KATHMANDU, Dec 24: The interest rate on home loans of banks has declined to as low as seven percent, amid stagnation in real estate transactions and soaring unused liquidity with the banks.
According to Nepal Rastra Bank (NRB), commercial banks have maintained the interest rate on the segment ranging between 7 percent and 11.99 percent. In addition, the banks are found offering various schemes while facilitating the constant interest rate to provide home loans to their clients.
Nepal Investment Mega Bank has come up with the lowest unchangeable interest rate of seven percent on home loans for the next one month between mid-December and mid-January. Under similar conditions, Everest Bank has offered home loans at 7.49 percent, while Himalayan Bank Limited has maintained the interest rate of 7.50 percent per annum. Laxmi Sunrise Bank has fixed the upper limit of the interest rate at 11.99 percent.
Revised interest rate corridor system introduced
As per the NRB rule, banks are allowed to impose interest rates of either fixed or changeable types on the long-term credit. Under the changeable interest rate type, banks can vary interest rates on the basis of the fluctuation seen in the country’s economic condition. As more risk is incurred on the fixed interest rate type, banks usually charge more premium rate on such type of loans.
Of late, BFIs have been unable to utilize their excessive liquidity due to the ongoing economic slowdown, particularly the slump in the real estate business. While they are reported to have an overwhelming liquidity amount of Rs 1.1 trillion, the base interest rate has come down to as low as four percent per annum.
Through enforcing the monetary policy for the current fiscal year, the NRB has eased its monetary policy for home loans. While the central bank has increased notably the ceiling for residential construction/purchase loans from Rs 20 million to Rs 30 million, it has been lenient on issues like loan restructuring, aiming to boost the struggling real estate sector amid excess liquidity.
Likewise, the loan to value ratio has also been raised to 80 percent for the first time purchase/construction of a residential home. The ratio has been increased to 70 percent in case of others.
With the flexible policy of the central bank, the home loans increased mainly in the small credit group of up to Rs 30 million. According to the NRB data, the home loan amount increased by Rs 44.90 billion in the past one year. As of mid-November 2024, banks issued home loans of Rs 397 billion, which surged to Rs 442 billion in mid-November this year.
Meanwhile, the transaction of small land plots in the Kathmandu Valley increased in the past one month. According to the Department of Land Management and Archive, there was a transaction of 51,632 units of land plots during mid-November and mid-December, up from 28,383 units in the previous month.
Last month, the government collected revenue of Rs 4.84 billion from land transactions, compared to Rs 3.87 billion in the same period of FY 2024/25.
According to Bishnu Prasad Ghimire, president of the Nepal Land and Housing Developers’ Federation, real estate business witnessed improvement after the government simplified the condition for land plotting and the reduction in banks’ interest rates.
