Banks and financial institutions (BFIs) have been issuing less real estate loans and more home loans . According to Nepal Rastra Bank (NRB), realty loans have shrunk by Rs 7.41 billion over the past year while home loans have swelled by Rs 18.98 billion. The shift in trends has been attributed to a higher ceiling for home loans and lowered interest rates.

Lending to the real estate sector was Rs 90.91 billion in mid-January 2013 which came down to Rs 83.50 billion in mid-January 2014. Likewise, home loans of up to Rs 10 million soared to Rs 76.14 billion from Rs 57.15 billion over the period.

 The reduction of real estate loans by commercial banks and finance companies resulted in an overall downturn in credit under this heading while the amount of lending by development banks remained unchanged. According to the central bank, commercial banks reduced their real estate loans by Rs 5.5 billion while finance companies brought down their share of loans under the heading by Rs 2.25 billion.

As far as home loans are concerned, A, B and C class BFIs have increased their lending to the sector. Banks have seen risks in land transactions but they have not seen any risk in home loans which are provided largely to regular income earners. 

Banks have also slashed interest rates on home loans under which they provide loans for land development besides house building costs. Banks have also been providing loans to individuals to purchase apartments instead of developers.

Nabil Bank’s Chief Executive Officer Anil Gyawali said they were focusing on increasing home loans as there was less risk involved due to the fact that they are usually given to people who have a regular income source and cash flow.  

Nabil has cut interest rates to 7.99 percent for loans maturing in 10 years and 8.49 percent for loans with a term longer than 10 years. Gyawali said that

Nabil was not interested in lending money for real estate at all as it has been facing difficulties recovering old outstanding loans .

Likewise, Sunrise Bank plans to increase home loans but it does not intend to extend loans for only land development. “Home loans are usually repaid. They are used to purchase or build homes for one’s own family,” said Surendra Man Pradhan, chief executive officer of Sunrise Bank. “In the case of real estate loans , we may consider good proposals for housing development along with land development.”

Sunrise has almost doubled its home loans to Rs 1.14 billion during the first half of the current fiscal year while it has brought down its real estate exposure.

 Pradhan said they were providing loans to individuals even to purchase apartments under the home loan category.

Min Man Shrestha, general secretary of the Nepal Land and Housing Developers’ Association, said that banks were not being so generous to developers, but they were generous to buyers of apartments, which was good enough as it helped them to sell their apartments faster.

“There was a time when apartments remained unsold, but the situation has improved now,” he said.

source:the kathmandu post,3 march 2014