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Realtors are now blaming the rising bank lending rates for a slowdown in their business, as higher rates are weighing down sales despite people's huge unmet demand for houses, industry sources say.
Lending rates have now spiked to around 13 per cent in an almost 100- percent rise from the mark that was before July 2023.
According to people familiar with such developments, the lending rates of banks and financial institutions have bucked up significantly since July 2023 under a new interest regime introduced pursuant to reforms stipulated in an IMF loan-package deal.
The new benchmark rate, styled SMART, or six months moving average rate of treasury, determine both lending and deposit rates after withdrawal of rate caps of crisis time.
After adjusting with the benchmark SMART the interest charged by banks, financial institutions and housing-finance companies now soared to around 14 per cent.
Such rating of interest is not fixed rather it gradually increases in line with the rise in SMART rate, and the benchmark rose to 9.61 per cent for this March from 7.10 per cent in July, the first month of this financial year (FY'24).
"We used to provide housing loan at 7.0 per cent but it is now over 13 per cent," says a senior marketing official of a leading finance company, DBH.
He says they are also providing higher rates on deposits.
He notes that the interest rate is variable and will increase apace with the market rate.
People involved housing development told the FE that their business now faced with two major stumbling-obstacles: higher interest rate and soaring costs of construction materials.
Many developers are now searching desperately funds from the would-be flat buyers at discount prices, they said.
The rises took the average house price to Tk 10,000,000 (10 million taka).
Tanveerul Haque Probal, managing director of Building for Future Limited, has said the sales of flats slowed because of higher costs of funds availed from the banking system.
He said the property-development costs also soared significantly on the back rise in the prices of building materials.
"People usually buy flats with bank loans. When interest rates increase, property also becomes expensive," says the property developer.
And land availability is also another challenge facing development of the industry.
On the other hand, Bangladesh Bank (BB), the country's central bank, has continued contractionary monetary-policy stance as part of government move to contain higher inflation, which heated up to nearly 10 per cent in recent months.
Central bankers say they will continue tight monetary policy until the inflation rate is tamed down to 6.0 per cent.
Despite the odds, the real-estate industry in Bangladesh is still on the up and up,
The sector has contributed 7.93 per cent to the country's gross domestic product or GDP.