Author Topic: Rebound in real estate sector in the making  (Read 998 times)

Reyed Mia (Apprentice, DIU)

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Rebound in real estate sector in the making
« on: June 27, 2017, 07:09:24 PM »
Rebound in real estate sector in the making

A turnaround in the real estate sector is apparently visible on account of property price correction and a fall in home loan interest rate. The sector appears to be recovering in the last few months. Queries for buying apartments are giving the realtors a positive signal.

Since 2012, the once-burgeoning real estate sector has been in difficult times due to political uncertainty, a squeeze on bank loans, a bearish stock market, and the government's apathy towards providing gas connections to new buildings.

However, a significant fall in land and property prices in the past few years has created interest among home buyers again. Property prices have fallen to a certain extent. Now people believe the prices won't fall below a certain limit. The current political stability has also a positive impact on the market.

An interest rate slump for home loans has attracted many mid-income families now. It has fallen to as low as 9.0 per cent from 17 per cent a couple of years ago. A lack of investment opportunities in the face of falling returns on savings and fixed deposits in banks and a bearish trend in stock market have also encouraged many people to go for investing in the housing sector.

Banks' fixed deposits have become otherwise less attractive as most of the banks now offer 5.0-5.75 per cent a year. It indicates that the rate of return will be negative in real terms once inflation and tax on interest earnings are taken into account.

Indeed, the real estate sector has failed to come out of a recessionary trend for many years. The sector started to see a fall in sales after the government withdrew a refinancing fund of Tk 7.5 billion. The authorities had made available Tk 4.0 billion in 2007 and Tk 3.5 billion in 2008 to the fund. But they, due to unknown reasons, discontinued the fund in 2009.                   

The sector contributes 15 per cent to Bangladesh's gross domestic product (GDP), creating 3.5 million jobs for labourers and 35,000 for engineers, architects and management professionals. But it is otherwise going through a rough patch due to high taxes, lack of policy support and non-availability of low-cost funds for customers.

Reports say the number of unsold flats now stands at around 8,000 as some of them have been sold since 2014-end. The actual number of unsold apartments will be much higher. According to estimates of different quarters, over 1,000 developers are now operating without having membership of the Real Estate & Housing Association of Bangladesh (REHAB).

The slump in real estate sector had affected the backward linkage industries such as cement and steel manufacturing. However, the substantial rise in the demand for cement in rural areas helped the sector offset the impact. Big government infrastructure projects are also contributing to the gradual rise in demand for cement. The government is implementing several big projects including, the Padma Bridge, elevated expressway and metro rail in the city.

The present annual growth in demand for cement is around 8.0 per cent and it could have reached 15 per cent had the real estate sector not faced the slowdown. At present, 46 cement manufacturers in the country can utilise only half of their installed production capacity of around 35 million tonnes per year. Re-rolling millers said slowdown in the real estate sector has affected the growth in iron and steel industry.

A rebound in the housing sector, which is visible now, can boost the country's economy if the government takes necessary steps now. Otherwise, the sector will face huge trouble and the damage will be irreversible. It will ultimately affect the country's steady growth.

Very recently, the REHAB suggested the government form a Tk 200 billion fund so that low and middle income people can access funds at 7.0 to 9.0 per cent interest rates. This fund should provide housing loans at a single digit interest rate. It also suggested cuts in registration fees and income tax.

Analysts say money that is going out of the country is mainly being invested in the real estate sector of the host countries such as Malaysia or Dubai. This money should have been invested in real estate sector in Bangladesh, they said.

On the other hand, people investing in the housing sector are facing questions from the Anti-Corruption Commission (ACC) about the source of the income. If these investors face questions about the source of their income, they will obviously be discouraged. The opportunity of legalising untaxed money by investing in the real estate sector will then have no meaning.

The construction boom saw new industrial buildings, corporate offices, housing units and other types of infrastructure. But the slump in 2011 due to a phenomenal appreciation in the price of land and construction materials scared away many new investors. A lot of them invested the money in countries like Malaysia, Canada, Dubai, Singapore, etc.

The manipulation of some unscrupulous owners of land developing companies registered under the Bangladesh Land Development Authority (BLDA) has caused many potential buyers to turn away from the sector. These companies put up sign-boards on agricultural lands anywhere and everywhere and started to sell plots, thus misguiding genuine buyers. Many of them took money from hundreds of clients but failed to hand over plots as of yet.

Non-availability of timely connection of utilities is another factor for making the sector unattractive for the new investors. Many of the flat owners are running after the government's power and water authorities for electricity and water connection. In many places, household gas connection is unavailable. As a result, many owners are selling their flats at throw-away prices.

Proper development of the real estate sector requires a pragmatic planning, steady and reliable source of finance, simplification of registration formalities, and strong regulatory policies. If Bangladesh Bank instructs commercial banks to offer loans at low interest rates, many companies will come forward with new projects.

The need for more residential and office accommodations for a large population in the cities is fast growing with the passage of time. Therefore, both the private and public sector will have to sit down together to find a mechanism to address the challenges. The real estate sector needs both public and private sector support to grow and offer better services to the customers.

http://www.thefinancialexpress-bd.com/2016/08/06/41089/Rebound-in-real-estate-sector-in-the-making
Reyed Mia (Apprentice, DIU)
Asst. Administrative Officer and Apprentice
Daffodil International University
102/1, Shukrabad, Mirpur Road, Dhanmondi, Dhaka-1207.
Cell: +8801671-041005, +8801812-176600
Email: reyed.a@daffodilvarsity.edu.bd