LROs achieved only half of revenue target last fiscal

Recession in the realty sector as a result of the Nepal Rastra Bank (NRB) discouraging lending in the sector continued throughout the last fiscal year.

Realty transaction in the country dwindled sharply, hitting the government’s revenue collection. Land revenue office (LRO)s were able achieve only half of the revenue target. Revenue collection in FY 2010-11 stood at Rs 3.2 billion against the target of Rs 6.30 billion. The collection dropped by 46.5 percent compared to Rs 6 billion collected in the previous year, according to the Department of Land Reforms and Management (DoLRM).

Since the central bank first capped realty lending in January 2009, banks and financial institutions (BFIs) had to bring down their exposure to the booming realty sector. Then, some slowed the lending, while some halted, resulting in slowed transaction in the sector.

Although the central bank has offered some relaxation for the sector in recent months, it has not revised the deadline set for BFIs to reduce their exposure to the sector. BFIs have to reduce their realty sector loan exposure, including for both housing and land, to 25 percent within the current fiscal year. The exposure to land should not be over 10 percent, as per the NRB directive.

Gobinda Prasad Shapkota, director at DoLRM, said land revenue offices failed to achieve revenue targets as the targets were not set based on the ground reality that realty transactions were falling.

Realty traders say the provision of income source disclosure in land transactions worth more than Rs 3 million and land and houses worth more than Rs 5 million also discouraged realty transactions. “The capital gain tax was the other factor discouraging the sector,” said Ichha Bahadur Wagle, vice president of Nepal Land and Housing Developers Association.

Now, the budget for the current fiscal year has exempted real estate trading worth less than Rs 10 million from disclosing income source which is expected give some relief to the sector.

Overall revenue from realty trading went down due to major drop in collection in the Valley, as Valley-based LROs contribute more than 50 percent to the total revenue. Collection from Valley-based five big LROs declined by 48 percent compared to the previous year. They collected just Rs 1.54 billion last year against Rs 2.97 billion in the previous fiscal year. Realty transactions in core areas of Kathmandu witnessed a decline of 40 percent in the last fiscal year. The biggest Dillibazaar LRO collected just Rs 564. 5 million compared to Rs 936.69 million in FY 2009/10. Likewise, all other Valley-based LROs fell short of their revenue targets.

Despite sharp decline in trading, realty traders are not showing urgency to sell property. “Although realty transactions have nose-dived, it hasn’t affected prices,” said Wagle. “Those holding big plots of lands are still waiting instead of selling them at low price.”

Given the possibilities of defaulting bank loans by those holding land, the central bank has taken one after another relaxation measures in the recent months. Recently, it allowed BFIs to renew realty loans for one more year if borrowers clear all outstanding interest. The central bank also increased the size of home loans that are not categorised under realty loans to Rs 8 million from previous Rs 6 million, helping BFI’s reduce their realty exposure.

In order to increase investment in commercial and residential housing, the budget for the current fiscal year has also made a provision to allow Non Resident Nepalis to purchase such houses or apartments. Similarly, foreign individuals or companies will be allowed to purchase such flats or apartments worth $200,000 or above.

Wagle lauded the government’s efforts but asked for some more to the save the realty and housing sector.

Revenue Collection in Kathmadu Valley

LROs F Y 2010/11 FY 2009/10

Dillibazaar 564.5 million 936.69 million

Chabahil 338.93 million 451.27 million

Kalanki 217.41 million 671.75 million

Lalitpur 254.80 million 527.52 million

Bhaktapur 171.35 million 386.74 million

Total 1.54 billion Rs 2.97 billion

Source:thekathmandupost

1Ropani