As overheated realty market took corrective path over the last seven months, transactions of land and housing dipped by a quarter over the last fiscal year, shows latest report of Department of Land Reforms and Management (DoLRM).

But the impact of the slowdown, which the government instigated by tightening banks and financial institutions loans to the sector, was not reflected on the prices proportionately, as influential realtors continued to maintain tight hold on prices.

“Some of the land developers did announce a planned cut in pricing in the range of 10 to 15 percent in the 12th month (mid-June to mid-July). Still, the drop was inconspicuous compared to the extent the prices had jumped over the first five months of the year,” said Tulsi Ram Vaidya, official at the department.

The price of land and housing in the Kathmandu Valley and major cities had almost doubled over the span of five months.

Land and housing developers attributed negligible impact of slowdown on pricing to their increased capacity to defer the selling pressure emanating from high interest rate and loans servicing calls.

“It will probably take another few months before they give up and go on the selling spree,” Vaidya said.

Marginal cut in prices, nonetheless, helped transactions go up during the months of June and July, suggests government´s revenue figures -- one of the strongest indicators of realty market.

Statistics of DoLRM shows that the government mobilized some Rs 180 million in revenue from the fresh land and housing transactions in the Valley in mid-June to mid-July, which was 37 percent more than what it had mobilized in the 11th month.

Even the collections in the 11th month had jumped by Rs 25 million over the collection of the 10th month. In the 10th month (mid-April to mid-May), the government had mobilized about Rs 106 million in revenue from new realty transactions. The collection for the month was the lowest in the last two years.

Realty transactions in the Valley had mainly taken a dip from January 2010, mainly after Nepal Rastra Bank imposed cap on realty loans exposure for banks and financial institutions and asked them to bring the realty loans portfolio to 25 percent by 2011/12.

As banks instantly reacted to this directive by tightening loans, liquidity crunch in the market also forced them to jack up lending rates by as much as 8 percentage points. While this drove away the buyers, many other put their procurement plans on hold anticipating price dip.

DoLRM statistics shows that biggest drop in transactions was recorded in the city core of Kathmandu, wherein lies the most expensive land units. Compared to August 2009, volume of transactions in core Kathmandu had dropped by one-third. Transactions in other parts of Kathmandu as well as Bhaktapur and Lalipur too dropped in the range of 20 to 25 percent.

Amid rise in income, easy bank finances and instability in other parts of the country, realty market in the Kathmandu Valley had boomed over the last three years. But unnatural rise in the prices had soon started building a real estate bubble, threatening financial stability.

source: Republica (2010),"Realty market takes correction course", Republica, 19 July 2010