Realty market shrinks by half

KATHMANDU, July 27: Sales of land and housing have dipped by more than a half over the past one year as the central bank instructed banks to lower their realty loan exposure and the banks tightened credit in the sector.

“The demand slid strongly and transactions reduced to less than half, compared to a year ago, in both the Kathmandu Valley and outside,” said Tulasi Ram Vaidya, an official at the Department of Land Reforms and Management.

Even though dealers cut prices in some areas by as much as 30 percent to lure buyers, that had failed to revive buyers´ confidence.

As a result, the government earned mere Rs 3.21 billion in revenue from realty deals in 2010/11, whereas it had collected around Rs 6 billion in the previous year. The collection was almost half of the target of Rs 6.30 billion that the government aimed to earn during the year.

Vaidya who watches the market closely said the transactions in the Valley shrank much sharply than outside the Valley.

In the Valley, transactions dipped the most in the north and north-western parts of Kathmandu. “Transactions in these areas slipped by as much as 54 percent, compared to the previous year,” said an official at the Land Revenue Office at Kalanki.

Transactions in the northern and eastern parts of Kathmandu also dropped by around 53 percent. Lalitpur and Bhaktapur districts also saw transactions dip by 52 percent each.

Interestingly, transcations in the city core of Kathmandu, which has the most expensive land and is generally not affected by the realty slump, has also witnessed a drop of 41 percent in land transactions.

Given the situation, Vaidya along with analysts like former finance secretary Rameshore Prasad Khanal opined that land transactions will not pick up anytime soon.

“There is only one condition for the market to rebound; the unnaturally bloated price of land must crash. But developers and plotters are still trying to control the price at the level of boom period that existed till 2 years ago. This will not help,” they stated.

However, Bhesh Raj Lohani, secretary of Nepal Land and Housing Developers´ Association (NLHDA) disagrees.

“The latest decision of the budget to halve capital gains tax (CGT) and relaxation of loan renewal by the central bank has revived confidence in the market. We anticipate it to show results in a few months,” he stated.

However, as land transactions are mostly backed by bank loans, which are still difficult to get, Lohani failed to explain how will the commoners get money to finance their procurements.

As for housing business, experts like Buddhi Narayan Shrestha said the situation could turn favorable in days to come as Nepal Rastra Bank (NRB) has relaxed issue of home loans.

Realty boom had stretched out of the Kathmandu Valley, inflating asset bubble in cities like Pokhara, Butwal, Dang, Bharatpur, Hetauda, Biratnagar, Dharan and Itahari some two years ago as BFIs invested in the sector aggressively.

But it started to take corrective course after NRB intervened in the market, capping the BFIs loans exposure in the sector in January 2009.

The slump, however, has turned the BFIs, mainly financial institutions jittery, as borrowers have stopped repaying loans. That has already contributed to deepen liquidity crunch in the financial system, apart from threatening to bloat their non-performing and non-banking assets.

Source:myrepublica

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