NRB urged to relax realty loans cap

Land and housing developers reeling under realty market turmoil since a year Wednesday asked Nepal Rastra Bank (NRB) to revert its decision of tightening credit to real estate.

Under the fresh proposal, which bankers also supported, they pushed the central bank to maintain the cap on realty loans exposure at 40 percent, as provisioned last year, instead of 25 percent.

The central bank had imposed a cap as surge in loans to real estate spurred asset bubble exposing financial sector to a grave risk last year. It had tightened the cap further in the new monetary policy announced for this fiscal year.

“Unfortunately, this tightening of credit has plummeted demand, hitting our business and eroding our capacity to repay loans,” said Om Rajbhandari, third vice president of Nepal Land and Housing Developers Association (NLHDA).

Amid credit crunch and soaring lending rates, land and housing transactions have stagnated across the country, dragging down the property prices.

According to dealers, prices of land in the Kathmandu Valley has slipped by as much as 30 percent as housing developers are pushing the sales by announcing schemes like car for free on purchase of an apartment.

“Numerous housing developers are facing problems to sell their units, while others that recently started their projects have no clue on what to do with their ventures,” said Rajbhandari.

Speaking at a program on challenges facing the real estate business, land and housing developers mainly expressed wariness over repayment of loans. Bankers too echoed their concern, admitting that it could hurt finances of banks and financial institutions (BFIs).

According to an estimate, real estate and housing business has drawn investment of some Rs 200 billion, including some Rs 95 billion of commercial banks alone.

“If only 10 percent of that loan is defaulted, it will create severe pressure on the banks,” said Rajan Singh Bhandari, chief executive of Citizens Bank International.

He along with other bankers like Parsu Ram Chhetri pushed the central bank to relax the cap to 30 percent for this fiscal year and tighten it to 25 percent for the next fiscal year. But Chhetri attributed the current credit crunch to the protracted liquidity crisis.

Developers also urged the government to open apartment sales to foreigners as well. This, they said, would open new window of demand, raising hope for the revival of the business.

While they also floated different proposals for planned urbanization and formal growth of real estate business, economists like Dr Pushkar Bajracharya and Keshab Acharya laid emphasis on the need to control speculation.

NRB Governor Dr Yuba Raj Khatiwada, who listened to developers and banks for more than two hours, meanwhile, blamed both bankers and developers for creating asset bubble and forcing the central bank to intervene into the market.

He defended the central bank´s intervention as a step to correct the market, and even suggested the developers to unveil products like low cost housing targeting middle income group.

Source: myrepublica

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