Just when real estate was starting to see some growth after 2072's earthquake, NRB has declared it as an 'unproductive sector'.
In August 2016, Gaurav Ratna Sthapit, Business Advisor at Civil Homes stated that the demand for individual houses grew by 200 percent compared to 2015's demand. In the same period, real estate lending by banks and financial institutions (BFIs) rose by Rs 46 billion to reach Rs 250.87 billion.In less than six months of this development, NRB Governor Chiranjibi Nepal warned commercial banks to self-regulate giving out loans to the unproductive sector (real estate and automobile) since BFIs have been making a huge volume of profit from real estate loans while leaving the productive sector stale. This trend could hit the economy hard, warned NRB Governor.
Following this warning, the Nepal Bankers' Association(NBA) passed the decision to freeze loans to real estate and automobiles. Commercial banks are to be penalized if they fail to meet at least 20 percent of their loans to the productive sector i.e. agriculture and energy within Mid-July.
Even though many bankers speculate that the freeze on real estate is going to be temporary, the target set by NRB is not expected to be met by most of the commercial banks in Nepal.
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Published on 12, February 2017 by Nishant Acharya