KATHMANDU, Dec 20: The realty market cast a downtrodden look on Friday and Saturday, after Nepal Rastra Bank (NRB) announced two major policy changes that went on to raise lending rates and restricted banks and financial institutions to freely flow credit in the sector.


Land developers and dealers (brokers) said the volume of enquiries received on advertisements placed in major mass media during the weekend dropped down substantially, compared to the past.

“Some of the callers even asked me when I will cut the selling rates (of land), referring to the central bank´s new directives,” said a dealer, preferring anonymity.

At a time when land transactions have already spiraled down in the Kathmandu Valley, land dealers said NRB-effected changes in interest rates and limit on realty loans together could drag transactions further down, bringing down the prices.

The change in interest rate policy has already triggered a rise in housing loan to 13 percent from about 10 percent and real estate loan to 17 percent from about 13 percent.

“This is not so good news, especially as high-end consumers were already refraining from buying land,” said Pratiman Rai of Nepa Realty. He assorted that the added cost would further push buyers to withhold their procurement decisions for the time being.

On top of that, the limit on realty loans exposure, which has forced banks an financial institutions (BFIs) to limit their loans in the sector to 40 percent for now and reduce to 30 percent and 25 percent in the next two fiscal years, would not enable people get loans as easily as they were getting now.

Given the limit, buyers for now cannot go to two banks -- KIST and DCBL Bank -- for loans. Unless the banks substantially increased their loans in other sectors, they will not be able to get loans from banks like Bank of Asia Nepal, Citizens Bank and Prime, among others, in the next fiscal year. Continuation of situation will further restrict them from getting housing loans from a total of 14 banks by 2012/13 end.

Situation in development bank and finance companies is still worse, if the statement of Lok Bahadur Khadka, executive director of Financial Institutions Supervision Department (FISD) under the central bank, is anything to go by. This means, land buyers will not be able to borrow from still more number of development banks and finance companies.

Likewise, the government is also mulling over capping the loans of cooperatives in the sector. Once done, it will stop the sector from getting finances from another key informal financier as well.

“This will mainly hit transactions in the rural parts of the Valley, as transactions in those areas are spurred by cooperatives´ loans,” said Rai.

Given the situation, dealers say decline of land prices is imminent. “It is only the question of ´when´,” said Kul Bahadur KC, another dealer.

KC, who on Saturday placed an advertisement saying that he was selling land plots at lowered rates, said mainly the petty dealers operating with BFIs loans have already started to show their nerves.

“NRB´s decisions have already subjected land developers to 3 percentage point higher interest rates than last week. This has already created imbalance in the final calculations,” he said.

In such a situation, dealers said only factor that can cushion them is ´money from the informal sector´. “But given that money from informal sector operates at higher interest rates, I don´t think it will bail out the dealers,” said KC.

[Courtesy: MyRepublica.com]