Construction of housing and apartment projects in the Kathmandu Valley slowed down in the fiscal year 2009/10 following Nepal Rastra Bank’s cap on realty and housing loans, requirement to disclose income source and imposition of capital gains tax.

The number of companies receiving permits from the Kathmandu Valley Town Development (KVTD) to construct apartments and housing projects in Kathmandu dropped to 14 from 21 in FY 2008/09. Companies receiving building permits in Lalitpur numbered eight, down from 14 previously. A lone company received a license to build Bhaktapur’s first housing project in the last fiscal.

KVTD under secretary Bhai Kazi Tiwari said that political instability and tighter bank lending resulted in the decline in the number of companies getting permission to start housing projects.

General secretary of the Nepal Land and Housing Developers Association Minman Shrestha said that the government’s policy of discouraging the housing and real estate sector was mainly responsible for the decreased interest in housing projects. “The government has committed a great mistake by discouraging investment in this sector,” he added.

The budget for the last fiscal year had imposed a 10 percent capital gains tax on house and land transactions. Likewise, income source disclosure has been made compulsory when buying land valued at more than Rs. 3 million and houses worth more than Rs. 5 million.

NRB has also directed banks and financial institutions to keep their loan exposure to the real estate sector at less than 40 percent of their total lending. Furthermore, they are required to reduce their exposure to 25 percent in the next two years.

Prompted by fears that loans to real estate and housing projects could turn bad amid stagnating realty prices, NRB has allowed borrowers to renew their loans for a year by repaying 25 percent of the principal and all of the interest.

source:Giri ,Sanjeev (2010),"Housing biz slows down",The Kathmandu Post, 20 July 2010