Published at: The Financial Express, March 02, 2019
Bangladesh’s socioeconomic condition has been very good since the beginning of this year. Due to this and a number of other factors, the real estate sector of the country seems to be turning around. Most of the companies in the sector have changed their strategies and are now focusing on the growing middle-income segment of the population.
At the same time, the confidence of buyers is apparently on the rise due to political stability and economic growth of the country. The government’s plan to reduce registration fees and allow gas connections to households have also helped.
Earlier, the housing sector was facing many challenges. Most of the realtors had complained of a drop in sales by 30-70 per cent over the last couple of years. They suffered badly because of slothful trend in real estate business. Some developers were forced to sell apartments at lower profit margins to maintain their cash flow. It is believed that the slowdown in the sector was due to prohibition of black money injection, instability in the share market, overseas job crisis, self-indulgence of developers and political instability.
But the trend changed following the announcement of low-interest home loan facilities to the government employees. Over the past six months, the business of real estate sector has increased by 20 to 30 per cent.
REHAB FAIR, BUILDING CODE, ENVIRONMENT AWARENESS: Real Estate and Housing Association of Bangladesh (REHAB) is optimistic about regaining sales in 2019. The February 06-10 ‘REHAB Fair’ held at Bangabandhu International Conference Centre (BICC), Dhaka has boosted their morale.
While addressing the inaugural programme of the REHAB fair, Housing & Public Works Minister SM Rezaul Karim asked realtors to follow laws, rules and regulations in running their business. He particularly asked them to follow the building code including environmental protection. Md Mosharraf Hossain Bhuiyan, chairman of the National Board of Revenue, said that the charge for flat registration may be reduced in the next fiscal year as a new VAT law would come into effect.
REHAB’s senior vice president Nurun Nabi Chowdhury (Shaon) MP suggested that a refinance fund of Tk 20 billion be formed to help lower- and middle-income families to solve their housing problem and the registration costs of flats and plots be reduced. The Housing Minister assured that these issues would be considered.
BIG RESPONSE: More than 28,000 people visited the fair and placed orders worth Tk 15 billion to buy flats, plots, and commercial spaces. Most of the visitors were reportedly looking for small or mid-sized flats, ranging from 800 to 1,200 square feet.
Banks and financial institutions, who participated in the fair, made commitments to provide loans of Tk 20 billion approximately to purchase flats. Most of the banks and non-banking financial institutions (NBFI) that took part in the fair offered home loans with an interest rate of 10-11 per cent.
According to the regulations of the Bangladesh Bank, banks can provide home loans up to a maximum of Tk 12.00 million to an individual customer. At present, the debt-equity ratio is 70:30 for resident Bangladeshis and 75:25 for non-resident Bangladeshis (NRBs). However, this rule is not applicable for NBFIs. If they want, they can provide higher amount of loans to home-buyers. Besides the amount of loans, the process of housing loan has become more convenient than before. Housing loans are now being offered even at the suburbs, district, upazila and union levels.
HOUSING LOAN PORTFOLIOS: Meanwhile, significant changes in total housing loan portfolios have also helped the real estate sector. Total outstanding housing loans from banks and financial institutions as of June 2018 amounted to TK 815.2 billion, which was 9.6 per cent of total credit to the private sector. Over the past few years, private banks with ample deposit resources have been expanding their housing loan portfolios. These banks had the dominant market position with the largest amount of TK 476.0 billion in outstanding housing loans as of June 2018.
The State-owned Commercial Banks (SoCBs) had the second largest amount of TK 166.1 billion and other banks had TK 22.9 billion in total outstanding housing loans during this time. Additionally, two private sector specialised housing finance companies are providing a significant amount of loans. The state-owned House Building Finance Corporation (HBFC) had an amount of TK 30.1 billion in outstanding housing loans as of June 2018. Moreover, the government has created a ‘grihayan tahobil’ (Housing Fund) for providing housing loans to the non-governmental organisations (NGOs) at a minimum rate of 1.5 per cent simple interest. The NGOs in turn provide housing credit to the rural poor at a rate of 5.5 per cent simple interest over a recovery period of up to 10 years. Till June 2018, the Grihayan Tahobil has released TK 2.90 billion through 616 NGOs for rural housing programme covering 404 upazilas of 64 districts of the country. Reportedly, 75,444 houses have already been constructed.
DEVELOPING CENTRAL DATABASE: The performance of the real-estate market is difficult to gauge as information is scarce and many transactions are kept confidential. There is anywhere between 2,500 to 3,000 realtors engaged in the sector, which employs more than 100,000 architects, graduate engineers, diploma engineers, management professionals and skilled manpower. Besides, there are about 269 backward linkage companies that have direct linkage with the sector that contributes directly to the gross domestic product (GDP). About 50 million workers are providing labour in this sector. Real estate development has a net positive fiscal impact on the government’s revenue earnings. Revenue sources during the construction phase of a building include fees related to the project approval, taxes on building materials, corporate taxes on builders’ profit, income taxes on construction workers and so on. In the Economic Survey of 2017, the direct contribution of real estate sector to GDP was 6.49 per cent. If the indirect contribution was added to this, the sector’s contribution to GDP could have been around 10 to 12 per cent.
Statistics related to real estate sector is inadequate. There is no information on real estate developers working outside the capital. A central database is required for this purpose. This will also help the sector as potential customers can decide about their investments after getting information from such a database.
One of the biggest problems the realtors face is bureaucratic red tape. For approval of one project, they have to go to at least 11 to 12 different organisations. The government should establish a ‘one-stop service centre’ for the real estate sector. Additionally, amendments can be made to the existing real estate development rules and regulations and Detailed Area Plan (DAP) implementation.
Another factor that has helped the ongoing growth of the real estate sector is the slashing of both lending & deposit rates less than four months ago. Buyers are likely to be facilitated by this move.
The sector can gain by embracing digitisation across design and delivery processes. Real-estate developers should accept the fact that the business as they have known it, is changing. By adopting new construction technologies, they can improve delivery and affordability. Customer centricity will become more important in the near future. After-sales service, in the form of curating and delivering the best living, working, and shopping experience, will become an essential capability.
Rapid urbanisation puts more pressure on land, making it important that each square meter be used effectively. At the same time, quality-of-life issues, such as traffic congestion and air pollution need to be actively considered by real estate sector stakeholders from the conception of a building plan.
Globally, standardisation, prefabrication, and smart technology are gaining traction in the real estate sector as rising population challenge the need for affordable housing and liveable, sustainable cities.
Bangladesh, like many other developing countries, faces an acute shortage of affordable housing both in the urban and rural areas. Realtors should build projects in the outskirts of Dhaka city as Dhaka has reached its maximum capacity. Metro rail and elevated expressway are likely to pave a way for real estate companies to expand business outside the city.
It is expected that the increasing demand for housing, expanding middle-class segment and soaring per-capita income will continue to boost sales in the sector.
Md. Abdul Kader is Assistant Vice President & Head of Retail Credit at Southeast Bank Limited.