Housing may get breather from loan-cap

Central bank might separate home loan from real estate cap giving a breathing space to the cash-strapped banks and real-estate sector.
Nepal Rastra Bank governor Dr Yubraj Khatiwada indicated that the central bank doesnot want any sector to be hurt due to its directives, though it will continue to work for the healthy financial sector. However, he suggested the real estate entrepreneurs to build housing units at the range of Rs 3 million to Rs 4 million that is within people's purchasing power.
"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 ''Real Estate sector and its contribution on economy,' organised by Nepal Land and Housing Developers' Association (NLHDA) in the Valley today.
He also suggested the bankers to asses risk before lending in a single sector. "Only profit bench-marking should not be the lending criteria," he said, indicating that the mid-term review of the Monetary Policy might separate the home loan and real estate loan.
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 in housing loan for developers and home loan for users," said Om Rajbhandari, vice-president of the NLHDA. "The cost of the developers and buyers both has increased due to the central bank's cap on real estate loan."
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 the 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 banks.
"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 cash-crunch commercial banks hard. Commercial banks have roughly lent Rs 50 billion in the sector.
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 from post 1990, it faced a favourable climate fuelling the land transactions high up. "It was the Recovery Phase of real estate," Rajbhandari said, adding that after some years due to excessive price hike, it fell down a little around 1998.
"In the year 2000, the sector touched the Prosperous Phase because not only land transactions increased, but with the introduction of new concepts like Community Living, other product as housings in well developed lands along with all necessary infrastructures were also very much in demand," according to him.
"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 Fiscal Policy like income source to show in case of ownership of land worth Rs 2.5 million 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 the policies, the sector 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," he 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.