Thukten Zangpo

The Royal Monetary Authority (RMA) has increased loan repayment term for housing (commercial and residential) loans to 30 years from 20, excluding the maximum gestation period of three years.

This, according to RMA, is to promote homeownership, housing affordability, and availability, and further reduce the rent burden.

The Authority’s press release states that RMA is cognizant of the fact that due to the prolonged impact of the pandemic on the businesses, there is a looming threat to the housing as well.

“An increase in the loan repayment tenure would reduce the equated monthly installment and we expect the house owners would reduce the house rents, however, it will also depend on the house owners,” an official from RMA said.

The press release states that the existing housing loans, for both commercial and residential, will also be eligible for the extension of loan term.

For example, those who have availed housing loans for the term period of 20 years and has been repaying for five years, they would get an additional 10 year-term period. However, it depends on the borrower whether to extend or not.

For a commercial housing loan (CHL) amounting up to Nu 50 million, borrower will get a loan of maximum of 80 percent of the total collateral value (building and land).  Earlier, it was 70 percent.  

For a loan amount of more than Nu 50 million, one can avail a loan of maximum of 70 percent of the collateral value. Earlier, it was 60 percent.

CHL is given for the purpose of construction, purchase of a house, building, or apartment and it also includes repair, for the purpose of generating a profit, either from business activity, resale of the property, or rental or lease income.

Additionally, for home loan, one can avail a loan of maximum of 90 percent of total collateral value. It was 80 percent earlier.

Home loans are provided for the purpose of construction of personal house and it also includes repair, purchase of house or apartment.

The RMA also relaxed the risk weight for home loans from 100 percent to 50 percent that is overdue by 90 days and less to encourage financial institutions to finance home loans. “The relaxation in the risk weight will help in freeing up capital charge on home loans which are required to be maintained as part of the regulatory capital.”

However, there is no change in the different interest rates of housing loan maintained by the banks.  

The housing sector accounted for 26 percent of the total loan portfolio of Nu 174.92 billion as of June 2021.

Edited by Jigme Wangchuk