The Bangladesh bank yesterday increased the ceiling for home loans to BDT 2 crore from the previous ceiling of BDT 1.2 crore, an increase by 66.66 percent, to help the expanding middle class to buy properties and build houses amid the price hike of construction materials.
The BB’s Banking Regulations and Policy Department (BRPD) has issued a circular asking banks to follow the latest instruction with immediate effect.
The Bangladesh Bank, however, kept unchanged the debt-equity ratio at 70:30, meaning clients will be allowed to receive up to 70 percent of the total construction cost of homes from commercial banks.
As per the central bank notice, rising per capita income, the growing middle class, and the price increase of construction materials motivated the decision.
This came in response to a request of the Association of Bankers, Bangladesh (ABB), a forum of managing directors of commercial banks. On November 7, the platform, at a meeting with the BB, called for raising the credit ceiling for the housing sector.
The Real Estate & Housing Association of Bangladesh (REHAB) & Industry leaders welcomed the BB move. They expect that the ceiling increase will not only help the real estate sector but also the 250 backward linkage industries. The increase in the credit ceiling would give a fillip to the sector, which has been recovering from a slowdown, they hoped.
The housing market went on a downturn in 2012 for intermittent political instability, a bearish stock market and the government’s apathy towards providing gas connections to new buildings.
The property price corrections in the past few years have lured in many prospective home buyers and the market is invigorated again.
As of June 2018, total outstanding home loans from banks and financial institutions were Tk 81,520 crore, according to data from the BB. In fiscal 2002-03, total outstanding loans were Tk 7,527 crore, indicating that financing to housing grew 11 times in 15 years.
Earlier in 2015, the central bank had set the limit at Tk 1.20 crore and the debt equity ratio at 70:30.
The ceiling of housing loan was first introduced in 2004, when a client had a maximum entitlement of Tk 75 lakh with a debt-equity ratio of 80:20.