Kathmandu. The Nepal Insurance Authority (NEA) has registered the directive on purchase and sale of fixed assets of the insurer at the Ministry of Law, Justice and Parliamentary Affairs on June 3. The Authority has issued this directive on Chaitra 17, 2082 to scrap the traditional process of obtaining approval from the Authority at different stages while purchasing fixed assets.
After the directive was issued, the insurer felt relieved that it had gained full autonomy in the decision to purchase immovable property. Because now no senior official of the authority can ask for a bribe from the insurer by putting any paperwork in it. Now that the new directive has been issued, the insurers are relieved.
The directive, which consists of 14 directives and two schedules, has clear provisions regarding the procedures to be followed before and after the purchase and purchase, sale, sale and post-sale of immovable property. In some cases, except for the information to be given to the authority after the purchase and the information should be given before the sale, the insurer can purchase the purchase by making its own decision.
The insurer has set the criteria for the purchase of fixed assets, such as meeting the minimum solvency ratio, being in profit for 2 consecutive years, not in accumulated losses, and being able to pay the liabilities of creditors and insured on time. According to the directive, the purchase of a fixed property should not exceed 30 percent of the net worth.
The previous directive had a cumbersome and impractical process of obtaining approval, in-principle approval, approval to purchase and re-informing after purchase.
Despite many features, the new guidelines include some difficult provisions. As a result, it has become impossible for insurers to buy real estate or invest in real estate.
Section 7 of the directive contains points (a) to (g) of the insurer’s actions that should not be done while purchasing a fixed property. “An insurer shall not purchase a fixed property if the purchase price exceeds the purchase price referred to in clauses (f) and (g) of Section 6,” reads clause (e). ’
Clause 6 of the directive contains 9 sections that contain the documents and details that the insurer has to collect before purchasing or constructing it. Of the clauses (a) to (i), clause (f) provides that the report on the valuation of the house and building received from an independent authorized person or institution and the recommendation received by the concerned local level regarding the prevailing value of the real estate to be purchased by the insurer has been made.
Now, if we interpret clause (e) of clause 7 and clause (g) of point 6 together, it means that the insurer should not purchase fixed property (real estate) at a price higher than the recommended price received from the local level. At present, the actual market price of real estate in Nepal is 5 to 20 times more expensive than the government valuation or the local level recommended price. However, if the point of the directive is implemented in letter and spirit, then the purchase of fixed property will not be allowed by charging more than the price recommended by the local level.
Clause 9 of Schedule 1 of the Insurer’s Investment Directive, 2082 states that a life insurer should purchase real estate on the basis of the valuation made by the local level, the Land Revenue Office and the independent valuer while investing in real estate. In the directive, fixed property should not be purchased at a price higher than the recommendation of the local level.
In Nepal’s real estate market, such a recommended price is not useful in practice except for the acquisition of private property by the government at the price fixed by the government or at the price recommended by the local government.
