KATHMANDU POST ROUND TABLE: Real estate woes: Bankers, developers at variance

Housing developers and bankers still have varied opinions when it comes to the safe landing of realty loans and revival of the realty sector.

Realty developers sought more concessions, including refinancing facility to the housing sector, while bankers say the remedy measures will not address the problem in a propoer way.

At a Round Table—Reviving Realty Sector: Challenges and Opportunities—organised by The Kathmandu Post on Wednesday, realty developers asked the government to provide refinancing facility to the housing sector and allow banks to restructure their realty loans without provisioning, at least once.

Nepal Land and Housing Developers Association (NLHDA) President Ichha Raj Tamang said although the government has addressed some of their demands, the realty sector’s woes are far from over. Tamang requested the Nepal Rastra Bank (NRB) to allow banks to categorise realty loans up to Rs 10 million as housing loans. “Moreover, if the central bank increases the threshold lending to real estate to 30 percent from the existing 25 percent, it will give some breathing space to banks as well as real estate developers,” said Tamang.

Other demands of housing developers include NRB allow banks to provide housing loans up to 80 percent of the fair market value. Currently banks are allowed to lend 60 percent of the market value.

They also asked government to bring the concept of ‘first home buyer’, under which buyers are provided with tax subsidy. “This concept can stimulate the demand for residential apartments and make the market vibrant,” said NLDHA General Secretary Min Man Shrestha. “It is high time that government address our demands to resurrect the realty sector. Otherwise it will collapse, dragging down the whole financial system and the economy.”

Bankers, however, said realty and housing developers are yet to diagnose the major problem and that the remedy measures they are seeking are unlikely to address the situation. The measures taken such as postponing the interest collection deadline will not solve the problem, but will procrastinate it, they said.

Bankers also said refinancing is not the present need as banks are already in a comfortable liquidity situation. NIC Bank CEO Sashin Joshi said banks’ investment in the realty sector stands at just 18-20 percent of their total lending. “Therefore, banks still have the appetite to invest in the sector, provided that the projects are viable,” said Joshi. “There is no need to increase the threshold lending to real estate to 30 percent.”

Bankers also criticized realty entrepreneurs’ request to NRB about allowing banks to provide housing loans up to 80 percent of the fair market value. They said it is up to banks to decide the extent of debt financing.

In the context of realty entrepreneurs doing business with high debt-equity ratio, it is unlikely that they will get further leverage from banks despite relaxations. Despite NRB’s relaxation in margin lending, banks are still reluctant to make high leveraged lending to such sectors.

Joshi said any effort for the safe landing of investments made in land with a speculative motive will be futile. “It has also been observed that even the housing and apartment were purchased with such motives instead of personal consumption,” he said. “When the sector was booming, every individual, irrespective of their background, tried to make money, which further worsened the situation.”

NRB Deputy Governor Maha Prasad Adhikari said the crux of the problem was realty entrepreneurs’ and banks’ treatment of fixed asset as current asset against the fundamental principal of financing. “They forgot that fixed assets can never be converted into current assets,” said Adhikari. “As a result, investments worth billions in real estate sector have frozen.”

He suggested realty developers to get over from the hue and cry and identify the problem which is at the grass-root level. Adhikari ruled out any possibility of systemic risk like that Europe and the US, as the size of the investment here is far lower. He indicated that government can bail out entrepreneurs is such risks arise.

Another participant, Comfort Housing CEO Om Raj Bhandari said still 24 percent of the population in Kathamndu stay in rented houses, which indicates that there is still demand for housing. He suggested fellow developers to convert housing apartments to service apartment, targeting the flourishing hospitality sector.

FNCCI Vice president Pradeep Jung Pandey demanded that the government identify the realty sector as an industry as it has multiplier effect on the economy due to its link to different other manufacturing industries like cement, iron, steel and brick, among others.

Source: the-kathmandu-post

1Ropani