Nepal Rastra Bank Deputy Governor Maha Prasad Adhikari said on Saturday the central bank is ready to facilitate real estate projects if they came under the category of sick industries.

Addressing a seminar “Urbanization and Existing Real-Estate Scenario, Policy Required for Growth” at the ongoing NLHDA Kantipur Real Estate Expo 2013 in the Capital, Adhikari said the central bank will facilitate realty projects with incentives like refinancing, if required. “This is a production-oriented sector. The central bank is ready to help the sector steer clear of the current obstacles,” he said.

The NRB has been saying that it will facilitate any settlement on loan defaults by real estate entrepreneurs due to problems in their projects, if the banks concerned provide credible framework on the settlement.

Adhikari said banks still can make additional lending in the sector although the central bank has imposed a cap on realty lending at 25 percent of their total investment portfolio. “Exposure of banks to this sector stands at just 14 percent. Therefore, additional loans amounting to 11 percent of their portfolio can be extended to this sector,” he said.

Adhikari, however, made it clear that the central bank would not raise the lending threshold of 60 percent of the market value of the collateral. “Making excessive lending in this sector can be counter-productive,” he said. Housing developers have been demanding that the threshold be hiked.

Joint secretary of the Ministry of Urban Development Suresh Prasad Acharya said developers have focused more on urban areas. He said the government is coming up with directives to better manage the real-estate business. “We don’t see developers focusing on infrastructure development and coming up with projects in the rural areas,” he said, adding the business has been concentrated more on those having higher and upper-medium earnings. He said developers should cater to the demand of commoners and build properties accordingly.

Vice-president of Nepal Bankers Association Upendra Poudel said the negative psyche of the people about the real-estate sector has hit the development of the sector. “This has lowered the confidence of developers,” he said.

Poudel said the ceiling on realty lending imposed by the central bank has helped the industry gradually bounce back. “If you see in terms of end-users, there is a battle among banks to offer home loans. However, lending to projects is still on the lower side,” he said. “Banks don’t have many areas to invest. Once developers start earning trust, we will happily increase our exposure to the sector.”

Poudel also said real estate companies should increase their focus on mid-level income individuals. He highlighted the possibility of offering loans at low interest rates to first-time home buyers or by exempting taxes. “Various countries, including India, have adopted this policy,” he said.

Padma Sundar Joshi, country director of UN Habitat, said urbanisation in Nepal has reached 25 percent, which suggests the need for housing projects. “However, developers have failed to address the demand of medium-class people, which accounts for almost 70 percent of the total population,” said Joshi.

He said as 58 percent of Kathmandu’s population resides in rented homes, developers should consider this group as their prospective buyers. “The demand for homes for around 300,000 families in Kathmandu hasn’t been fulfilled,” he said.

Surya Bhakta Sangachhe, senior technical advisor of Nepal Society of Earthquake Technology (NSET), said 70 percent of the houses in Kathmandu may collapse if a major earthquake hits the valley. “On top of that, there isn’t access for ambulance or fire fighters to around 30 percent of the houses. Hence, the government, as well as private sector, should increase their focus on the issue,” said Sangachhe, adding a 10 percent increase in the budget to build a house will make it earthquake-resistant.

General Secretary of Nepalese Architect Society Devesh Bhattarai said the major problem of the sector is property prices. Properties are being priced only focusing on high-end customers. “The sector was further hit by those purchasing properties for making investment, further detaching the access of the middle class families,” said Bhattarai. He added the government should provide the private sector with abundant land on lease for a long duration to encourage planned urbanisation.

Developers highlighted the need for a long-term plan to reduce the possible negative outcome of unplanned urbanisation. “Kathmandu can be a ‘Slum Capital’ if we don’t think in time,” Om Rajbhandary, third vice president of NLHDA said presenting a paper. “There is a need for reducing risks in places with old structures and arranging new rescinding destination for the growing population.”

He also said the land use policy should be implemented and there should be participation of the private sector in land pooling.

Rajbhandary said there are both buyers and in the market, but there hasn’t been much transaction due to the lack of confidence.

“For this, the central bank should exempt capital gain tax for a certain period,” he said. “There is also a need for refinancing projects which have not been able to complete.”

NLHDA President Iccha Raj Tamang said developers have already shifted their focus on moderate-cost projects due to the market demand. “The ongoing expo too shows the routes we have taken. Prices of apartments and houses have come down from the range of Rs 20-40 million to around Rs 10 million,” said Tamang.

He urged developers to reduce the margin on properties, for making the business sustainable. “Realty business lasts for hundreds of years. Developers should lower profit margins to around five percent or less,” he said, stressing on the need for a change in government norms for reducing the cost of housing projects.

source:the kathmandu post,4 may 2013