A turnaround in real estate sector in the offing?  

Shahiduzzaman Khan     | Published: October 06, 2018 22:09:54


The real estate sector is bracing for a much expected revival. The slow business has picked up since last year with support from stakeholders like government, lenders and utility service providers.

As of now, according to reports, some private commercial banks and financial institutions are offering home loans at single-digit interest rates. Such loans are helping many people fulfil their dream of having a flat in Dhaka city.

The government's recent move to offer low-cost home loans at the rate of 5.0 per cent to its employees is helping the real estate sector to gain long-term stability. Home loans for public servants at single digit interest rates are generating widespread interest among the government employees.

Under the deal, a bank will charge 10 per cent interest, but a loanee will pay 5.0 per cent interest and the government will subsidise the rest. The highest loan ceiling will be Tk 7.5 million and the lowest Tk 2.0 million as per an employee's grade and job location. The total amount will be payable in 20 years.

The realtors believe low-cost loans for nearly 1.2 million public servants will contribute significantly to the development of the national economy. More than 260 sectors are dependent on the real estate sector.

A relatively stable political environment has boosted public confidence in real estate sector. The realtors believe they would be able to do business in Dhaka's adjacent districts like Gazipur and Narayanganj, and in other divisional towns and cities.

On the other hand, the buyers, especially the middle-class ones in the private sector, still think that the housing prices have been going beyond their affordability. They say higher flat price and plot registration costs are the key reasons behind this rise in property prices.

Unlike the neighbouring countries, a purchaser in Bangladesh needs to pay 14 to 16 per cent in taxes to buy a plot or flat. The costs include 4.0 per cent gain tax, 3.0 per cent stamp fee, 2.0 per cent registration fee, 2.0 per cent local government tax and 3.0 per cent Value Added Tax (VAT).

The government also imposed 2.0 per cent VAT on the resale of a flat in the 2018-19 budget, thus making second-hand flats costlier. The official housing authority has planned to work with REHAB in organising special arrangements for public servants to make things easy for them. A total of Tk 3.0 billion has been allocated as government subsidy in the current fiscal year.

For the present, Agrani, Sonali, Janata, Rupali, Basic and Bangladesh Development Bank Ltd now offer home loans to any eligible person at 9.0 per cent interest rate. On the other hand, 14 local private commercial banks are offering home loans at 9.0 per cent to 12 per cent interest rates.

Meantime, the country's realtors proposed that the government should reduce registration charges to 7.0 per cent from existing 14-16 per cent to help ease housing crisis being faced by middle and lower middle income people.

Due to high registration fees, many buyers have lost their interest to register their units. So, the government is also being deprived of a significant amount of revenue from this sector, they added.

Since 2012, the once-burgeoning real estate sector has been in difficult times due to the intermittent political instability, squeezing of bank loans, a bearish stock market, and lack of adequate gas and electricity supply. Developers really had a bad time the last three years. They could not make a recovery so far.

The realtors had a good time in the 2000s, channelling their incomes into the sector. As a result, real estate underwent a boom that reached its peak in 2009-10.Attracted by the boom, 100 new firms entered the industry and sparked unhealthy competition.

Many of these new entrants took up expensive projects, a lot of which were even sold. But the bubble surpassed its sustainable limit, which led to its inevitable burst in 2012.  As a result, sales dropped by 30-50 per cent in the last few years. Because of the slowdown, developers have cut down projects and a huge number of apartments have remained unsold.

According to a recent report by Global Financial Integrity, a Washington-based research and advisory organisation, illegal capital flight from Bangladesh skyrocketed by 33.78 per cent to USD 9.66 billion in 2013 through trade mis-invoicing and other channels. Investment in owning flats and apartments might curve the trend considerably. Realtors claim that the outflow of illicit money could be reduced if the government allows the investment of undisclosed money with an indemnity.

In spite of the slowdown in business, the real estate sector is moving away from Dhaka to areas such as Chattogram, Sylhet, Rajshahi, Bogura, Cumilla, Mymensingh and Khulna. Regional companies are also beginning to emerge.

In recent days, phenomenal rise in prices of major construction materials has created volatility in the country's real estate sector. Manufactures attribute the price hike of rod to the increase in prices of raw materials in the international market, hike in transport cost and the rise in bank interest. But the reality is that the price of billet in the international market is now declining.

Land price in the capital city is probably the third highest in the world and it is galloping every day. Owning a 1000-square feet apartment in a posh city area costs a customer Tk 12 to 16 million. Beyond the city, the prices are also escalating in the district and upazila headquarters.

The government should reduce the registration fee for a flat or apartment sold for the second or even third time. There are both sellers and buyers of second-hand apartments in the country. But the registration cost for second-time transfer of an apartment is similar to a new one. This deters many from making such a transaction.

While taking a decision in this regard, the authorities should also keep in mind that interest rate for the growing private sector needs to be reduced. An estimate says 1,130 real estate companies and various other linked industries contributed about 12 per cent to the country's GDP in 2014, employing a 3.5 million both directly and indirectly. If this sector fails to perform adequately, it will be difficult for the government to reach sustainable development goals (SDGs) in time.

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