Central bank gives breathing space to banks, realtors

Central bank has finally relaxed the property base line for housing loan and extended time period for the banks and financial institutions to bring their exposure to the realty sector down by one-and-a-half year.
The property base line for home loan has been raised to Rs 10 million — from Rs 8 million — and banks and financial institutions can now bring down their exposure to real estate loans within 25 per cent of total lending by the end of next fiscal year 2012-13, the central bank said, in a move to provide relief to the ailing real estate sectors and the financial institutions, both. Earlier, the Nepal Rastra Bank’s had fixed the ceiling of personal home loans at Rs 6 million to increase later to Rs 8 million.
“The move will boost the confidence of the sector,” said Nepal Housing and Land Developers’ Association (NHLDA) vice president Om Rajbhandari, who is also a coordinator of the Urban Development Committee of Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
Some of the loans under real estate will now shift to home loan relaxing the banks and financial institutions, he said, it will create some space in the real estate loans and increase the lending capacity of the banks and financial institutions. The personal home loans are not calculated as the realty loans. “Similarly, the pressure of capping down banks and financial institutions exposure to real estate will be eased by extended time period.”
The central bank’s provisions should boost the buyers confidence as these policies will help develop organised urbanisation, he opined.
Due to low confidence of the home buyers, the sector is still reeling under a pressure putting the banks and financial institutions also under stress.
Last week, High Level Financial Sector Coordination Committee has recommended the central bank to relax the provisions to give a breathing space to both the housing and real estate, and banks and financial institutions.
Earlier, the banks and financial institutions were supposed to bring their real estate loan to 25 per cent by the end of current fiscal year. The central bank had capped them to prevent from systemic failure due to over exposure to the single sector.
The government is also planning to purchase house and apartments for residential purpose of civil servants apart from letting the apartments be used by hotels as the accommodations for the tourists. The government is also letting foreigners buy apartments in a bid to create new market for the housing sector.
However, the economists claimed that the move will postpone the problem — like earlier — as it’s not a permanent solution.