a brief review on real estate sector in bangladesh

A Brief Review on Real Estate Sector in Bangladesh

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CHAPTER 1: INTRODUCTIONAt present real estate sector (RES) is one of the booming sectors in Bangladesh. Day by day as time passes on, this sector is becoming healthier since the substantial growth of population is creating a tremendous housing problem and due to the increase in demand of commercial spaces this sector has come into being. This sector provides an integrated and planned package to resolve these problems. 1.1 Purpose This report briefly reviews on the RES in Bangladesh in recent years and recommends for both the real estate developers and the government policy of Bangladesh on RES. 1.2 Scope The RES has so far spread its wings over Dhaka, Chittagong, Khulna, Rajshahi and Sylhet. This report focuses only on the flourishing of real estate business in Dhaka and the real estate developers which are members of Real Estate & Housing Association of Bangladesh (REHAB) especially the prominent ones. 1.3 Limitations This report has been prepared based on secondary data. Concentration of real estate business in Dhaka may not reflect equal urgency in other cities mentioned earlier. This report does not include some of the problems created by illegal and unfair practices of very few of the developers, which is damaging the image of this sector. 1.4 Assumptions Recommendations of this report are based on the assumptions that REHAB will prevail and RES will keep on flourishing rather than recede or retard.


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CHAPTER 2: EMERGENCE OF REAL ESTATE SECTOR IN BANGLADESH

The concept of RES is developed to resolve the residential facility which is a big problem in a densely populated country like ours. Especially the cities where unavailability of land tends to rise the tendency of high rise apartments rather than private dwellings. 2.1 Existing Housing Situation of Dhaka At present the housing condition of urban area in Bangladesh, in general, is quite unimpressive. In all metropolitan cities, there is acute shortage of housing supply and the backlog is continually on the increase. Inadequate supply of dwelling units for middle and low income people and high rental value are among the most severe challenges afflicting urban living in Dhaka. At present in our country the annually required shelter varies from 3 lakh to 5.5 lakh units. Bangladesh will need to construct approximately 4 million new houses annually to meet the future demand of the next 20 years. Now Dhaka needs 50,000 new houses annually to accommodate its growing population. But the existing annual supply is only 20,000 units. So there is a huge backlog and it is increasing every year. 2.2 Why Real Estate Sector? In Bangladesh, the rate of urbanization is very high further aggravated by high population growth rate and rapid rural-urban migration. The current trend of urban growth in this country is about 5%-6% per annum. This will change and increase demand for habitat. At present 28% of the population of Bangladesh live in urban areas, which will be 34% in 2025. The present estimated population of Dhaka is 10 million and estimated growth rate is 4.7% per annum. All these people need shelter. To satisfy the housing of this huge explosive population Dhaka has attempted to expand vertically. Here comes the need of real estate sector. They have been playing very important role in providing housing regardless of high, middle and low-income people since the past two decades. 2.3 Real Estate Development In our country real estate business started in Dhaka in late seventies. The Eastern Housing of Islam Group is the pioneer in this business. During 1970s there were fewer than 5 companies in Bangladesh engaged in this business. In 1988 there were 42 such developers working in Dhaka and now in 2005 there are about 250 companies


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engaged in this business. From the early 1980s the business has started to flourish and in 1990s it has reached its peak. Towards the end of year 2000 there was slight downfall in real estate sector. In 2003 this sector started showing growth again. To strengthen the role of real estate sector some pioneer real estate companies together built up an association named REHAB in 1991. At present it has 100 members.

CHAPTER 3: REHAB

As the RES developed, necessity of an association arose sharply. REHAB is the outcome of that need. REHAB resolves the dissimilarities among the real estate developers and tries to maintain a standard thus pulling all the developers in the same vessel. 3.1 Formation of REHAB Real Estate development in private sector in this country started in pre-liberation days when Eastern Housing Ltd. in the mid 60s undertook land development project known as Pallabi Project for housing purpose in the Mirpur area of the Dhaka city. The concept of apartment development started in the late part of the 70s when Free School Property Development Ltd. started development of ownership apartment in the Siddeswori and Moghbazar areas of the Dhaka city followed by Eastern Housing Ltd. During the 80s a number of companies came into existence and engaged in ownership apartment development. With the number of companies increasing gradually and various problems concerning the housing sector having cropped up requiring early solution, necessity was strongly felt for the formation of a trade association of the Real Estate business. The real estate developers met together in a meeting held on December 12, 1991 at the Conference Hall of the Dhaka Chamber of Commerce and Industries and formed an association under the nomenclature of Real Estate and Housing Association of Bangladesh or briefly REHAB. On December 12, 1991 a 7-member Ad-hoc committee was formed with Maj. Gen. (Retd.) Amzad Khan Chowdhury as President, Mr. M.S. Alam as General Secretary and Brig. (Retd.) A.H.M. Abdul Momen, as Treasurer amongst others with the task of forming a constitution for the new association. The Memorandum and Articles of Association of REHAB was due at the earliest possible time. Government approval to the formation of REHAB was received in June, 1992. In October, 1992 the Association was incorporated with the Registrar of Joint Stock Companies,


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Bangladesh as a trade association and in November, 1992 REHAB was enlisted as an A class member of the Federation of the Chambers of Commerce and Industries (FBCCI) with 5-members representing REHAB in the general body of FBCCI. Thereafter election of the first Executive Committee comprised of the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Brig. (Retd) A.H.M. Abdul Momen Dr. Toufiq M. Seraj Mr. Iftekhar A. Khan (Pintu Khan) Mr. M.S. Alam Lt. Col. (Retd) Mahtabuddin Ahmed Mr. Arshi Haider Mr. Nasrul Hamid Mr. Meer Showkat Ali Mr. A.K.M. Sahidullah Mr. Chowdhury Md. Shafi Mr. Manjurul Ahsan Chowdhury President Senior Vice President Vice President General Secretary Treasurer Member Member Member Member Member Member

3.2 Its Achievement The following past achievements of REHAB need to be mentioned especially Governments declaration of construction of residential building on commercial basis as an Industry and the recognition of developer companies as Industrial Units by the Investment Board for availing various facilities as an industry like other industrial units under the Income Tax Act. Unfortunately the matter yet remains unresolved in spite of constant persuasion. 3.3 Present Performance: Followings are the important performances of REHAB: (i) REHAB held series of meetings with the Honourable Works Minister, Ministry of Works and the Chairman, Rajdhani Unnayan Kortripokkha (RAJUK) highlighting problems of the private sector housing and seeking their solution and have been successful in resolving most of the problems.

(ii)

It met the members of the press number of times for general discussion on the problems facing the housing sector and sought their co-operation in projecting the views of the REHAB through the respective newspapers. The response of the press has been satisfactory. (iii) It met the Chairman and members of the National Board of Revenue (NBR) for appraising the adverse effects in the increase of the rate of value added tax (VAT) and the collection procedure of annual income tax (AIT). Decision of the proposals submitted to the Government by REHAB in this regard is awaited. (iv) REHAB was represented in the formulation of the Multi-Storied Residential Plot Construction Policy, 1998 of the Government.


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Round Table Conference on High Rise Building attended by senior Government officials, educationists, experts, elite, intellectuals, members of the Press and members of the Executive Committee of REHAB. (vi) Sub-Committees have been formed in REHAB to attend to various problems of the housing sector with a view to find out remedial measures and recommend to the authorities concerned for appropriate necessary action.

CHAPTER 4: REHAB - ITS INPUT IN THE GOVERNMENT POLICY MAKINGREHAB by its name has the function not only to control and govern RES but also some influences in government policy making about housing that favours the overall objectives of RES. In a sense it can be said that REHAB acts as an arbitrator in between developers and the Government of Bangladesh. 4.1 Declaration of Housing as an Industry To obtain recognition for the Housing Sector as an industry, efforts of REHAB have met with partial success but there is hesitation in its implementation for lack of necessary regulating orders. REHAB is pursuing the matter with authority concerned but there appears to be inhibition in the mind of the authority concerned to the issuance of regulating orders. However, REHAB will keep up its efforts. 4.2 VAT Vat was to be recovered at the rate of 15% of the cost of an apartment. But REHAB took up the case with NBR and succeeded in convincing the NBR with all facts and figures to affect actual deduction of 1.98% of the price of an apartment. This is because VAT is being paid at various stages of material procurement. VAT has been enhanced since July, 1999 to 3%. In fact in the process of working out the VAT enforcement, there developed a good understanding between NBR and REHAB.


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4.3 Financial Policy for Housing Sector REHAB succeeded in this respect in a limited way in that it could convince the House Building Finance Corporation (HBFC) about a close cooperation between the developers and the HBFC. After few meetings the HBFC Board and REHAB succeeded in enlisting its members with HBFC for financing the projects by offering loan to prospective buyers through simplification of procedure and shortening the period of processing of loan advance. REHAB made efforts but failed to convince the authority concerned to set aside as percentage of total loan advance by schedule banks for apartment purchase. The observation of the authority was that no directive could be given in the days of liberalization. But it is emphasized that housing or shelter is one of the basic needs and the Government must take appropriate steps to ensure easy access to financial assistance to its citizens. 4.4 National Housing Policy Representatives of REHAB were invited to participate in the formulation of National Housing Policy during 1993. It can be said with satisfaction that the recommendations of REHAB were quite constructive and were given due considerations in the policy. However, it is stated that REHAB must be represented in any discussion relating to housing sector, but many a times this has not happened. 4.5 Ministry of Public Works and RAJUK The REHAB members have met Ministers & Officials of the Ministry of Public Works and RAJUK many a times to put forward its views on policy guidelines on housing, expansion of housing sector targeting the low and low-middle income group through distribution of developed land by Government, compulsory membership of all developers of REHAB and uniform transfer modalities of land and apartment by Ministry of Public Works and RAJUK. A determined effort of REHAB have succeeded in some cases but there still remain some problems which are neither at all conduced to the growth of housing sector nor appropriate to offer opportunities to all for some kind of shelter. However, REHAB's efforts are continuing to convince authorities concerned to be pragmatic and rationales in viewing REHAB's recommendations.


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CHAPTER 5: REAL ESTATE PHENOMENA IN BANGLADESH

RES as an industry needs to accomplish its objectives. And the objectives are oriented towards its diversified market. It should be accomplished within certain boundary limits. Under this circumstances a general agreement among the numbers of developers and customers is in practice. 5.1 Objectives a) To offer finest apartments in excellent locations to the clients; b) To provide sound construction with aesthetic design to the clients; c) To install best possible fittings and fixtures; d) To satisfy clients by expert-oriented service; e) To help solving the residential problem of Dhaka City; f) To perform social responsibility for a happy future. 5.2 Market Real estate business especially apartment projects has started in late 1970s in Dhaka City. But from early 80s the business started to grow and flourish. At present, more than 250 companies are active in business but 95% business is still dominated by top10 companies. Present market is growing at the rate of 15%. 5.3 Reasons for Development of the Industry: The main reasons why real estate business developed in Dhaka City are as follows: a) Scarcity of open space in the important areas of the city b) Hazards of purchasing land c) Hazards of building construction d) Rapid increase in population of Dhaka e) Decrease in the bank interest rate f) Increasing price of land and apartments g) Increasing remittance of foreign currency h) Security i) Service facilities such as garbage disposal, central satellite TV connection, roof top facilities, elevators and so on


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5.4 Market segmentation The market of real estate business is highly segmented. This segmentation is mainly based on the location, price of the land, and size of the apartments. The segmented areas are: a) Segmentation - I :Baridhara, Gulshan, Banani, DOHS, Uttara b) Segmentation - II :Dhanmondi c) Segmentation - III :Segunbagicha, Shantinagar, Kakrail, Malibagh, Kalabagan d) Segmentation - IV :Mirpur e) Segmentation - V :Old Town of Dhaka City f) Segmentation - VI :(For office building) Motijheel, Dilkusha, Fakirapool DIT Extension Road, RK Mission Road, Shahidbagh, Kawran Bazar, Pantha Path etc. Places in Dhaka City where residential and commercial projects have been congregated: Dhanmondi; Gulshan; Banani; Eskaton; Siddeshawari; Panthapath; Baridhara; Elephant Road; Mirpur Housing Estate, Mirpur; Dilkusha C/A; Kakrail Rd.; Malibagh; Lalmatia; Indira Road; Pallabi, Mirpur; Old Airport Road; Farmgate; Inner Circular Road; Mohakhali; Ashulia, Savar; Kalikair, Gazipur. 5.5 Types of Building Structure The development projects for apartments and residential purposes range from Duplex Home, Triplex Home, Penthouse, Luxury Home, Furnished Apartment, Unfurnished Apartment, to Condominium and Vacation-Resort Property. Commercial projects include Agro Farm House, Warehouse, Commercial Space, Industrial Space, Office Building, Commercial Showroom, Exquisite Office, Industrial Park, Factory, Lofts, Shopping Center, etc. 5.6 General terms and conditions of allotment 1. Application for allotment of apartments should be made on the prescribed application form duly signed by the applicant along with the earnest money. The company has the right to accept or reject any application without assigning any reason. 2. On acceptance of an application, the company will issue allotment letter to the applicant and both parties will sign an agreement which includes all terms and references of ownership including the payment schedule and based on which the applicant shall start making payment as per the schedule of the project. Allotment of apartments is made on first come first serve basis. 3. Payments of earnest money, installments, car parking cost, additional works and other charges should be made by bank-draft or pay-order directly in the name of the respective company against which the receipts will be issued. Bangladeshis residing


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abroad may remit payments in foreign currencies by telephonic transfer (TT) or demand draft (DD) in the name of the company. 4. Payments of installments and all other charges are to be made on due dates according to the schedule. The company may issue reminders to the allotted, but notwithstanding the issue of reminders, the allotted must adhere to the schedule to ensure the timely completion of construction. 5. The company may arrange HBFC/Bank loan (if available) for allotted ones according to the existing rules and regulations of the authority concerned. 6. Delay in payments will make the allotted liable to pay delay charge (amount varies from company to company) for every 30 days on the amount delayed payment. If the payment is delayed beyond 60 days the company shall have the right to cancel the allotment. In such an event, the amount paid by the allotted will be refunded after deducting the earnest money (and after allotment of the canceled apartment.) 7. Connection fees/charges security deposits and other incidental expenses relating to gas, water, sewerage and electric connections are included in the price of apartments. The company will make those payments directly to the authorities concerned on behalf of the allotted. 8. Limited changes in the specifications, design and/or layout of the apartments and other facilities may be made by the company considering overall interest or due to unavoidable reasons. 9. The company may cancel an allotment for non-payment of installments in disregard of reminders and after final intimation to the allotted by registered post at the address given in the application form. 10. The allotted shall be required to sign an agreement with the respective company for safeguarding the interests. 11. The possession of the apartment shall be duly handed over to the allotted on completion and full payment of installments and other charges and dues. Till then the possession will rest with the company. If the project is completed before the stipulated time, the allotted shall have to make full payment before taking possession. 12. The allotted will become shareholders of total acres of the scheduled land of the project which is equally divisible but undivided and not demarked. After all the dues and installments are paid by the purchaser according to the requirements and schedule of payment and after the completion of the construction, the vendors shall execute a registered sale deed in favor of the purchaser transferring share of land of the project in the demised apartment. 13. After taking over of apartment of the project, the allotted must consult the company prior to undertaking any structural or layout changes within the apartment


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complex. Failure to do so will be at the sole risk of the allotted. 14. Company shall not be liable if the completion period of the construction projects is affected by unavoidable circumstances beyond the control of the company, like natural calamities, political disturbances, strikes and changes in the fiscal policy of the country etc. 15. For the purpose of effective management and maintenance of the building the purchaser of the apartment shall form and constitute a cooperative society under the Co-operative Society's Act 1940. The society shall be entrusted with the management and maintenance of the building. The rules, regulations and by laws of the cooperative society relating to management and maintenance of the building shall be binding upon all the purchasers/owners of the apartments.

CHAPTER 6: REAL ESTATE DEVELOPERS

To fulfill the need of housing problem several business organizations have involved in RES. Here only the discussion is focused on those business organizations which are associated with REHAB.

6.1 Name of the REHAB members There are 141 members in REHAB. Their names are enlisted bellow. Name of the members:1. 2. 3. 4. Aangina Construction Ltd. ABC Real Estates Limited Abode Properties Ltd. Advanced Development Consultants Ltd. 5. Advanced Development Technologies, 6. Agrani Apartment Ltd, 7. Al-Hassan Developers Ltd. 8. Alam's Real Estate Limited, 9. Amicus Corporation Limited 10. Amin Mohammad Foundation Ltd, 11. Amin Mohammad Lands Development Ltd, 12. Anwar Landmark Ltd, 13. ANZ Properties Limited 14. Apartment Design Development (Pvt.) Ltd, 15. Arcadia Property Development Ltd, 16. Artisan Apartments Limited 17. Asset Developments Holdings Ltd, 18. Assurance Developments Limited, 19. Atlantic Developments Ltd, 20. Avenue Builders Ltd, 21. Banani Property Development (Pvt.) Ltd, 22. Bangladesh Development Company Ltd.


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23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69.

Bashati Consortium Ltd, Basic Properties Ltd, Bay Developments Ltd, Bay Tower Limited Blue Bonnet Ltd, Borak Real Estate (Pvt) Ltd, BRAC Concord Lands Limited Building Development And Design Ltd, Building For Future Ltd. Building Technology Ideas Ltd, Century Realty Limited, Charuta Homes Ltd, City Axis Ltd, Concord Condominium Ltd, Concord Real Estate , Development Ltd, Concord Real Estate, Building Products Ltd, Confidence Builders Ltd, Configure Engineers & Construction Co. Ltd, Corolla Properties Limited, Crescent Holdings Ltd, Development Entrepreneurs Ltd, Dhaka Shelter (Pvt) Ltd, Dom Inno, East West Property, Development (Pvt.) Ltd. Eastern Housing Ltd, Ena Properties, Equity Property Management (Pvt.) Ltd, Everest Holdings Technologies Ltd, Family Living Ltd, G. K.Builders, G. M. Properties Ltd. G.M. Real Estate Company (Pvt.) Ltd, Globe Construction Limited, Gold Hunt Development Co. , Grameen Bangla Housing Limited, Green Delta Housing And Development (Pvt.) Ltd, Habitat Builders Limited, Hassan And Associates Limited, Hamid Real Estate Consruction Ltd, Happy Homes Ltd, Hi-Tech Associates Ltd, Hivertech Limited , Ideal Home Builders Limited Intimate Home Builders Ltd, Ionic Builders Ltd, Jamuna Builders Limited,

70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84.

Japan Garden City Ltd, Jib Constructions Ltd, Kashba Housing Private Limited, Keari Limited, Ks Engineering Technology, Kusholi Nirmata Limited, Latif Real Estate Ltd, Living Plus Limited, Livingstone Limited, M Properties M-Ark Realtors Limited, Mega Builders Ltd. Metro Makers Developers, Momen Real Estates Limited, Morphosis Developments Limited, 85. Mtc Properties Ltd. Multiplan Limited, 86. N. M. Housing Ltd, Nagar Builders Ltd. 87. Nagar Homes Ltd, 88. Nandan Kanon Housing Ltd. 89. Navana Real Estate Ltd, 90. Neer Ltd, 91. Neptune Properties, 92. Neptune Land Development Ltd, 93. New Generation Construction Co. Ltd, 94. Noboudoy Housing Limited, 95. Northern Foundation Limited, 96. Oriental Real Estate Ltd, 97. Pacific Housing Limited, 98. Palli Properties Pte. Limited, 99. Paradise Development Constructions Ltd, 100.Parvin Properties Technologies Ltd, 101.Praasad Nirman Ltd, 102.Property Development Ltd, 103.Queen's Garden, 104.Rangs Properties, 105.Realta Homes And Apartments Ltd, 106.Reliance Development Associates Ltd, 107.Remco (Pvt.) Ltd, 108.Ridge Park Holdings Ltd, 109.Riead Properties Ltd, 110.Royal Properties (Pvt.) Ltd, 111.Rupayan Housing Limited, 112.Rupayan Real Estate Ltd, 113.Russel Lodge Holdings Ltd, 114.Sagufta City Developers Ltd, 115.Samycon Properties Ltd, 116.Shahjahan Group, 117.Shahjalal Property Ltd, 118.Shamsul Alamin Real Estate Ltd,


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119.Shaptak Grihayan Limited, 120.Sheltech(Pvt.) Ltd. 121.Sheltech Towers Apts.(Pvt.) Ltd, 122.Shinepukur Holdings Ltd, 123.Siza Development Company Ltd, 124.Sky View Foundation Ltd, 125.South Breeze Housing Ltd, 126.SS Builders And Developers Ltd, 127.Suvastu Development Limited, 128.Sumona Private Limited, 129.Swadesh Properties Ltd, 130.Tamanna Real Estate Ltd, 131.Tanin Kunja Housing Prokalpa, 132.The Civil Engineers Ltd, 133.The Structural Engineers Ltd, 134.Tropical Homes Ltd, 135.Union Construction, 136.Union Development &Technologies Ltd, 137.Unitech Holdings Limited, 138.United Pacific Builders Ltd, 139.Urban Design & Development Ltd, 140.V.I.P Properties Ltd, 141.Western Developers Ltd


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6.2 Brief Description of Some REHAB Members Among the 140 members of REHAB only a handful is prominent in RES. Some are in the leading position, some have flourished newly, some are struggling to settle their position in the market and some are diversified. Here are discussed four types of developers. 6.2.1 An early established developer Building Technology & Ideas ltd. (BTI)

Building Technology & Ideas ltd. (BTI) is one of the pioneers in the field of Real Estate Development in Bangladesh since 1984. It all started with Forum Apartments at Indira Road. Since 1984, BTI has developed high quality residential complexes and in nineteen successful years they have completed more than 50 projects and handed over all most 1,000 homes to the owners. In 1984 Apartment Living Forum Apartments was one of the first 6-storied apartment complexes in the metropolis with a lift, generator and other modern amenities. Since then, BTI has developed many residential landmarks. Park Plaza developed by BTI in 1986 was the first high rise apartment complex in Banani. Scenic Villa was one of the first luxury apartment complexes in Baridhara. Olympia Tower was one of the first apartment complexes in Dhaka which used hollow clay bricks for maximum insulation and design cost effectiveness. Understanding the changing nature of the Real Estate sector BTI took a leading role in the formation of the industry association and is one of the founder members of the REHAB. In 1998 BTI became the first Real Estate Developer and indeed also the first Construction Company of Bangladesh to be awarded with the internationally recognized ISO-9001 certification for quality in the "Design and Construction of Buildings". Several joint venture projects are being negotiated with foreign companies for the lateral expansion of the metropolis. These include Satellite Townships, Infrastructure Development Projects, and Industrial Parks. The company is investigating diversification into the Leisure and Recreation industry and Hotel and Tourism Industry.


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6.2.2 A leading developer Advanced Development Technologies Ltd (ADTL)

Advanced Development Technologies Ltd. is one of the leading real estate companies in Bangladesh. It specializes in developing luxury apartment complexes in prime locations of the city. The overseas Corporate & Liaison Office in Bangladesh of Bangladesh-British Chamber of Commerce (BBCC)-UK was established in 2001 at the Corporate Head Office building of ADTL ADTL is now known as Chamber's Regional Head quarter in Bangladesh while its Chairman has been appointed the First ever Regional President Bangladesh. It is also an active member of REHAB. The company has achieved a yearly turnover of taka 600 million with a compound growth of 60 percent. ADTL has tried to provide accommodations suitable for small families while creating scope for development of residential lands in the vicinity of the capital city. Efforts are underway to cater to the needs of clients in every market segment. At present, ADTL has 70 apartment building projects at hand in the most prestigious areas of the city such as Gulshan, Banani, Baridhara, Dhanmondi and Uttara. Twenty five completed apartment buildings have already been handed over to its clients. Another 15 apartment buildings will be handed over very soon.

6.2.3 A diversified real estate developer Bashundhara

In the year 1987, 'Bashundhara' was launched, initially as a real estate developer, moving in later years into other areas, including manufacturing. Over the past two decades, the challenges in the fields of urban housing and civic amenity provision have been unprecedented. Housing plans were tailored to focus on the affordability limits of fixed-income groups and their specific amenity needs. Their efforts brought tangible gains in many directions in the last two decades. They expect to come up with new housing and apartment projects in the near future. Now a day they are expanding their horizon to cover manufacturing and the provision of services. Bashundhara is now a leader in many fields with several enterprises involved in a diverse array of manufacturing. The Groups concerns are currently engaged in the manufacture of a wide range of products, such as cement, all blends


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of tissue paper, newsprint, pulp, duplex board, various kinds of paper and allied products, MS rods, LP gas, gas cylinders, GI pipes, pavers, hollow bricks, and others. Bashundhara is also a pioneer in LP gas bottling and marketing. Bashundhara has just completed construction of South Asias largest shopping mall-cum-recreation centre, located in the hub of Dhaka. 6.2.4 A flourishing developer Navana Real Estate Ltd.

Navana Real Estate Ltd. (NREL) was formed in late 1996 to cater the boom in Real Estate Development in Bangladesh. NREL within a short span of time turned out as one of the most trusted companies in this sector and has already been working in various numbers of apartments, commercial and land projects. The motto of NREL is not only to deliver apartment or land ahead of schedule but also to maintain the highest-grade construction quality that is trying to gain trust and respect in customers.

CHAPTER 7: PRICING MECHANISM

The developers follow certain pricing mechanisms and thereby follow some unique guidelines for the convenience of both consumers and their selves. These mechanisms and guidelines are adapted in a manner which makes it rational. In this regard both mechanisms and guidelines are depended on certain factors. 7.1 Available Approaches to Use for Pricing Real Estate Product Pricing is the most crucial factor of marketing strategy that moves a product from the producer to the consumer. Real estate as a product is not an exception in this regard. So it has to be priced according to the general pricing strategy used for any other product. In general selling price is to be fixed by adding a certain percentage of mark up with the total cost of production and other expenditures like promotion, office overhead etc. In case of cost estimation of any product a company needs to estimate the variables and fixed costs and both of these are tangible. So they can easily determine the selling price for a particular product as per their expected profit margin.


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To estimate the cost of a real estate product, a company needs to consider some tangible and intangible components of cost which signifies its special pattern of pricing like other kinds of products. Available Approaches for Pricing Real Estate Product Sales Comparison Approach Cost Approach Income Approach 7.1.1 Sales Comparison Approach It involves selecting properties that have been sold most recently and that are most comparable to the property which is intended to be priced. Adjustments are made for dissimilarities in terms of attributes like size of dwelling place, amenities which is the appraiser attempts to keep at a minimum in accordance with the concept of comparability. This approach is based on the principle that buyer should be willing to pay the same price for identical properties. By adjusting the sell price of comparable properties for dissimilarities, the appraiser tries to make properties that have been recently sold as identical as possible to the subject property. Adjusted price of the comparable properties can be used to price the subject property. When using this method the appraiser estimates the value of a property by comparing the selling price of a property similar to and approximate to the property being appraised. Because the two properties are alike, the appraiser adjusts the values of similar properties for dissimilarities. These differences are isolated and adjustments are made by the appraiser based on his or her judgement and knowledge of market conditions, which is established on what the market value is for each major attribute. Items those are needed to be adjusted by the appraiser in this course of action are: 1) Time since the comparable property has been sold 2) Location 3) View 4) Design appeal 5) Quality of construction 6) Age of the property 7) Condition 8) Size of rooms 9) Quality of interior features 10) Functional utility 11) Types & conditions of major system such as central heat & air 12) Selling or financing concessions By taking all the above criteria into consideration the appraiser fixes the price of the property.


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7.1.2 Cost Approach When using the cost approach, the appraiser estimates the value of the improvement site and determines the cost of improvement. Appraiser also takes into account if any devaluation of land has taken place or not. To estimate the land value the appraiser uses the sales comparison approach and also checks the price of land with the local land registry office to get the price which was used to register a land selling agreement. In estimating the improvement cost the appraiser considers all material cost, transportation cost and all related labor cost. The cost approach usually provides the most reliable estimate when comparable properties are newly constructed and require very few adjustments for depreciation. Appraisers also consider the cost approach when only a few transactions involving comparable properties exist and the sale comparison approach is difficult to use. 7.1.3 The Income approach This approach involves estimating the market value of the property by determining the rate of return on investment by an investor. In this method, the appraiser attempts to establish a relationship between the sale price of the property and monthly income generated by the property. The appraiser typically uses sale of a rental property similar to the subject property and determines the ratio of sale price to monthly income and uses this ratio to estimate the sale price of the subject property. Out of these three approaches appraisers are heavily depend on sale comparison and cost approaches to estimate the value of the property. 7.2 Pricing Guidelines Bangladeshi real estate companies follow guidelines which are a blend of the above approaches. The overall pricing guidelines of local real estate firms are stepwise as follows: To select a property that is mostly identical in terms of attributes with the subject property. To isolate the attributes of the subject property that are different from the comparable property To determine the probable selling price of the subject property by considering the value of the comparable property as a standard To forecast the potential cash flow stream from the subject property based on the determined selling price


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According to the potential income stream local developers determine the budgeted cash flow to complete a particular establishment. Developers target a particular segment of the market in which a particular establishment belongs to. They select a particular income group as their potential clients for an establishment in a particular area. To select appropriate structural design for the property to be developed and to estimate the construction cost required to develop that property as per the designed structure. To estimate the construction cost they use historical record of cost for the identical type of construction and the current market price of the materials to be used to develop the designed structure. With the above consideration developers determine the construction cost per square foot. They distribute the budgeted office overhead and promotion expenditure related to a particular establishment among the per square foot sellable space. By adding this two expenditures with the core construction cost and total cost per square foot is to be determined. They add a certain percentage of profit mark up with the total cost per square foot and selling price per square foot is determined.

7.3 Determinant of Pricing Developers consider some factors to price their products. 7.3.1 Area: It is a crucial variable for pricing a property. In our country its significance is more important than any other country. Depending on the area price fluctuate incredibly. Table I: Comparison of deferential price based on area (Broad Classification) Area Dhanmondi Uttara Gulshan Banani Mohammadpur Source: REHAB Price (taka per square foot) 2400 1550 2200 1900 1700


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7.3.2 Plot location: This variable affect the pricing decision of developer to a great extent. Within a particular area based on the road number or sector price of flat building varies accordingly. Table II: Comparison of deferential price based on plot location

DhanmondiRoad No. Price (taka per square foot) 3/A (old) 2400 3/A (new) 2092 10/A 1900 26 1999 Source: REHAB Table III: Comparison of deferential price based on plot location

Gulshan 2Road No. 105, CEN(F) 111, CEN(H), 90 Source: REHAB Price (taka per square foot) 1995 3000 3422

7.3.3 Size: As the norms depending on the size, price of apartments varies by a direct proportion. In some cases this proportion does not remain constant. 7.3.4 Facing: Facing of the apartments is also an important variable in the pricing pattern of those apartments. Like south facing or north facing flat of a particular apartment building differs hugely in price: Table IV: Comparison of deferential price based on plot facing Face South face North face Source: REHAB Price (taka per square foot) 3000 2500


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7.3.5 View: Depending on the view of flats price can also vary. Table V: Comparison of deferential price based on plot view View South Facing Lake View North Facing Lake View East Facing Lake View East Facing West Facing Lake View West Facing Source: REHAB Price (taka per square foot) 3500 2800 2200 2000 2100 1900

7.3.6 Flat Feature: Flat feature of the apartments is also an important variable in the pricing pattern of apartments. It consists of the interior design and fittings. The mentioned factors affect the pricing of the apartments. 7.3.7 Floor: It is also a prominent factor that heavily induces the pricing of flat. The price decreases as the number of story increases. Table VI: Comparison of deferential price based on floor Floor Price (taka per square foot) 1st 2200 2nd 2300 3rd 2400 4th 2450 5th 2350 6th 2250 7th 2100 Source: REHAB 7.3.8 Construction Quality: This includes materials used for construction, roof design, column design etc. As the buyers are becoming sophisticated day by day this variable becomes important to the developers at the time of pricing. 7.3.9 Land Owners Share: Nowadays most of the apartments are developed by various real estate firms in the form of joint venture. In this venture land owners and developers share total number of flats in a particular apartment. In the most of the cases the ratio of sharing flats is 40:60. In case of lucrative areas this ratio is often 50:50. Besides these landowners also demands a certain amount of cash benefit for staying away from their own home at the time of construction.


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7.3.10 Existence of Amusement Place: Existence and non existence of amusement place also affects the pricing of flat building. 7.3.11 Selecting Procedure of Comparable Property: To select a property with which a real estate firm wishes to compare its new establishment surveys the market and uses its personal communication procedure. Generally a developer tries to make product to product comparison in respective of competitor. A developer generally uses both of its subjective and objective judgments in course of setting attributes, which are used to adjust at the time of pricing. 7.3.12 Pricing of Car Parking: Car parking is fully independent with the overall price of any apartment. It is priced as per the current market price. Nowadays it ranges from 2 to 3 lakh. Any apartment holder wishing to purchase more than one car parking space has to pay a higher amount than the normal range. It varies according to the variation of area. 7.3.13 Maintenance & Security: After the hand over of an apartment, its maintenance is no more a responsibility of a developer. The same is applicable for the security purpose. These two responsibilities are handed over to the buyers association of a particular apartment with a hand over of flats to them.

CHAPTER 8 Real Estate - Contribution to the Economic Growth

Over the last 15 years the RES has made significant contributions to many sectors of our economy. Since 1985 this sector has created homes for over 12000 families in the metropolitan city. Additionally, thousands of acres of land have been developed into housing estates where lower middle and middle income families can construct their own dwellings.


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Table VII: Contribution of RES to the Economy Contribution to GDP 2002-2003 In Percentage 8.48 In Taka 19374 Source: Bangladesh Economic Review, 2004 2003-2004 8.34 20111

Since 1985 this sector has procured construction materials worth over Tk. 1,000 crore. It gives employment to about 12,000 construction workers and pays wages to construction workers amounting to about Tk. 45 crore annually approximately Tk 2 crore is paid annually by this sector towards professional fees for architects and consultants. The sector employs about 5,000 management staff like accountants, sales personnel, engineers, supervisors, administrative staff and others and pays approximately Tk. 25 crore to these people in annul salaries. The fact that many cement manufacturing industries have now been set up in Bangladesh is a reflection of the impetus the RES has given to our economy. In the last decade many steel mills would have shut down had it not been due to the support of the RES. Several new mechanized construction material manufacturing industries have recently come up due to the existence of this sector. Today about 200 architects and consulting engineers are directly supported by this sector; over 500 graduate engineers are holding management positions in this sector and almost 2,500 diploma engineers are engaged in this sector.


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Ending SummaryThe RES in Bangladesh is a well-established business. This sector is well organized under REHAB. REHAB is playing a significant role in coordinating Government policy and developers standards solely to the flourishing of this sector. Though this sector is small, it is contributing almost 9% in GDP and a major source of employment.

Conclusion

Real estate developers opened a new horizon for the small families and the people of moderate income. Owning a house in Dhaka city is not a dream anymore. Easy installments and lower prices compared to build a house made it easier to fulfill lots of peoples lifelong dream. There are many people who own a piece of land in the city but can not afford the expenses necessary to build their own home. RES eliminated these inconveniences. Recently many developers are showing interest in expanding their activities in other major cities in Bangladesh. Then people of those cities will also be able to enjoy the facilities of luxurious apartments at reasonable cost. Now Real Estate Developers are organized as REHAB and coordinating their efforts to solve the housing problems for the city dwellers. REHAB is working closely with the Government to create a sound housing policy for the country that will enable people have a place that they can call as home. Along the way Real Estate Developers are creating a lot of job and becoming a major player in our economy by contributing to our GDP.


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Bibliography1. 2. 3. 4. 5. Bangladesh Economic Review, 2004 The New Nation, April 24, 2004 www.webbangladesh.com\realestate www.velki.com\realestate www.rehabhousing.com

AbbreviationsADTL- Advance Development and Technology Limited AIT- Annual Income Tax BTI- Building Technologies and Ideas DD- Demand Draft GDP- Gross Domestic Product HBFC- House Building Finance Corporation NBR- National Board of Revenue NREL- Navana Real Estate Limited RAJUK- Rajdhani Unnayan Kortripokkha REHAB- Real Estate & Housing Association of Bangladesh RED- Real Estate Devewlopers RES- Real Estate Sector TT- Telephonic Transfer VAT- Value Added Tax

a brief review on real estate sector in bangladesh

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