Aug 28, 2016- Real estate lending by banks and financial institutions (BFIs) rose by Rs46 billion in the last fiscal year to reach Rs250.87 billion.
While the growth in residential homes loans of up to Rs10 million has remained healthy over the last few years, there has been a sudden rise in lending to other sub sectors, according to the Nepal Rastra Bank’s (NRB) macro-economic report.
The rise in the lending coincides with a surge in real estate transactions. Last fiscal year, BFIs’ residential home loans increased by Rs24 billion to Rs142.81 billion, while
credit to other sub-sectors rose by Rs22 billion.
Bankers attributed the rise in their real estate lending to a surge in demand for such credit amid low demand from other sectors. “Percentage wise, the difference is small, but the size of loans to the sector has grown,” said a senior NRB official, adding it is probably due to the lack of other investment opportunities.
Last fiscal year, BFIs had 14.9 percent exposure to real estate sector.
The BFIs had been very conservative in lending to land development projects since 2009-10, but last year’s earthquake changed the status quo, according to the bankers.
“After the earthquake, people chose individual homes instead of apartments and that land transactions jumped,” said Civil Bank CEO Kishor Maharjan. “With the surge in demand, banks started to lend to the sector as most of the banks’ exposure to the sector is less than regulatory limit of 10 percent.”
A 68 percent rise in the government’s Capital Gains Tax (CGT) collection from land transactions also suggests surging real estate transactions. The collection stood at Rs2.07 billion in 2015-16, up from the previous year’s Rs1.23 billion, according to the Department of Land Reform and Management.
With limited options, banks have real estate lending attractive given the higher interest rate, according to the bankers. The banks, however, term residential home loans as one of the safest sectors for lending.
With rising real estate lending, the central bank has directed the BFIs not to lend more than 50 percent fair market value of the collateral—down from the previous 60 percent. “The provision was adopted to discourage excessive lending to the real estate sector,” said the NRB official. (Source: Ekantipur.com; posted on 28-08-2016)