Real estate loans still vulnerable: NRB study

Following the volatile situation in the real estate, the loans floated to realty have remained static at Rs 139 billion in the recent months.
At the beginning of the fiscal year, the real estate loans including personal home loans up to Rs 8 million stood at Rs 139.8 billion that has gone down to Rs 139 billion by the four months into the fiscal year.
In the four months, the lent amount showed slight dip to Rs 138 billion by mid-August but did not change much forcing the central bank to take prompt action.
Of the loans floated by commercial banks, development banks and finance companies, the real estate loans comprise Rs 97 billion while personal home loans amount to RS 42 billion by the mid-November. Nepal Rastra Bank (NRB) — based on a study — has concluded that the real estate is over priced by 30 per cent since last three years suggesting the realtors to adopt price adjustment to stimulate the market.
"The artificially inflated price is the reason for the contracted demand leading to the slowdown of the market," said spokesperson for the central bank Bhaskar Mani Gyanwali.
The study conducted by the Nepal Rastra Bank revealed that housing and land registration in the surveyed districts have gone down by 31.08 per cent in the last fiscal year, following the cooling down of the realty market. In the preceding fiscal year, the registration had increased by 13.2 per cent. In the Kathmandu valley, the registration is down by 51.77 per cent in the review period, in the fiscal year 2009-10 the registration had declined by 14 per cent.
In the first quarter of the current fiscal year alone the land and house registration have cooled down by eight per cent. The slowdown in the realty market has also hit the revenue collection by 36.9 per cent in the last fiscal year. The once booming realty got busted when the central bank announced the cap on the lending to realty sector to 25 per cent of the total loans in December 2009 fearing the asset bubble.
The easy availability of the loans had fuelled the real estate speculation to new heights. The creation of separate personal home loan category by the central bank to facilitate prospective home buyers and developers also did not so much in boosting the market. Despite doing away with income source declaration for the purchase of real estate worth less than Rs 10 million and slashed fifty per cent in Capital Gain Tax rate, the market did not react in the expected manner. Despite the cool down of the market from last one year the real estate price has not seen any adjustment. The central bank has also asked to revise price as the solution for the relaters.
"NRB will do everything prudent to promote real estate sector due to high exposure of financial institutions' lending to the sector," pointed out Gyawali citing central bank's move of increasing the ceiling on personal homes loans and simplifying the condition for loan restructuring of realty loans.
The realtors and bankers have demanded the central bank to allow loan rescheduling with the payment of outstanding interests alone, availability of refinancing facility from NRB at lower interest rate and upgrading the home loan ceiling for personal home loans.
"The banks are expected to see their Non Performing Assets (NPA) increasing in the second quarter following the realtor's inability to pay back their interest and principals due to slowdown in the market," according to bankers and realtors.