The investment of banks and finance companies in the real estate sector carries the risk of collapse, economists and bankers said. Huge investment can create havoc, they said in an interaction here today. The global economic crisis of 2008 started with the fall in real estate business in the US.
Nepali banks and finance companies have invested billions of rupees, approximately Rs 50 billion in the real estate sector. Half a dozen banks and a dozen finance companies have invested 30 per cent in the sector. "It is not a safe investment," said Dr Binod Atreya, chief executive officer of Nepal Bank Ltd. "Large investment in a sector is not good."
However, economist Prof Dr Madan Dahal differed. "I don't think the problem is near," he said, "Banks are taking risk for maximum benefit." Real estate business in Kathmandu Valley and the Terai has boomed by 200 per cent since 2007.
Nepal Rastra Bank executive director Trilochan Pangeni refused to take action against the finance companies for investing large amounts in the real estate sector. "We cannot stop the investment because it is as per existing laws," he said, According to Pangeni, the fate of Nepali financial sector has already gone into the hands of real estate business. "If real estate collapses, bank and finance companies will be in crisis," he said. But he did not feel the fall would bankrupt the financial sector. Very few will be affected, he added.
Source:THT
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Tuesday, December 15, 2009
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Real Estate did help to bring down the US economy but was not the cause. The crisis emerged due to the extreme credit creation through loan with/without mortgage, which increased the general income level. Who ultimately went on purchasing real estate at high cost. When the economy could not create any further credit; the income level stagnated and hence any further investment on real estate and ultimately turning it down.
ReplyDeleteIn case of Nepal credit is based on mortgage at a conservative side and still a major portion is from of investors.
Such overfunding is far to come and risk can be absorbed.
echod