Transactions of real estate in the capital dipped by about one-third in the third quarter of the current fiscal, as the market reacted strongly to Nepal Rastra Bank´s cap on realty loans exposure.

According to Dillibazar Land Revenue Office (LRO), transactions at the city core of Kathmandu in particular plummeted to less than 20 percent during the quarter, compared to the second quarter.


“Transactions in Chabahil LRO too dropped by one-third, while transactions in Kalanki, Lalitpur and Bhaktapur also dropped by more than 40 percent during the period,” said Raju Basnet, officer at Department of Land Reforms and Management (DoLRM).

He attributed the drop to central bank´s intervention, following which banks and financial institutions have refrained from issuing fresh loans in the sector. “This largely forced the people to put their procurement plan on hold,” Basnet told myrepublica.com.

Owing to the drop, five LROs of the Valley collected mere Rs 640.2 million in revenue in the third quarters, down from Rs 872.58 million that they mobilized in the second quarter.

Officials at the LROs said the number of people coming for realty deals at their offices has gone down dramatically as compared to the past. Even the LRO in Chabahil, which sees strongest of crowds among all LROs, recorded 52 percent drop in revenue in mid-April than what it collected in mid-January.

Dillibazar LRO that contributed well over Rs 170 million in revenue in mid-December 2009 generated just Rs 33.7 million in revenue during the month of mid-April.

“This shows the extent of gloom that reins the market these days,” Basnet said, adding that revenue collections at Bhaktapur and Lalitpur LROs, too, declined by 51 percent and 58 percent respectively in mid-April compared to mid-January.

Concerned officials said the cap on banks´ lending in the sector and subsequent drop in finance availability has mainly affected commercial land deals. Amid soaring prices and high returns, commercial deals used to make the largest chunk of realty transactions in the Valley.

Given the situation, petty realty dealers said they fear the prices to go down in the next few months. “If the situation continued over the next couple of months, dealers reeling under higher interest rates will start disposing land at cost prices,” said a developer. Should that happen, officials said it will kick off distressed selling -- something which will strongly correct the overheated price.

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

To correct the situation, the central bank in December 2009 had intervened in the market, directing banks and financial institutions to gradually cut their loans portfolio in the sector.

courtesy: myrepublica (19 April,2010)