With the real estate sector reeling under a severe liq uidity crunch combined with frequently modified directives, rules and regulations, transactions had dropped by almost 60 per cent in the last fiscal year. But the budget of 2011-12 has introduced `something' to cheer up real estate entrepreneurs. This is the perfect time for buyers to invest in house, apartment or land, as the budget has made major positive changes in the provisions of real estate.The current budget has relaxed the income disclosure provision on land and housing purchases, raising the threshold to Rs 10 million.

Previously, income disclosure was mandatory while buying houses worth more than Rs 5 million. Similarly, the budget has introduced the provision of settling real estate transactions through brokers who are registered as a company and are issued a PAN number by Inland Revenue Offices. Likewise, NRB has declared in a new policy that real estate loans taken from banks and financial institutions can be renewed after the interest is paid by July 16, 2011. Finally, the capital gain tax is reduced from 10 per cent to five per cent.

“This budget has addressed almost all our demands as discussed earlier and paved the path to develop realty sector. We are excited at having been offered this opportunity to accelerate our business,“ says Prakash Bajracharya, managing director of Shangrila Housing Pvt Ltd, adding that, however, the budget fails to address the land use policy as all development is concentrated in the Kathmandu valley only.

“If land use policy was addressed, development would be diversified and we would be able to deliver our service to the mass which has not had access to it till date,” says Bajracharya, adding that making VAT system of housing and apartments refundable would be a great relief to realty sector. Currently, 13 per cent VAT is mandatory for the housing and apartment sector.

Similarly, the budget has also made the provision of allowing Non Resident Nepalis (NRNs) to buy houses or apartments and foreign individuals or companies to purchase flats or apartments amounting to an equivalent of USD 200,000 or more. The Ministry of Land Reform and Management and Nepal Securities Board will make necessary guidelines for this within mid-October 2011. Such buyers will not be allowed to sell their houses or apartments until five years from the date of purchase.

Developers are enthusiastic about allowing NRNs to invest in real estate and expect more housing projects to come up to cater to them. “Foreign investment will generate more employment,” says Ichhha Raj Tamang, president of Nepal Land and Housing Developers’ Association, adding that though it is a new provision here, it has been widely used in other countries like India, China and Malaysia.

Talking about the involvement of registered brokers and companies in realty sector, Bajracharya opines that it is the right time to reduce the number of unscrupulous brokers and transform this business into a more organised and systematic one. He also points out that the government will also generate more revenue through the implementation of this step. According to him, mushrooming of such brokers had also contributed to artificial price hike in the realty sector in the past.
However, developers doubt the implementation process, as they feel that though the policies are encouraging, the main question is -will such policies be fulfilled within the stipulated time? “It would be more effective if all the stakeholders of realty sector work together with the government to complete the required process,“ states Bajracharya.Developers are now hopeful about the revival of the real estate business, which was once on the verge of collapse.

Meanwhile, bankers have their own viewpoint regarding the policies worked out for the real estate sector in the budget.
While there is trepidation that the relaxation in disclosure will again tally up to a bubble effect, bankers deny that it will give rise to such a dismal situation. “The budget will cause no such major impact and as such it will not create a bubble effect either.However, there should be strict monitoring and control on money laundering, international trafficking and organised crime,“ says Sashin Joshi, chief executive officer at NIC bank.

source: Himalayan News Service(2011),"Concrete steps for Real Estate", The Himalayan Times,23 July 2011