although it would not give a huge boost. “It should be taken positively amid the banking sector facing liquidity crisis for several months.” According to him, there was demand though to keep the single obligor limit at 50 percent for both realty and housing sector. The stringent measures on the part of central bank against the realty sector have seen the sector getting increasingly constricted in the Kathmandu Valley. Realty transactions in major five Land Revenue Offices (LRO’s) of the valley went down by 50 percent in the second month of the current fiscal year compared to the same period last year. Imposition of capital gains tax and provision of compulsory income source disclosure also contributed to the decline in the realty sector, according to land traders. The revenue collection of all five major LROs accounted for Rs 264 million in those two months compared to Rs 524.75 million in the corresponding period last year. Of the total collection of Rs 264 million, Dillibazar LRO contributed the highest—Rs 97.52 million followed by Chabahil LRO—Rs 60.39 million. The Kalanki LRO’s collection stood at Rs 36.36 million. Collection at the other two LRO’s—Bhaktapur and Lalitpur—has also gone down significantly. The collection at the Bhaktapur LRO went down by more than 54 percent to Rs 31.41 million. Lalitpur LRO lost revenue by more than 61 percent to Rs. Rs 38.30 million. Tamang said that land price was not going down despite a shortage of credit for the sector in recent days. Source:The Kathmandu Post
Housing developers will be at an advantage while the real estate sector will see darker days as the central bank has issued a new directive on Tuesday redefining realty and housing sectors. The directive is akin to the stand taken in the Monetary Policy this year.