KATHMANDU: People are investing in real estate due to unavailability of proper investment alternatives in the country.

Most people are not buying land, houses and apartments for residential purposes instead they are taking it as an alternative investment fuelling the price. “Thus, the exponential price rise of lands and housing is not being driven by actual users but by the investors,” according to the experts. Of late share prices are nose-diving rapidly repelling people from investing in shares. Similarly, the unattractive interest rates offered by banks and financial institutions has also encouraged people to invest in houses and apartments as an investment alternative.

Some of the people also prefer hoarding gold or buying land and houses as an investment, considering the fact that real estate is fairly safe and risk-free.

Currently, there are, around 3,385 units of apartments and about 150 real estate and housing companies operating in Nepal. According to chairman of Comfort Housing Ohm Rajbhandari, the annual demand for houses and apartments stand at 43,000 units but the real estate sector is constructing barely 10,000 units per year.

Commercial banks alone have floated loans worth Rs 445 billion in the sector in the last fiscal year.

Due to easy and cheap bank loans and remittances inflow, investments in the real estate had flourished. Thus, to prevent the overheated real estate bubble from bursting, the central bank brought a directive in December 2009 imposing a cap on financial institutions’ loan exposure in real estates. The Nepal Rastra Bank (NRB) has directed all types of financial institutions commercial banks, development banks, finance companies and micro-finance companies to limit their real estate loans to 25 per cent of their total loan portfolio by the end of the fiscal year 2012-13. Likewise, commercial banks are prohibited from issuing loans of more than 60 per cent of the fair market value of the collateral. However, the real sector has asked the central bank to rethink the decision. “The liquidity crunch and real estate recession are separated issue but they have co-relation too,” Rajbhandari said adding that the liquidity crisis is due to people’s mistrust with the government. “If government, bankers and private sector jointly try to build confidence of the public, the problem will be solves,” he added.

Though, the central bank’s measure had been somewhat successful as real estate transactions have gone down to an average of 350 per day from 450 per day, the real estate people think the central bank’s curb is not the solution.

Similarly, revenue from land tax has also dropped by five per cent. In the first quarter of this fiscal year, land and housing transactions have contributed Rs 1.97 billion to the national coffer.

courtesy:The Himalayan Times