REJOANUL HAQUE Senior Executive Officer, Credit Risk Management, IDLC Finance Ltd. SHADEQUR RAHMAN Senior Executive Officer, Credit Risk Management, IDLC Finance Ltd.

Bangladesh’s real estate sector is growing steadily on the back of the rapid development of the country, rising demand for housing, expanding middle class, and soaring per-capita income. It all started during the 1970s with only 5 registered firms. During the 1980s apartment development got gross acclamation in Bangladesh by the middle-class city dwellers and by the late 1980s it was an established ordinary deal among all levels of income group. At present, the concept of real estate is getting expanded not only around developing apartments but also model cities, shopping malls,
major infrastructure, and commercial setup with an elaborate view of high-profit margin.

During the late 1980s, 42 such developers were working in Dhaka. In 2013 there were about 800 companies but now there are 1073 registered companies engaged in this business out of which REHAB (Real Estate & Housing Association of Bangladesh) enlisted companies are 879. A large number of unregistered companies are also playing a crucial role in the overall real estate business.

Contribution to the Economy

The housing sector plays an important role in attaining economic stability. It is a big driver of economic growth as this sector has enormous multiplier effects on economic activities this sector contributes to 7.96% in GDP. In addition, the sector also contributed to the national economy through linkage industries, such as MS bar, cement, brick, sand, ceramic tile, paint, and other fixtures and fittings. As per data from REHAB this sector along with its linkage industries contributed about 12% to the national GDP.
It is one of the largest employment generating sectors after agriculture and readymade garments. It also stimulates demand for ancillary industries, for example, steel, cement, tiles, sanitary ware, cable, electric ware, paint, glass, aluminum, brick, building materials, and consumer durables, etc.
Projection from the last population census says that the total housing demand will be 0.8 million units in 2020 and 1.14 million units in 2030. Additionally, every year this sector directly adds to the government revenue (in the form of VAT, registration fee, utility fee, etc.) on an average of nearly BDT 5.0 billion.

Dominating Factors for Real Estate Sector

• Demographics

Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns, population growth, living standard, urbanization, etc.

• Interest Rate

If anyone is considering buying a home with a mortgage, a lower interest rate will encourage you to take a quick decision. Changes in interest rates can greatly influence a person’s ability to purchase a residential property.

• The Economy

Another key factor that affects the value of the real estate is the overall health of the economy.

This is generally measured by economic indicators such as GDP, employment data, manufacturing activity, etc. Broadly speaking, when the economy is sluggish, so is real estate.

• Government Policies/Subsidies

Policies taken by the government have a sizable impact on property demand and prices.

• Product Pricing

1. Rise in the price of land: Land price in Dhaka has profoundly amplified in the last 10 years which has a huge impact on increasing apartment prices.

2. Increasing Cost of Quality Construction Material: The cost of construction supplies is routinely rising, in this manner increasing the structure cost.                               
               

Present Real Estate Market Scenario

• Market Summary

• • The Industry is Mainly Dhaka & Chattogram Based

  Most of the real estate companies are doing their projects at Dhaka & Chattogram city as most of the city dwellers are living in these two cities for their livelihood.

  • Bank and NBFI Investment in Real Estate Sector

  According to Bangladesh Bank, the housing finance demand in the fiscal year 2019-20 is BDT 1496 billion, which will be BDT 1,544 billion this year. The total outstanding housing loan from banks and financial institutions was 8.5% of total credit to the private sector in the year 2020. These private banks had the dominant position, with the largest amount of BDT 489.3 billion in outstanding housing loans as of the end of June 2020. Bangladesh government provides housing loans to the NGOs at the minimum rate of 1.5% simple interest who in turn provides housing credit to the rural poor at the rate of 5.5% simple interest for a recovery period stretching from 3 to 10 years.

  • Increasing Demand for Small Size Apartment

  Nowadays demand for small size apartments measuring 650-700 sqft is increasing very rapidly due to a high demand in lower-middle-class families.

  • Key Market Players

  Although there are 1,073 registered real estate companies and 879 of them are REHAB enlisted, few companies have gained market reputation and they are the key players in this sector. Asset Developments, Assure Development & Design Ltd., Navana Real Estate Ltd., Shanta Holdings, The Structural Engineer Ltd. (SEL), and Sheltech are some of the renowned real estate companies of Bangladesh. (Company`s name given alphabetically)
  
   22 years Data Analysis on Dhaka City Average Flat Price and Sale                                                                                                                                                 

• Impact of COVID-19 Pandemic on Real Estate Industry                                   

  During the early stage of the pandemic, when the government imposed a two-month nationwide lockdown between March 26 and May 30, 2020, the demand for apartments was nil as the people did not make such big investments in a time of crisis. As a result, all the housing projects came to a halt. Because of the lockdown, around 6,000 projects of the REHAB members were in limbo as construction workers and other employees had to return home. Many customers were also unable to pay their installments on time and so, due to the lack of funds, entrepreneurs in the housing sector became very worried about how they would pay their employees.

  The real estate industry enjoyed a rebound from the Covid-19 fallout after the lockdown as in the budget of the current fiscal year, the government allowed the use of untaxed income to purchase property, land, and apartments, without having to answer for the source. Besides, banks and NBFIs are providing home loans at very cheap interest rates of below 9% as a secured investment for the lenders, according to industry players. Now real estate traders are paying more attention to the ongoing projects before they are completed because they are already one year behind due to the lockdown.

  Tanvir Ahmed, managing director of Sheltech Group, said the economy is gradually gaining momentum while the low-interest rate for home loan clients helped in increasing apartment sales. Even the booking cancelation rate came down to nil during the last six months.

                                                                                                                                                                                                       
  What`s New in Real Estate Sector in Bangladesh                                          

• Studio Apartment Trend in Today’s Urban Landscape

Studio apartments comprise a single large room which ranges from 250 sqft to somewhere 1000 sqft in size including a bedroom, dining lounge, compact kitchenette, and attached restrooms which is an ideal living space for single city dwellers and small families.

• Government Goes Green, Hollow Bricks Become Mandatory

Environment, Forests and Climate Change Minister Md. Shahab Uddin has declared that the production and use of hollow bricks and blocks will gradually be made mandatory by 2025 in the country to prevent air pollution. Hollow bricks have several holes in them. These bricks have been proven to be much more beneficial than traditional bricks.

Hollow bricks are fire resistant and at the same time much safer than ordinary bricks.

• Steel Structures Gaining Popularity in Cities

The prefabricated steel structure is gaining popularity in cities as corporate houses prefer this type of construction for safety and convenience. This type of structure requires a short time to install and can resist natural disasters better during earthquakes.

• Digital Platform for Complete Real Estate Solution in Bangladesh

Bproperty is the largest and integrated property solution provider in Bangladesh. Bproperty caters to the needs of those seeking real estate services, with a promise to make property search, renting & buying easier than ever. Bproperty also organized the country`s largest virtual property fair in October 2020. This fair received more than 50,000 unique visitors and featured over 10,000 properties for sale. (Source: The Financial Express)

Opportunities of Real Estate Sector

If we look at this from a historical perspective, this sector has been in the business arena from right after our independence. There are still lots of opportunities waiting for Bangladesh. PWC’s recent study shows that by 2030, Bangladesh will be the 28th largest economy.
We estimate that at least USD 700b will be invested in
the next 50 years just in housing alone.
Recently, the Boston Consulting Group did a study where it showed that in 2015 there were only 10 key cities with more than 300,000 middle and affluent class (MAC) consumers each. Projections suggest that, in 10 years, there will be 33 towns and cities with some having more than 2 million MAC consumers. The right product and placement can convert these populations into customers, and there seems to be immense potential outside Dhaka as well. (Source: ICE Business Times) If we take some examples from different countries, we can find some exemplary steps that have been taken to solve the real estate problem for mass people.

1. Singapore has been most successful in solving its housing crisis. Singaporeans’ homeownership is the highest in the world because citizens can take a loan from their pension funds from the day they start earning money. In this way, even low-income groups can find funding to buy their own home.

2. Japan also has an exemplary record of providing affordable housing to its residents. The city emphasized on vertical expansion which helped the housing prices well within reach over the decades.

3. New York authorities set maximum rent for all properties which is called rent control idea that provided relief to millions of its habitats. To qualify for rent control a resident must be living in that space for a certain amount of time.

4. Kolkata the third most populous metropolitan area in India also came up with rent control that provided relief to millions of its habitats.

5. Indonesian government enacted a law last year on public housing savings, it will help workers to finance the purchase, construction, or renovation of their first home. All formal workers and individuals with monthly salaries at least equal to the minimum wage must contribute 3% of their pay (2.5% from employees and 0.5% from employers) for housing
savings.

Considering its huge market, the Bangladeshi real estate sector has huge potentialities such as:

• Moving into new areas like Purbachal, Bosila, Keranigonj, and the outer side of Dhaka city which are spacious and yet to be developed with urban infrastructures. This can be done if the government promotes good schools, colleges, hospitable special commuting facilities, public transportations like intra-city train service.
• The government has undertaken huge roads and high ways development projects all over Bangladesh. Since transportation is the prime need of development for any area, so gradually the government is trying to mitigate this requirement, real estate companies should focus on bringing new projects in different cities of Bangladesh.
• The present urbanization rate is 5-6% annually. Close to 40% of the total population will be living in urban areas by the next couple of years. Only 40% of the people of Dhaka city have standard or below standard housing facilities. Thus, from the comparative analysis, experts assume that the growth of housing demand will stay for a long time.
• The focus should be given to lower-middle-class people affordable housing solutions. A large number of people are entering this class thus demand for their affordable home is increasing and a great business opportunity is waiting for private real estate companies.
• Currently, 68% of the residents in Dhaka live in rented properties. Of them, 82% percent say the rent exceeds their affordability (Source: ICE Business Times). Real estate companies have a potential market for this segment if the companies can provide apartments at a reasonable price.
• In the budget of the current fiscal year, the government allowed the use of untaxed income to purchase property, land, and apartments. According to the REHAB president, around BDT 3,500 crore in untaxed income was invested in the sector over the last six months. (Source: The Daily Star). So in near future, more investment will make its way into the real estate sector.
• Banks and NBFIs are now providing home loans at very cheap interest rates. Thus more people will be interested in purchasing flats. This has already created a huge demand for apartments purchase.
• A slash in the registration fee of a property’s price will be a positive notion for individuals to buy apartments.

Challenges of Real Estate Sector

According to government estimates, at least 1,418 people are adding to the population of Dhaka every day. Currently, the population density of Dhaka stands at approximately 80,000 people per square kilometer.

The average area per person in Dhaka is 12.5 square meters, while the average area per person is 32.3 square meters in Mumbai, 230.2 square meters in Tokyo, 167.6 square meters in Shanghai, and 87.4 square meters in

Delhi. The numbers are overwhelming and Dhaka is failing tremendously to provide homes for its growing population. (Source: ICE Business Times).

The real estate sector is facing several challenges for many years. The main challenges are described below:

• There is a lack of commitment between some of the real estate companies and individual buyers. A legal framework is also missing for the real estate sector to uphold buyers’ rights.
• The marketing strategy of some real estate and land development companies often creates a problem. Some of the new, as well as old companies, have conducted some unprofessional incidents in recent times by giving fake advertisements of land sales and apartment projects.
• According to real estate experts, the giants of the industry will require less time to start their operations back up again after Covid 19 effect. However, those tier-2 or tier-3 developers need to assess their current situation and communicate with their buyers about the path ahead on whether there might be a delay in handover, a change in plan, or even if everything is on schedule for reassurance.
• Lack of structured urbanization plan and incentives from concerned authorities. A new urbanization plan is required which will include appropriate utility facilities, road development, education, and medical treatment facilities. Missing these development activities is creating barriers for real estate companies to enter into new and emerging areas.
• Lack of coordinated effort of all the development authorities which includes 12 city corporations and the 330 municipalities.
• The low compensation package for real estate employees. As a result, real estate companies can`t attract good HR onboard except for some top-tier real estate companies.
• High fees for property transfer and registration: The registration fee in Bangladesh has been reduced from 14% to 10% on the total price of the flat, but this rate is still higher compared to many countries in Asia.

Registration fees on property price of different countries are shown on the graph below:

• Maintaining a lower interest rate for the home loan for individual consumers will be a great challenge in near future. As lower interest rate has encouraged people to take loans for asset purchase, opposite of this may also happen if interest rate increased.

The sector has extensive potential to attract investment to its various segments. However, progress is possible only with the joint efforts of both the industry and the government. The government must provide favorable policies to developers to build low-cost and affordable housing for the masses. Realistic and long-term policy guidance for the real estate sector must be taken by the government to encourage investment and development in Bangladesh’s real estate. The notion of ‘affordable housing’ must be popularized to set a minimum standard of accommodation for all citizens. Without proper accommodation, we cannot develop a capable workforce for contributing to the national economy. Judging the multi-sectoral nature of housing, it is clear that one or two isolated initiatives will not be enough to solve the overall housing problem. Government and private developer companies have to work together for the bright future of the real estate sector of Bangladesh.