Real estate transaction in the mid-western Nepali city of Birendranagar is taking a dip, as banks and financial institutions have tightened credit disbursement due to shortage of loanable funds.

Demand for land plots in Birendranagar Valley had started going up following rumours that the city would become the capital of Province 6. As a result, people residing in Hill districts of Karnali, Bheri and Rapti zones had started descending to Birendranagar, fuelling real estate demand.

But as banks and financial institutions tightened lending, fewer people have started visiting the Land Revenue Office to transfer ownership of land. This is an indication that real estate business has cooled down in the mid-western city. Of late, banks and financial institutions have tightened lending, as they are facing shortage of loanable funds due to a lethal combination of deceleration in deposit growth and higher credit disbursement.

To prevent this problem from inflicting further damage to the banking sector, the Nepal Rastra Bank, the central bank, has discouraged banks and financial institutions from extending credit to unproductive sectors, such as the real estate.

At the start of this fiscal year, the central bank had also barred banking institutions from extending more than 50 percent of the value of the property as credit to real estate loan seekers—although they were allowed to extend up to 60 percent of the value of the property as credit to those seeking loans to build houses for residential purpose.

“The tightening of lending has affected those who have acquired personal overdraft to make speculative investment in real estate, as they are being compelled to service the debt despite downturn in business,” a property dealer said.

Birendranagar saw transactions of 3,934 plots of land in the Nepali calendar month of Mangsir (mid-November to mid-December), according to the Land Revenue Office. Land transaction dropped by over 70 percent by the Nepali calendar month of Magh (mid-January to mid-February), with the office witnessing change in ownership of 1,137 plots of land in that month.

In the first 20 days of Nepali calendar month of Falgun (February 12 to March 3), land ownership of only 650 plots was transferred, shows the record of the Land Revenue Office.

“Real estate transactions have fallen drastically, as most of the buyers of properties were relying on bank finance to purchase land,” said Kashiram Khatri, officer at the Land Revenue Office. “As banks have stopped financing them, they have no option but to wait until the situation in the banking sector improves.”

Recently, the Birendranagar Municipality has also introduced a new policy on settlement development, which bars land owners from haphazardly selling plots of land.

• Birendranagar saw transactions of 3,934 plots of land in the Nepali calendar month of Mangsir (mid-November to mid-December)
• Land transaction dropped by over 70 percent by the Nepali calendar month of Magh (mid-January to mid-February), with land revenue office witnessing change in ownership of 1,137 plots of land that month
• In the first 20 days of Nepali calendar month of Falgun (February 12 to March 3), land ownership of only 650 plots was transferred

  Source: Land Revenue Office