Bhutan must put in place a comprehensive national land and housing policy that would provide a framework for urban development and housing, recommends the Asian Development Bank (ADB).

The Asian Development Outlook 2017, released recently states that the total loans granted for housing amounted to Nu 20 billion in September 2016. This is about 25 percent of the total loan disbursements by banks.

The housing sector has consistently been the biggest area of investment to banks. These loans, however, are made mostly to developers to build multi-storied apartment blocks that are rented out to tenants. Although Bhutan counts rented apartments under home ownership, those apartments are owned by a limited number of house owners.

The report points out that high land prices and mortgages at market interest rates with very short repayment periods make the terms for repayment impossible. “Home ownership is inaccessible to the people in the low- and middle-income groups,” it states.

Rapid population growth and urbanisation have created new housing challenges for Bhutan. In 2015, the population grew by 1.6 percent to about 760,000. About 38.6 percent of the total population lived in urban areas.

“The result is an urban housing shortage,” the report states. “The inability to purchase one’s own home means heavy dependence on rental housing, limiting urban families’ ability to save and build equity in their home, which in most other countries is a major personal asset.”

However, this is mainly an urban phenomenon, as most rural households own their home.

In urban areas, only 17 percent of households own their home. Although the government provides some housing built by the National Housing Development Corporation, it has only benefited a small group of civil servants.

Similarly,  the quasi-governmental National Pension and Provident Fund provides housing loans but only to its members, mainly civil servants and the armed forces. These institutions, the report states, solve the housing problem for only a small segment of the population.

According to the report, after food, the largest expense for urban households is usually house rent. “As housing construction cannot keep up with urban population growth because basic infrastructure is inadequate, landlords decline to make repairs or improvements, knowing that tenants will likely stay rather than look for better housing that would be more costly,” it states.

The housing crunch is being addressed by reforms and initiatives. One model is the Amochhu land development and township project of Druk Holding and Investments that is set to begin this year. It will develop a 160-hectare area adjacent the Amochhu river in Phuentsholing.

The ADB acknowledges the reduction in lending rates by financial institutions last year. The minimum lending rate reform in July 2016 brought more bank competition and lower lending rates, including an improved rate for noncommercial housing loans that should encourage home ownership.

However, the report suggests that further improvements to mortgage terms are required to improve access, particularly for low- and middle-income groups, by substantially lengthening repayment periods and setting reasonable qualifying income standards and down payments.

“More generally, Bhutan needs a comprehensive national land and housing policy that would provide a framework for urban development and housing,” the report states.

MB Subba