NRB lifts home loan cap to revive stagnant property market

Nepal’s real estate sector continues to face a significant downturn in the aftermath of the COVID-19 pandemic, with property transactions declining sharply and buyers remaining hesitant despite price corrections. Even auctioned properties—put up by banks to recover overdue loans—are receiving little to no interest, signaling a broader lack of demand in the market.

This prolonged slowdown is beginning to strain not only real estate businesses but also banks, financial institutions, and cooperatives, many of which are seeing a rise in non-performing loans. With fewer buyers and stalled projects, liquidity is drying up, and credit recovery is becoming increasingly difficult for lenders.

In response, the Nepal Rastra Bank (NRB) has introduced more flexible provisions in its new monetary policy, announced Friday, in an attempt to inject momentum into the stagnant housing sector.

Loan limits raised to encourage home buying

One of the key changes in the new monetary policy is the increase in the housing loan ceiling. Previously, banks could only provide up to NPR 20 million in residential home loans to individual buyers. That limit has now been raised to NPR 30 million, allowing buyers—especially in urban areas—to borrow more for purchasing better-quality or modern homes.

In another significant move, NRB has increased the loan-to-value (LTV) ratio for first-time home buyers. Banks can now provide loans covering up to 80% of the property’s assessed value, up from the previous cap of 70%. This aims to ease the burden of down payments for new buyers.

For general property purchases, the LTV ratio has also been raised—from 50% to 70%—a move expected to encourage more transactions in the secondary housing and land markets.

These changes come at a time when interest rates are relatively low, signaling NRB’s intent to make lending easier and more appealing for both banks and borrowers.

Experts remain cautious

Despite these policy relaxations, experts are skeptical about a quick turnaround. Dhruva Ghimire, President of the Nepal Land and Housing Developers Association, welcomed the increased loan limits but stressed that it alone would not revive the struggling sector.

“The government needs to change its overall outlook towards the real estate sector,” Ghimire said. “Just raising the loan limit is not enough—there are other critical issues that need to be addressed.”

One major concern raised by developers is the existing income verification rule for housing loans. Currently, borrowers can only allocate up to 70% of their taxable monthly salary toward loan repayments. This rule excludes informal income sources, such as those from agriculture or daily-wage labor, which are often not considered taxable.

“This has made it difficult for many working-class families to qualify for home loans,” Ghimire added. “We need a more flexible approach that reflects the realities of income in Nepal.”

Broader implications

The slowdown in real estate has wider implications for Nepal’s economy. The sector is closely tied to construction, banking, manufacturing, and labor markets. As transactions dry up, banks are stuck with growing volumes of collateralized properties that they can neither sell nor recover loans from. This has contributed to a rise in bad loans, further tightening credit flows in the economy.

Developers argue that government policies and tax structures have also discouraged property investments. For example, overly strict income-proof requirements and delays in project approvals have contributed to market stagnation.

The Nepal Rastra Bank’s decision to raise loan limits and ease lending ratios is a clear attempt to inject life into the sluggish property market. However, without structural reforms, greater policy support, and a more enabling regulatory environment, these measures may not be enough to reverse the current trend.

As real estate remains a key pillar of Nepal’s urban economy, stakeholders warn that continued inaction could deepen the financial strain on developers, homebuyers, and financial institutions alike.