Kathmandu: Last year was one of the most disappointing years for the realty sector and this year’s indicators also paint a gloomy picture.

Revenue collection of five valley-based land revenue offices (LROs) in the first quarter (mid-July to mid-October) suggests continuous recession in realty transactions. The collection plunged by 17.26 percent to Rs 345.07 million in the first quarter compared to same period last year, according to the Department of Land Reforms and Management. Valley-based LRO’s contribute more than 50 percent to the total land revenue.

After the central bank capped realty lending in January 2009, banks and financial institutions (BFIs) were forced to bring down their loan exposure to the booming realty sector. As a result, investment slowed sharply. Realty traders say the imposition of 10 percent capital gain tax and income source disclosure provision on land transactions worth over Rs 3 million and land and house transactions worth over Rs 5 million were the main reasons behind the slump.

Alarmed by increased bank loan default risk due to slackness in realty trading, the central bank took a flexible approach allowing realty traders to renew their loans for current fiscal year by paying all outstanding interest. The budget for current fiscal year also raised the income source disclosure limit, lowered capital gain tax to five percent from 10 percent, and allowed foreigners to purchase apartments here.

However, figures suggest that these measures could not contribute much to revive the flagging realty sector. “We had expected that the relaxation in income source disclosure provision would help revive the sector, but the situation so far has not changed,” said Gobinda Prasad Shapkota, director at the department.

In FY 2010-11, LROs across the country were able to collect just Rs 3.2 billion against the target of Rs 6.30 billion. Keeping in mind the scenario, the government has brought down the target to Rs 4.5 billion for the current fiscal year. However, Shapkota said the target could be missed this year too, as the sector has not shown much progress. As of first quarter, all five valley-based LROs saw decline in their revenue collection.

Min Man Shrestha, general secretary of Nepal Land and Housing Dealers Association (NLHDA), said the real estate market is going through a tough period thanks to the central bank’s stringent measures and high bank interest rate. “Now, housing companies are cutting down size and facilities such as swimming pools, gym and tennis courts,” he said.

source: Sanjeev Giri, The Kathmandu Post, 25 Oct 2011