This undated file photo shows laborers blacktopping the driveway around a real estate development in Mohariya of Lekhanath Municipality in Kaski.(Republica Files)
POKHARA, Aug 16: Amid skyrocketing land and housing prices, bank and financial institutions in Pokhara have started tightening loan flow to realty sector fearing further risks.
BFIs, which were investing in the sector aggressively until recently, are giving less priority to realty sector in recent weeks. BFIs headquartered in Kathmandu have issued directive to their district offices to invest in the sector cautiously.
The Pokhara branch office of Triveni Bikash Bank is giving less priority to realty sector in recent days. Rajendra Pudasaini, branch manager of Triveni, said that their head office has instructed them not to put realty sector in priority. “We are prioritizing agriculture and tourism sector instead. It's not that we have stopped financing real estate sector altogether. But it is not in our priority,” Pudasaini added.
Land and housing prices in the lake city have increased by as much as four times over the past few years.
Garima Bikas Bank is also lowering its investments in real estate sector. Talking to Republica, Govind Dhakal, CEO of Garima Bikas Bank, said: "Not only us. Most of the BFIs are lowering their exposure to the real estate sector. We are more cautious now."
Not only in Pokhara, BFIs in Narayanghat and Butwal have also put realty sector in low priority, according to Dhakal.
Land prices in these cities have also increased significantly in recent years.
Bankers say BFIs started lowering lending to the realty sector after the Nepal Rastra Bank (NRB) reduced loan to value ratio (LVR) to 50 percent from existing 60 percent. This means BFIs can finance only 50 percent of the cost of land or buildings.
Arjun Pokharel, a Pokahra-based real estate developer, said BFIs have lowered investment in real estate sector after the central bank reduced LVR. Pokharel also said that rise in land and housing prices in Pokhara is not unnatural as claimed by many.