Everest Bank is providing home loans at a minimum interest rate of 10 percent to customers planning to buy homes at the NLHDA Kantipur Real Estate Expo which started in Kathmandu on Thursday. The Nepal Land and Housing Developers' Association (NLHDA) and Kantipur Publications are  the organisers of the event.

The bank's usual interest rate for home loans is 10.5 percent. The bank said it would provide loans at 10 percent interest for up to five years, 10.5 percent from five to 10 years and 11 percent from 10-15 years. Similarly, Standard Chartered Bank Nepal is providing home loans at 9.49 percent interest during the expo with a 0.5 percent concession on the service charge.

Banks and financial institutions (BFIs) which are still reluctant to lend to real estate developers are increasing their lending to end users. Laxmi Bank, NIC Bank and Himalayan Bank, among others, all have brought down the interest rate to 10-12 percent. Under home loans, they offer credit to purchase land, construct homes or buy apartments.

"As home loans are provided based on the income assessment of an individual, there is no risk at all as long as the assessment is good," said Diwakar Poudel, corporate affairs chief at Standard Chartered. "The home loan portfolio is exciting, attractive and inspiring. We see a good future in this sector," he added. Standard Chartered currently has a 25 percent exposure to home loans.

Likewise, Everest Bank's chief executive officer PK Mohapatra said his bank had given high priority to home loans. During last Dashain, the bank provided home loans at a fixed interest rate of 9.99 percent for three years.

However, BFIs have been reluctant to lend to developers despite continued lobbying by them citing risks highlighted by the crisis in the sector in the last four years. "We are much conservative in providing loans to the real estate sector," said Mohapatra whose bank's lending to the pure real estate sector amounts to Rs 2 billion.

However, developers say that despite reluctance on the part of banks to lend to developers, home loans have helped them too. "Those wishing to buy apartments are getting loans which has helped to clear stocks of unsold apartments," said Min Man Shrestha, general secretary of the Nepal Land and Housing Developers' Association. He added that banks would have to lend to developers after all the apartments and housing units currently under construction are sold.

With the central bank increasing the threshold of realty loans to Rs 10 million, a majority of apartment projects could be sold with bank financing, according to developers. Shrestha said a majority of apartments available have price tags of below Rs 10 million which can be sold.

According to the NLHDA, from April 2005 to March 2013, around 65 apartment projects having 6,330 apartment units were implemented. Of the total, 12 apartment projects have acquired completion certificates, making 870 units of apartments ready to move in for buyers, according to realty developers. There are around 1,200 stand-alone housing projects going on currently, according to realty developers. Since the central bank capped realty lending at 25 percent, BFIs have been reducing their exposure to the realty sector.

BFIs have lent Rs 88.19 billion to the realty sector as of mid-February, down from Rs 98.81 billion one and a half years ago, according to Nepal Rastra bank (NRB). This is close to 10 percent of the total loan portfolio of BFIs. As of mid-February this year, BFIs had lent a total of Rs 882.31 billion.

Commercial banks have the highest lending to the realty sector with Rs 65.63 billion, followed by development banks with Rs 12.29 billion and finance companies with Rs 10.27 billion. "Lending to the realty sector came down due to both recovery of loans and NRB's increasing the threshold of real estate loans," said NRB spokesperson Bhaskarmani Gnawali. 

Many financial institutions that landed in trouble in recent years had a history of overexposure to the realty sector besides bad corporate governance. However, Gnawali said that the situation had improved much in recent days. "The current situation of the realty sector is satisfactory. Houses and apartments are being sold after developers reduced prices," he added.

Meanwhile, Sashin Joshi, chief executive officer of NIC Bank, said that there was no panic situation in the sector like until last year. "Borrowers have been repaying their loans by selling their other properties," he said.

Developers said that there was growing demand for low-cost apartments, and that banks' increased interest in lending to end users was helping the sector to recover. They added that they had been selling apartments with fewer facilities but at affordable prices for this reason.

"We ran after various facilities in the past which increased the cost of the apartments," said Shrestha. "Now we have realised that we should focus on affordability."

The central bank, however, had long been asking developers to slash prices so that apartments could be sold. "Apartments in the price range of Rs 1.5 million to Rs 5 million are affordable for Nepalis," said Gnawali. "The housing expo's focus on affordability is praiseworthy."

source: Shrestha, Prithvi Man,"Luring customers with price cuts", The Kathmandu post,3 may 2013