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Housing loan may aid capital market

The possible move of central bank to relax the ceiling on the loans provided to the housing sector may also give new lease of life to the ailing capital market.

Tightening of the loan to housing by the central bank has affected the Nepali capital market as well, said Shurbir Paudel, Chairman of Securities Board of Nepal (Sebon), adding investors were resorting to selling their shares to pay for their housing loans. This selling pressure partially generated by cap on loan on housing had flooded the market with shares, he added.

If the central bank eases the provision on housing loan, there will not be any compulsion on investors to sell shares in order to pay for their loans that will somewhat restore the balance in the market, he pointed out.

Unlike earlier, the tendency of investors to get funds to invest in stocks by taking loans against their homes will not repeat this time as the interests rates are high while return on shares is not so high, pointed out share analyst Rabindra Bhattarai.

Earlier, in December 2009, the central bank had directed the BFIs to reduce their loan exposure to the realty sector to 25 per cent and 40 per cent to the housing sector to curb overexposure of BFIs to land and housing sector in order to avoid systemic risk due to concentration of lending to one sector.

At present, the central bank has grouped housing and real estate loans as one sector. However, the central bank has announced in the mid-term evaluation of the Monetary Policy to ease the housing sector loans, excluding loans floated to land purchase.

source: The Himalayan Times(2011),"Housing loan may aid capital market ",The Himalayan Times,18 March 2011

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