Civil Saving and Credit Cooperatives faces bank run

Civil Saving and Credit Cooperatives is facing a liquidity crunch after mass withdrawals by depositors. The Pokhara-based cooperatives today appealed other cooperatives to bail it out as it has faced bankruptcy due to mass withdrawal. The bank run in the cooperatives started after the media reports of its imminent collapse, the cooperatives said, organising a press meet, today.
Civil Saving and Credit Cooperative – operated by the Civil Group led by Ichchha Raj Tamang – today accepted that its cash flow had dried up. “We are not fully bankrupt but we are facing a liquidity problem due to mass withdrawal after multiple media reports,” said chairman of the Civil Group, who is also the founder of Civil Cooperative, Tamang.
Though Tamang – in the press meet – claimed that the cooperative has not violated government laws, the Civil Saving and Credit Cooperatives has lent huge amount to its operators, which is against the Cooperative Act 1992. The Act bars cooperatives from issuing more than 20 per cent of its loans to an individual borrower. Tamang, however, claimed that the cooperatives has started reforms by diversifying the business. “Civil Saving and Credit Cooperatives is now investing in hydropower, information technology and the hospitality business,” he said, refuting the charges that the cooperative had conducted financial dealings with Civil Bank, a commercial bank operated by the group.
The cooperative – which has also investment of Rs 140 million by the National Cooperative Bank – had overexposed itself in the real estate, hotel and hydropower sectors, which dried up its liquidity.
The Civil Group has investments in 21 different types of businesses. But the cooperative has exposed its investment in a single sector in Civil Homes – a housing company that is currently working on its ninth project in Godavari – that has sold more than 1,000 units of standalone houses and apartments. “The cooperatives has invested around 90 per cent of its deposits totalling to Rs 7.5 billion in the realty business operated by the group,” informed the sources in the cooperatives that according to them, the cooperatives has faced the liquidity problem also due to lack of good governance practice.
The cooperative department under the Kathmandu Metropolitan City has urged Civil Saving and Credit Cooperative to implement corrective measures in time or the department will be forced to take action against it. The department has also asked the cooperative to create a three-year plan to revise its portfolio management and launch other measures to avoid going into liquidation.
Recently, some of the cooperatives have been facing liquidity crunch – something like it happened a decade ago – and the government has declared some 11 cooperatives including Societal Saving and Credit Cooperative a ‘troubled institution’ due to unsound lending practices, exposure to the volatile real estate market and embezzlement by their promoters.
There have been some 130 crisis-ridden cooperatives misappropriating at around Rs 11 billion of people’s savings, according to report prepared by a commission headed by Gauri Bahadur Karki some five years ago. “Most of the crisis-ridden cooperatives, including Oriental Cooperative that alone embezzled around Rs 5.5 billion, landed in trouble because of their board members’ involvement in misappropriation, and huge exposure in the realty sector,” the report reads.

7th property expo to kick off on June 15

The 7th edition of NLHDA Property Expo 2018 is going to kick off on June 15 at Bhrikutimandap in Kathmandu.
The five-day expo organised by Nepal Housing and Land Developers Association (NLHDA) – the apex body of housing and land developers in Nepal – is a one-stop solution for the entire eco-system of housing and land development sector. The event will also focus on housing sectors including commercial and business property, architecture, construction, building, engineering, habitat environment, said the organiser that is focusing on real estate market and home buyers.
The association said that investment in housing accounts for 15 per cent to 35 per cent of the country’s total investment. It is also estimated that more than Rs 400 billion has now been invested in real estate. But the housing market has suffered a lot after the devastating earthquake in 2015.
By 2023, 900,000 new construction projects will be required to meet the demand for 1,364,000 homes nationally, the association claimed, adding that Increasing the number of municipalities from 58 in 2011 to 217 to 2016 has fuelled rapid growth of urbanisation. "Industry experts agree that Kathmandu valley accounts for 42 per cent of the organised real estate sector and that the present annual national demand for houses and apartments is around 140,000 units, whereas Nepal is only able to construct 25,000 units per year. The housing construction has been increasing by 20 per cent to 30 per cent annually."
The Property Expo will host about 150 exhibitors covering an exhibition area of about 6,000 sq-metres both indoors and outdoors.
The expo will bring together home buyers, land plot buyers; commercial premise buyers and tenants, real estate agents and brokers, engineers, architects, town planners, environment and landscape consultants.
Similarly, interior designers, renovation designers and contractors, building material suppliers and distributors, construction equipment producers and dealers, construction contractors and managers, builders and property developers, property and facility managers, plumbers, electricians and lighting professionals will gather in a single platform, the organiser said.

Low-end housing in high demand

Low end housing products are in high demand in the Valley, according to a study on housing market released here today.

Stand alone housing or apartments priced between Rs 5 million and Rs 10 million are in high demand in the Valley, said the study ‘Real Estate Market Outlook 2013’ conducted by Brihat Investment in the Kathmandu Valley.
There is a higher demand for low end, ready to move in and instant ownership transferable units, said coordinator of Urban Development Forum under the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) Om Raj Bhandari, presenting the report that has revealed that most of the customers are seeking cheaper housing products.

Though customers are also interested in apartments, the demand is still high for independent housing units, he said, adding that some 76 per cent of housing projects have already been sold, while only 51 per cent of apartment projects have been sold as of this July. “There are a total of 1,975 housing units and 4,307 apartment units in the valley.”
Of them , some 82 per cent of housing and 72 per cent of apartment projects were sold had price range of Rs 5-10 million, the report revealed, adding that of the 858 housing units with a price tag between Rs 5 million to Rs 10 million, some 702 were sold. “Likewise, 829 out of the 1,147 apartment units in the price category of Rs 5 million to Rs 10 million were also sold.”
The average price for housing units stands at Rs 12.3 million, whereas the price of an apartment unit is Rs 9.2 million, it added.

But the sale is not discouraging, Raj Bhandari said, adding that some 59 per cent of the housing and apartment units have been sold.

The survey has covered 22 housing projects – out of 50 – and 22 apartment projects – out of 66 – in the Kathmandu Valley, which is 44 per cent of housing projects and 33 per cent of apartment projects.
The real estate sector that has over Rs 100 billion investment as according to the report the total amount of the surveyed projects alone have an investment of around Rs 64.4 billion, including Rs 24.25 billion in housing projects and Rs 39.75 billion in apartment projects that is 37 per cent and 63 per cent, respectively.

“Some 467 units of homes and 2,107 units of apartment are on sale at present,” according to the report. “Considering the current trend at which housing and apartment units are being sold, it might take between 14 and 41 months to clear off the inventory.”
The report also revealed that the apartments in Lalitpur are facing difficulty in sales. “Likewise, fiscal year 2007-08 saw the highest number of housing and apartment projects registration and launching but they have been declining in the later fiscal years.”The report has listed preference for owner built houses, lack of buyer confidence, change in customer preference and lack of flexible financial plans as some of the major challenges.

Speaking on the occasion, president of Nepal Land and Housing Developers Association (NLHDA) Ichchha Raj Tamang urged the government and the banks and financial institutions to liberalise lending policy for the realty sector as it has tremendous growth potential.

Cooperatives Housing Policy on cards

Joint secretary at the Ministry of Urban Development Suresh Prakash Acharya, on the occasion, said that the ministry is trying to introduce a slew of new concepts in the real estate sector including National Housing Policy.
“The ministry is introducing cooperative housing concept to cater to lower-middle- and middle-income groups through cooperatives,” he said, adding that the ministry is also introducing a new working plan to separate rental housing – specifically designed for urban poor – as 40 per cent of the urban population lives in rental. “In Kathmandu Valley alone, some 58 per cent people live in rental, according to the latest census,” Acharya added.
However, almost 50 per cent of the households in Kathmandu Valley live on rent, according to Nepal Living Standards Survey 2010-11. “The Employment Provident Fund (EPF) that lends the government employees, who are its depositors, for housing could be attracted to the housing projects.”

Loan exposure to realty sector dropped

Loan exposure of banks and financial institutions to the realty sector has dropped to 8.7 per cent, according to central bank deputy governor Maha Prasad Adhikari. The central bank in 2009 tightened lending to the realty sector by the banks and financial institutions as they were overexposed to in the single sector increasing systemic risk. “The central bank put a breaker to the speculative real estate market three years ago,” he said, adding that the intervention has saved the financial system as it is sound today. “There is no threat to the financial system from existing real estate loans as it has plunged to 8.7 per cent compared 14 percent recorded some three and half years ago. Total lending in the realty sector – including individual land plots and homes – has reached Rs 153 billion. If lending on individual land plots and homes is excluded, it comes down to Rs 64 billion. However, the housing projects within reach of the common people would not only boost the buyers’ confidence but also expands market for managed housing.” Adhikari added.

Government ready to buy 88 units of houses and apartments for judges, secretaries to boost confidence of realtors

The suffocating housing sector might get a lease of fresh breath in a month as the government has identified some 88 units — 66 units of apartments and 22 units of houses — for secretaries and judges to rescue the sector.

The government has decided to buy 22 units of houses for judges and 66 units of apartments for secretaries and is currently preparing procurement procedures, said vice president of Nepal Land and Housing Developers' Association (NLHDA) Om Rajbhandari, who is also coordinator of the FNCCI Urban Development Committee.

"Though the number of units has been finalised, it has yet to finalise the location," he said, adding that the government is preparing the basic criteria to identify the location.

The move will also increase confidence in apartments, as according to tradition, Nepalis prefer independent houses to apartments, Rajbhandari added. "When secretaries themselves buy apartments, common people will follow suit."

The government's move is expected to not only build public confidence in the sector but also inject fresh cash in the sector that has been cash-strapped.

However, it will take a month, he said asking the government to allow all government employees to buy homes from their deposits of provident fund. "It will increase the level of social security among public servants and also reduce corruption," he suggested. "All public employees should be allowed to buy houses or apartments of their choice with a long-term EMI plan that will push the housing sector — that is currently stagnant — ahead from the current bottom levels to a recovery stage."

Though people are ready to buy houses, recent incidents have made them lose confidence in the sector.

A recent study of the central bank has also revealed that the prices of houses will pick up. "House and land prices have declined by around 30 per cent as compared to last year," the central bank survey has stated, adding that some 43 per cent developers expect prices of land and housing to go up by 15 per cent to 30 per cent.

"Likewise, some 40 per cent of the developers expected transactions to pick up by around 20 per cent," said the central bank’s quick field survey of Land Offices, municipalities, urban development agencies, members of district chambers, and land and housing developers in 10 major districts — Morang, Dhanusha, Parsa, Rupandehi, Kaski, Banke and Kailali — including three districts in the valley — Kathmandu, Lalitpur and Bhaktapur — to gauge the risks due to higher exposure of banks and financial institutions in a single sector.

Real estate loan at risk

Finance Ministry suspected that the real estate companies have not been depositing the money they have been collecting from booking their products making the real estate loans more vulnerable.
"Some 15 per cent of the total booking amount has yet not come to the banking channel," said finance secretary Krishnahari Baskota. However, the real estate developers have claimed that they have been honestly depositing the booking amounts. "We have also been serving the interests, though it’s difficult for us due to slowdown in the business," said one real estate developer without wanting to be quoted.
But the ministry has calculated that the 15 per cent of the total booking amount has still been out of the banking channel and is under heavy risk. The banks and financial institutions have lent around Rs 100 billion to the real estate, according to the central bank data. The slowdown in the real estate has hit the banks and financial institutions as they have to provision more for the loans that are gone worse.
On one hand the banks and financial institutions have been under pressure to maintain Credit to Deposit (CD) ratio — according to the central bank's directives — and on the other, their loan to the real estate sector has been under risk due to slowdown in the real estate business adding pulling their growth rate down. The profit growth rate has come down to almost half in the third quarter compared to the same quarter of the last fiscal year.
Some of the banks and financial institutions have managed to sail through the crisis but others have been feeling the heat which has been reflected in their third quarter report. The overall all profit growth rate has gone down with increased loan loss provisioning and non-performing assets. The average non performing assets of the banks that stood at 3.5 per cent by the end of the second quarter have gone up to almost four per cent due to single sector concentration in the real estate, according to the banks.
The banks, however, claimed that their loans to the real estate sector has not gone bad but has been delayed due to slowdown in the business.
Similarly, the real estate developers have been asking the government to pump Rs 25 billion into the sector to make it moving, which could help the sector resurrect.

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.

Government plans to rescue housing sector

The Finance Ministry has pointed out the price adjustment as a way out for the housing developers from the current dumps.
Talking to the media at his office today, finance minister Barsha Man Pun said that the government is planning to bring a rescue package to the housing, if the developers are ready to lower the price down.
"The price should come down and the government will think of helping them out of the current slump," he said, adding that the ministry is suggesting the residential builders to transform the apartments to apartment hotels as the tourist arrivals have seen an encouraging growth and the hotels have been unable to accommodate them.
Pun also assured that the government can buy some of the apartments, if the need arises and use it.
A study conducted by Nepal Rastra Bank (NRB) has revealed that the real estate is over priced by 30 per cent since last three years. 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 forwarded price revision as the solution for the relaters to stimulate the market.
The realtors have been pressurising the government and the central bank to come up with plan in order to salvage them from the bust. They have been demanding refinancing and restructuring facility from the central bank on the loans they have borrowed to construct the buildings. The sales of the housing and land units have gone down in recent times as the speculators in the realty have realised the asset price will not increase any time soon like it did during boom.
The contraction in demand has made the loan repayment for the development a difficult affair.Central bank governor Dr Yubaraj Khatiwada has also cautioned that with the burst of real estate bubble, the amount of Non Performing Assets (NPA) of the financial institutions will be going up in the near future.
"The financial institutions' loans to real estate will be going bad following their inability to pay back loans as asset price will not skyrocket once again like it had before," he said, warning that the financial institutions that have disregarded regulators' direction and lent more than 60 per cent of collateral valuation will be the one to get in trouble first.

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.

Look outward policy can save real estate sector

Nepalis Direct Investment (NDI) and Foreign Direct Investment (FDI) can resurrect the domestic real estate business, according to a real estate entrepreneur.
"For those Non-resident Nepalis (NRNs), who want to create asset back home, the government can help them by making favourable policy,” said Om Rajbhandari, managing director of Comfort Housing.
“In the first phase, we need to attract the investment from the Nepalis living abroad,” he said, terming the NRNs Direct Investment as NDI -- the word coined by himself.
"From their hard earned money, the NRNs can create asset back home,” he said, adding that the Nepal Land and Housing Development Association (NLHDA) can organise Housing Exhibition for those NRNs abroad, who want to buy home back in Nepal.
He opined that Nepal can also attract Foreign Direct Investment (FDI) by giving expats ownership of apartments. "In each apartment project, 20 per cent to 30 per cent of the total units could be allowed for the expats,” he said, adding that those expats, who are more than 50 years of age can get retirement visa and own an apartment in Nepal.
Meanwhile, the increasing trend of constructing unmanaged residential buildings in the fertile land has forced the government to revise the National Building Code to manage and facilitate modern amenities to address increasingly unmanaged urbanisation and housings.
The decade long insurgency has forced the people to migrate to the urban areas for security reasons speeding up the urbanisation without proper planning and infrastructure.
Among government, private builders and individuals, culturally, the individuals are more inclined to construction of houses as traditionally house gives a sence of security in the society. But the individual construction has been more unmanaged and unplanned.
"The private developers can create a small city or satellite city with all the necessary infrastructures that could lead to planned development,” said Rajbhandari, one of the private developers. "The planned city will serve as the focal point of the multiple dimensions, providing a variety of attractions that promote public enjoyment and appreciation of the area, acting as the anchor of the nation and promoting decentralisation concept too.
"With mass employment opportunities, Multi Dimension Cities (MDCs) will surely be beneficial for people and generate huge revenue for the government too.
The government has also planned 10 new modern cities for business and residential purpose in the vicinity of Mid-hills Highway and North-South corridors. The budget for the current fiscal year has promised infrastructural mapping after the identification of the location and completion of their feasibility studies.
Though, the government has also been involved in the 'People’s Housing Programme' -- that is given continuity in this fiscal year's budget too -- that is extended to Chepang, Raute and Kusunda community’s settlement areas, the private builders are the key players in the sector.

Approach Paper
KATHMANDU: The finance ministry has formed an internal committee to prepare approach paper to loosen the real sector and allow expats to buy apartment. The committee is expetected to submit the approach paper on Monday, according to finance secretary Rameshwor Khanal. In a major policy shift, the government is planning to let the expats buy human-erected apartments.

Nation's first-ever trade survey

The Central Bureau of Statistics (CBS) has conducted a trade survey for the first time.Distributive Trade Survey-2009 is expected to give updated data that can figure out the real contribution of internal trade to the gross domestic production (GDP).
"The result of the Distributive Trade Survey-2009 will give a benchmark of internal trade," said Shankar Lal Shrestha, trade statistics section director at CBS. "However, the result is expected by the end of this fiscal year only.
"The survey took one year to be completed. "We have just completed the field work," Shrestha said adding that though the department had previously conducted Trade Margin Survey -- for the purpose of national accounts that was only enough for the calculation of internal trade's contribution to the GDP.
According to the Trade Margin Survey conducted six years ago in 2003, internal trade's contribution to GDP is 13.72 per cent."The Distributive Trade Survey will have elaborate figures of wholesale and retail trade and employment generated by both as well as capital formation and financial positioning that were not included in the Trade Margin Survey although it was enough for the calculation of GDP," Shrestha added.
The Distributive Trade Survey will also provide quality data with more statistics and provide a new benchmark according to the new scenario as it has a coverage frame of 3,000 out of 60,000 identified trade points.
At a time when the business and economic climate in the country is deteriorating, the survey might also be an eye-opener for the government.
CBS -- established in 1959 under the Statistics Act-2015 BS as the central agency for the collection, consolidation, processing, analysis, publication and dissemination of statistics -- publishes a National Life Style Survey on an annual basis.
The department also conducts crop and livestock survey once a year apart from a CPI every three months. It conducts periodic surveys like Labour Survey every five years. But it has conducted domestic Labour Survey in ten years this year.

Sector wise contribution to GDP
Agriculture and Forestry -- 32.35 per cent
Trade -- 13.72 per cent
Transport, Storage and Communication -- 10.46 per cent
Real Estate and business activities -- 8.33 percent
Manufacturing -- 6.79 per cent
Construction -- 6.42 per cent
Education -- 6.02 per cent
Financial Intermediaries -- 4.79 per cent