real estate inn bangladesh
TRANSCRIPT
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Executive Summary
Like any other country in the world, the housing sector plays vital roles both in the context of
the economy of Bangladesh and serving the fundamental human right of shelter. Apart from
providing physical shelter, housing may have significant impact on the lives of the dwellers in
terms of skills enhancement, income generation, increased security, health, self-confidence and
human dignity. There is no active secondary market for real estate, mainly because of the high
transfer taxes and an uninterrupted long-term increase in land prices. In spite of all these, this
sector has experienced considerable growth in past few decades. With a rising population and
increasing housing demand, apartment culture has grown up in Dhaka sharply. In line with this,
house rent in Dhaka increased by 250 percent between 1990 and 2007. During the last decade,
the total volume of Real Estate, Renting and Business service sector increased every year which
implies a positive growth in the sector every year. But, compared to overall GDP growth, this
sector expanded at a slower rate. The growth in this industry also facilitated a fast growth in
many linkage industries like glass and glass products industry, brick industry, cement industry,
ceramic industry, iron and steel industry etc over the last decade. Major sources of fund are
bank loan, and personal and family savings. One overall perception of the consumers is that the
government is yet to play proper roles in meeting the housing needs while the private sector is
contributing significantly. In line with the demand, the prices of real estate properties are also
rising very fast. Price hike of land and construction materials also add to the overall price hike.
Apart from meeting the housing needs, the Real Estate sector contributes to the Government
exchequer through Registration Fees, VAT, Advance Income Tax (AIT), Stamp Duty, Property
Handover Tax etc. Also, the construction industry is a labor-intensive industry, whose capacity
of absorbing labor is great. The industry provides many jobs for skilled, semi-skilled and
unskilled workers both in the formal and informal sectors. For the migrants from the rural areas
the construction industry is often a stepping stone to urban life. The present situation of real
estate sector in the country is a demand-supply mismatch. This sector has been the prospective
sector but gradually its attraction is diminishing. The reasons for decreasing demand in real-
estate sector are too many to be told. Real Estate sector is a major part of the construction
sector. Most of the labor force engaged in the construction sector is basically engaged in the
Real Estate sector. Thus real estate sector is also contributing a lot in the overall economy of
Bangladesh.
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Introduction
The housing sector plays vital roles both in the context of the economy of Bangladesh and
serving the fundamental human right of shelter which actually call for the awareness and
analysis regarding various pertinent issues involving the sector. These analyses include the sizeand contribution of the housing sector to the economy, current market structure and trends in
this sector, regulatory framework governing this sector, various government policies and
associated challenges arising from recent economic crises and policy changes. Without
adequate information the players in this sector cannot plan and prepare themselves for the
challenges and opportunities. Besides, the government cannot make appropriate policy
interventions to make an appropriate balance between the facilitation and regulation for the
betterment of both this sector and its contribution to the overall economy. Availability of
proper information is also necessary from the perspective of the investors so that they can
make efficient investment decisions. This is very vital as the sector grows to its matured phase,investors has to be well aware of the facts and status of the industry. Various linkage industries,
particularly those who depend solely or heavily on the housing sector need accurate
information, facts and forecasts to safeguard their interests. And last but not the least
consumers cannot make the best use of their scarce savings for their accommodation if they do
not have proper information of this sector. Thus, availability of more market related
information will define, with greater accuracy, the nature of the future development required
in this sector. Despite the significant growth of the housing sector in the recent past, good
research dealing with the development of this sector is lacking. This is compounded by the fact
that there is a lack of adequate statistical information.
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Real Estate Sector of Bangladesh at a Glance
Real Estate business took off in Bangladesh in 1970 with only five registered firms. From the
early 1980s the business started to flourish and showed robust growth. By 1988, there were 42
developers in business. At present, more than 1500 companies are active in the real estatesector with 1081 of them registered with REHAB. In the last four decades, private developers
have supplied more than 100000 units of apartments to the nation and will be supplying 25000
more units in the next three years.
The business of real estate had a very slow growth rate in the first decade. From 1994-95, over
the last 10 years, Bangladesh real estate sector grew at an average of 3.64% reaching the peak
at 3.83% in 1999-00. For the last 5 years this sector grew impressively and showed a smooth
rising trend. The industry grew in a moderate pace since 2006 but between 2008 and 2010 the
growth rate was exponential. The following figure self-explains the trend of real estate businessin the city. Here you can see the number of apartments developed each year from 1982 to
2010.
Figure 1:No of apartments developed each year from 1982 to 2010
The main reasons for the development of real estate business in Dhaka city are:
i. Rapid increase in the population of the city.ii. Scarcity of unoccupied lands in important parts of the city.iii. Very high prices of land.
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iv. Hazards involving purchase of lands.v. Profit motives of the land owners.vi. Increase of remittance inflows in that finance many purchases.
vii. Re-structuring of households to single family units.viii.
Standard of security and other services in apartments
Contribution of the Real Estate Sector to the National GDP
Gross Domestic Product (GDP) is a measure of all goods and services produced in the economy.
The Real Estate sector contributes directly and significantly to overall production activity and
thus to GDP. The two line items in GDP directly associated with the Real Estate sector are
residential fixed investment and housing service. Residential fixed investment consists of value-
put-in-place of new housing units, brokers commissions on the sale of existing residential
properties, and expenditures related to improving and additions to existing units. Housing
service is a component of personal consumption expenditures, purchased by residents inBangladesh, usually in the form of rent for tenants or as rental equivalence for homeowners.
The sector wise share of Real Estate, Renting and Business Service sector to the national GDP of
the country is as follows:
Table 1:Share of Real Estate, Renting and Business Service sector to the national GDP
From the above figure shows sector wise share of Real Estate, Renting and Business service
sector has a downward trend. But that does not show the real picture. Basically, the total
volume of Real Estate, Renting and Business service sector increased every year, as seen from
the last column, a positive growth every year. But, compared to overall GDP growth, this sector
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expanded in a slower rate. That is why in overall GDP the contribution of this sector has a
downward trend.
Contribution of the Real Estate Sector in Providing Shelter, Solving Housing Needs of
Urban Population
Urban Housing Markets are increasingly significant in shaping the economic and social well-
being of many citizens. Moreover, housing markets play a central role in the process of
metropolitan development, both affecting and reflecting other forces at work in this sphere.
High population growth and rural-urban migration intensify the problems of urbanization in
Bangladesh, as in all developing countries. For Bangladesh the problem is further aggravated by
limited land supply in urban areas, lower land utilization and lack of proper policy and planning
of land-use. Decline in household size combined with increase in population has pushed up
housing demand. Presently families in urban area spend a high share of their income on
housing but still obtain low-quality accommodations. With a rising population and increasinghousing demand, apartment culture has grown up in Dhaka sharply. Apartments were first
introduced by the formal private developers in early 80s to the housing history of Dhaka.
Existing housing supply has been characterized by a critical imbalance between housing cost to
household income ratio that has been known to affect homeownership as well as rental
housing. According to a 2007 survey conducted by the Consumers Association of Bangladesh
(CAB), house rent in Dhaka increased by 250 percent in between 1990-2007 despite presence of
rent control laws and courts. It must be emphasized that the economic costs of any failure in
the housing markets can be enormous and severely harmful to prospects for economic growth.
Regulatory Environment
Before 2004 there were no mandatory building regulations or laws in Bangladesh. There is
Bangladesh National Building Construction Code 1993, which is not mandatory and well
enforced by the government. The government has taken initiative to make it mandatory.
According to newspapers, many developers do not follow the codes, which put the customers
in risk. In 2004 Land Development Act for Private Residential Project 2004 ha s been passed
which is mandatory to be complied by the developers. Government amended The Building
Construction Act of 1952 in February 2006. The Bangladesh National Building Code (BNBC) of
1993 came into effect on November 15, making it mandatory to comply with in any buildingconstruction under The Building Construction Act of 1952 and to ensure accountability in the
management of overall building construction and safety of the buildings. Developers also have
to comply with the Dhaka Metropolitan Building Rules of 2008 to ensure safe building
constructions. To protect the interest and ensuring safe investment of the buyers, the
Government of Bangladesh has designed the Real Estate Management Ordinance 2008 but it is
yet to be approved by the Govt. or passed lay the Parliament.
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Contribution in the Government Exchequer
The Real Estate sector contributes to the Government exchequer through Registration Fees,
VAT, Advance Income Tax (AIT), Stamp Duty, Property Handover Tax etc. The following figure
shows the amount of income tax collected by the govt. on transfer of properties.
Figure 2: Income tax collected on transfer of properties
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Critical Factors
Product
The main products in the real estate sector in Bangladesh include 3 types Commercial Units,
Residential Units and a mix of the two.
1. Commercial unitsare shopping malls, shops, and office buildings etc. which are used forcommercial purpose.
2. Residential units include two segments plot units and apartment units. Plots aresegment of a land area with certain boundary where the land is developed by the real
estate developers and builders. Apartments are buildings with flats of different sizes to
live.
3. Mixed units include buildings which are used both for living and commercial purpose.Generally the downside floors of a project are rented for commercial purpose leaving
the upside to sell as apartment.
In the recent period the real estate developers have introduced new diversified products.
Model towns, which are built with the structure of a small town including all facilities for
people, like offices, shopping mall houses, schools, swimming pools, gymnasium, banks, power
plant etc. represent the diversified products. Projects that include some important swimming
pool, gymnasium, shopping malls etc. in one building are also diversified products supplied by
the real estate agents in Bangladesh.
Price
There is no common strategy for pricing in the market. Pricing strategy depends upon the cost
of land developments, market condition, location etc. Developers and builders charge price
based on their individual choice. But there has been a standard of pricing practice in the market
depending on the size & location of the residential or commercial projects. For an apartment
the average price per square feet is Tk. 2,300 with varying price range from Tk. 2,500 to 12,000
in Dhaka city, Tk. 2,800 to 5,500 in Chittagong city area varying with importance of location
(REHAB, 2008).
Market Intensity & Profitability
Still the real estate sector is one of the most attractive sectors for the investor for its high
profitability. Gross margin in this sector was as high as 30% - 40% in 1999 (Aims, 1999). In
REHAB Fair 2005 the member organizations state that they are now are earning on an average
at 10-15% as the market has become highly competitive9. But with the increase of number of
players in the market this profitability has decreased. REHAB registered only 11 members at the
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time of its inception where now it has more than 1081 members. Besides, there are more than
350 independent developers who are not the members of REHAB. In the last 5 years the
number of market players has increased rapidly. According to REHAB real estate sector still has
good profitability and it is expected to exist until 201010.
Major Players
Historically major market players in the Bangladesh real estate market have been Eastern
Housing Limited (EHL), Shinepukur Holdings Limited (SHL), Bashundhara, Building Technology
and Ideas Ltd. (BTI), Concord, and Sheltech. Their market shares have not been changed much
during the last years. Eastern Housing occupies 35% and Shinepukur has 35% as the two major
market leaders. The other companies absorb the rest 30% of the real estate market. Of all the
companies in this sector only Eastern Housing Limitedis the listed one in A category.
Figure 3: Market share of Real Estate in Bangladesh
Market for Raw Materials
Price of the basic raw material for building development - steel, rod, and cement is in increasing
condition though demand is increasing. With the rapid urbanization and increase in real estate
business, price and demand for basic building construction materials such as rod, cement and
steel are increasing. According to REHAB, there has been average increase 15%-18% in overall
prices of building construction materials in 2005 from 2004. REHAB and industry experts
estimate amplification of this price trend in the long run. Again from 2003 till now the price of
rod has been increased by a devastating 100% approximately. Due to lower level of import, the
price for electrical wire has gone up by 50% recently.
Cost Structure
35%
35%
30%
Market Share
EHL SHL Others
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It is estimated that transfer taxes add 30% to the cost of property acquisition and though tax
rates are lower compared to other South Asian counterparts, there are no tax exemptions on
housing loans. Real estate prices in Dhaka continue to remain high and the house price to
income ratio is estimated at over 16 times. The mortgage market currently targets the middle
and upper income segments. In addition to the price of the apartments customers need to paysome charges & fees. These costs are added to the total value of the apartments and thus
payable combined with the installments by the customers. Though volatile and vary with
location and other factors, a snapshot of additional minimum charges and fees are shown in
Table 2:
Table 2:Additional minimum charges and fees
Bank Loan
In all the cases (purchasing flat or plot, or building houses),
More than 80% of the respondents declared bank loan as a major source of fund. Most of the respondents affirmed that due to difficulties in getting bank loan they are
unable to fulfill their housing needs in near future.
Among the potential buyer of flats, Bankers are more willing to buy flats within 3 to 5years. This is because Bankers can get housing loan at lower interest rate than others.
Bank loan plays a major role in the Real Estate sector. Bank loan for the Real Estate sector
comprises the following:
1. Loan disbursed to the Housing Society/Company2. Loan for Urban Housing3. Loan for Rural Housing4. Loan for Apartment/ Housing Renovation5. Loan for Flat Purchase, and6. Loan for Land Purchase
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The following table shows total amount of loan disbursed on the Real Estate sector from the
Banking sector of Bangladesh during the period from June 2006 to June 2011.
Table 3:Amount of loan disbursed on the Real Estate sector from the Banking sector
The following table shows total no. of loan accounts (Individual / Institution) against which loan
was disbursed from the Banking sector of Bangladesh to the Real Estate Sector during the
period from June 2006 to June 2011.
Table 4:No. of loan accounts against which loan was disbursed from the Banking sector to the
Real Estate Sector
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The following figure shows the overall growth of loan account and amount to the Real Estate
Sector.
Figure 4:Growth of loan account and amount to the Real Estate Sector
We can see from the graph:
During the period June 2007 to June 2008, the Interim Government period, no. of loanaccounts had a sharp positive growth. But the total loan amount for this period had a
negative growth. Which means loan was disbursed to a number of clients, but the loan
amount was lower.
During the period June 2008 to June 2009, the Interim Government period, no. of loanaccounts had a drastic negative growth. But the total loan amount for this period had a
positive growth. Which means loan was distributed to a limited number of clients, but
the loan amount was higher.
After June 2009, during the tenure of present govt., total loan amount maintainedalmost a linear growth. At the same time, no. of loan accounts raised from a negative
growth to its usual trend.
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Industry Analysis
Life Cycle Stage of Real Estate Industry
The life cycle can be used to observe the behavior of many concepts in business; it is best
applied to products and industries. Industry Lifecycle is a concept relating to the differentstages an industry will go through, from the first product entry to its eventual decline. Liu and
Chen mention of five stages in the industry lifecycle. They are:
1. Embryonic Phase - Alternative product design and positioning take place establishingthe range and boundaries of the industry itself, Product innovation declines, and
process innovation begins and a "dominant design" arrives.
2. Growth (Cost or Shakeout) Phase - Companies settle on the "dominant design",economies of scale are achieved forcing smaller players to be acquired or exit
altogether. Barriers to entry become very high as large-scale consolidation occurs.3. Maturity Phase - Growth is no longer the main focus, market share and cash flow
become the primary goals of the companies left in the space.
4. Decline Phase -Revenues decline; the industry as a whole may be supplanted by a newone.
The real estate industry of Bangladesh is at the end of Embryonic Phase since its inception in
1970. Immense growth opportunity lies ahead of this industry that can only be achieved with
adequate legislative and regulatory support of the government.
Real Estate Industry (Porters 5 Force Model Analysis)
Rivalry among Existing Players:
The real estate industry are crowded with so many players 1500 firms. Historically major
market players in the Bangladesh real estate market have been Eastern Housing Limited,
Shinepukur Holdings Limited, Bashundhara, BTI, Concord, and Sheltech. Their market shares
have not been changed much during the last years. Eastern Housing and Shinepukur are the
two major market leaders. They, together, absorb 70% of the real estate market and the other
companies absorb the rest 30%. The size and design of apartments are almost similar, and flats
price are based on the location. All unit prices in a same location are similar. Switching cost ismoderate low. The big firms in the industry have low economies of scale. There is no excess
capacity and exit barriers are low as if any developers want to exit from the industry, it can
easily switch. So the competitions among existing firms are moderately high.
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Threat of New Entrants:
The economies of scale of the players are not so high. There is no first mover advantage in the
real estate industry. Acquiring the land from house owners is not so complicated and creating
distribution channel is less expensive. There is no hard and first legal barrier to entry in the
industry. So threats of new entrants are moderate.
Threat of Substitutes Products:
The only substitutes products of real estate are to building own houses or rent. Building own
houses are very complicated because the individual has no previous knowledge and in
inefficient position. In most cases building own house are costly than purchasing flats. The
houses rent in Dhaka city are increasing at a significant rate that creates incentives for
purchasing flats. So the threats of substitutes product are very low.
Bargaining Power of Buyers:
The buyers are price sensitive in this industry. The cost of purchasing flats is important in their
cost structure and represents a significant percentage. So the buyers are very eager to low cost
alternative. The bargaining power of buyers of flat is moderate high as large quantity of
developers, similar design and construction and low switching costs.
Bargaining Power of Suppliers:
Suppliers of real estate developers include materials suppliers, labors, supplementary products
etc. the development of suppliers are solely due to the evolution of real estate development.
Huge development and high growth of linking industries like cement, bricks, glass, ceramic, tiles
are because of real estate development. These industries are solely dependent on real estate
industry. So the bargaining power of suppliers is very low.
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Demand and Supply Condition
The real estate sector was one of the fastest growing and thrusting sectors in Bangladesh. The
business of real estate had a very slow growth rate in the first decade. The industry grew in a
moderate pace since 2006 but between 2008 and 2010 the growth rate was exponential.
Demand of Real Estate in Bangladeshtill (2010)
The reasons behind the increase of demand for real estate are:
Increase in Urbanization Rate
During that period in Bangladesh the demand for residential real estate unit was rapidly
increasing. One reason for rapid increase in demand is increase in urbanization rate. The
urbanization rate was 5-6% and also believed that 50% people will be living in cities by 2025
according to experts. In the Dhaka city, the urban population density has increased by about
79% from 1991 to 2004. It was 4795 persons/sq.km in 1991 and 8573 persons/sq.km in 2004
Population is increasing rapidly in Bangladesh. In Dhaka the mega city is in very faster rate in
population increase. This rapidly increasing people need more housing facilities.
Figure 5:Population density in Dhaka (per square km)
Increase in House Rent
House rent has been increasing in Bangladesh since 1990 at high rate. In 1990 and 1995 the
inflation rate in house rent was around 25%.Though in the recent times this inflation has been a
little bit lower, still in 2004, statistics shows increase of house rent at about 10% in the country.
More and more increase in house rent implies that people would become less interested to
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stay in rented house and would try or tend to buy own home. This is also increasing the
demand of apartments in Bangladesh especially for the middle or upper middle class group of
the society.
Middle-class People
Moreover the real estate developers started targeting the middle-income groups in the last few
years to sell apartments. Studies revealed that in Dhaka city, only 5% of the population is in
high-income group. Thus 45% of the total population falls into the middle-income group and
the rest 50% in the low-income group. Economists and real estate participants see the middle-
income group as a huge market for the real estate sector. Builders started building apartments
for middle-income class of 600-900 square feet. The large unsatisfied middle-income class is
expected to be boosting market for the real estate business.
Easy Financing Option by BHBFC
Greater Access to Easy Financing is another reason for increase in demand for residential real
estate unit. Financing the apartment purchase for individual has become more easy and
available. In 1952 Bangladesh House Building Finance Corporation (BHBFC) was established as
government organization to finance the middle-income civil service holders, which was the first
housing finance institution in Bangladesh. Now there are a number of private specialized
housing finance institutions, financial institutions and banks, which provide housing, finance
facility up to 70% to 80% of the value of the house or apartment. Interest rate is competitive
ranging from 12% to 14%. Maximum amount can be financed is BDT 5 million to 6 million with
maximum 20 years repayment option, which varies with the different financing institutions.
Loans can be taken to buy apartments or for construction purpose in any part of the country
High Rate of Remittance Inflow
Encouragement in remittance flow also helped increases in demand for residential real estate
unit The Government of Bangladesh has declared the foreign remittance inflow through
banking sector as tax-free and any purchase of fixed assets by Non Resident Bangladeshis will
not require producing any Tax Identification Number or TIN. It increased remittance inflow in
Bangladesh in the recent years. According to the economists, non-resident Bangladeshis arevital investors for the real estate sector in Bangladesh as continuously supporting it to grow.
Supply of Housing Finance in Bangladeshtill (2010)
Bangladeshs capital Dhaka is the prime market for housing finance. Recent estimates indicate
that over 70% of housing is rented in Dhaka and there is an annual requirement of over 60,000
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new homes per annum. Financial intermediation in the housing sector is not found adequate
because of high interest rates and limited sources of funds. This is true both for the financing of
the developers and the purchasers. More than 16 private non-bank financial institutions are
there including the privately established Delta Brac Housing Company. Bangladesh is still
experiencing a weak financial system that hinders savings and investments, hence economicdevelopment.
In 2000, total outstanding housing loans were about Tk. 31 billion (USD 515 million), with the
public sector dominating a market share of over 80%. The government owned specialized
housing finance company; Bangladesh House Building Finance Corporation (BHBFC) is the
market leader with a share of 52%. BHBFC, reputed to be not very market savvy compared to
existing private sector players is now plagued with high defaults of over 30% and no additional
funding from the government. Private sector players like Delta Brac Housing Finance
Corporation (DBH), National Housing Finance and Investment Limited (NHFI), Industrial
Development Leasing Company (IDLC) and private sector commercial banks are fast gaining
ground on fresh disbursals.
High Demand
This huge lift up in the urban density & rush of the people to Dhaka city had created great
demand of accommodation and housing services. As the major portion of the society is in this
group, the demand is essentially high. According to REHAB there was demand of about 60,000
residential units plus 200,000 units of backlogs and replacements every year. But REHAB
members could supply only 8,000 to 10,000 units each year. In this intense situation of rapidlygrowing demand the existing no. of developers cannot satisfy the current demand. This
scenario ensured a higher demand in future as the gap between demand and supply was
increasing.
Supply of Real Estate
Certainly the supply of apartments in the residential sector has always been increasing
everyday with high pace. REHAB at the time of its inception had only 11 members who were
developers & builders. In 1988 the number grew to 42 and in 2004 it was 200. During 2007-
2008 there were about 450 REHAB members and more than 350 non-members in the market.
The huge demand gap had lured a steady growth in the number of real estate developers in the
market. Therefore supply also increased at a good rate though it is far below the demand level.
In the last 18 years apartments supplied by REHAB members shows a steady growth in supply in
In 2006 REHAB members supplied 5,000-6,000 units of apartments and 4,000-5,000 units of
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Figure 6: Number of membership with REHAB
plots on an average per year against huge demand of housing. In the last 20 years REHAB
members have supplied 50,000 apartments approximately which was much less than the
demand in the market. The large unsatisfied demand is partially satisfied by real estate
developers who are not the members of REHAB. Thats why it was expected that there would
be a vast opportunity to sell apartments & plots in market. It presents an attractively growing
scenario for the market players.
Figure 7:Apartment delivery by REHAB members
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Present Situation of Real Estate Sector
The real estate sector is facing a serious crisis. The reason is very obvious as the government is
holding back new electricity and gas connections for households for quite a long time. Before
the gas and electricity problem, real estate market had a steady yearly growth rate of around
15-16 per cent. Such growth rate prompted the sector to set the projected growth to 20-25 per
cent for the future. But following downtrend due to scarcity of gas and electricity, its growth
rate miserably fell to 10 per cent. Sale of flats to non-resident Bangladeshis has also decreased
drastically. Expatriates are now investing their money in Malaysia, Singapore and other
countries availing themselves of the second home scheme of those countries.
The ongoing crisis restrained the real estate entrepreneurs from taking up new projects. That
means, in the near future, the sector is destined to collapse or get stagnant, which would have
a negative impact on the cement sector as well. The government had said that new gas
connections would be available when gas production reaches 2,200 million cubic feet per day.At present gas production has reached 2,270 million cubic feet per day. Still, there is no move
on the part of the government to resume gas connections.
As of now, the realtors have failed to hand over around 20,000-22,000 ready flats to the clients
and construction work of another 8,000 flats has remained suspended due to lack of power and
gas connections. More than 5,000 buyers have been paying around Tk 100 million as house
rents per month as they could not enter their own houses. The accumulating demand for flats
was supposed to reach 25,000 this year in line with the increasing trend of the last five years,
but it was the opposite instead. In the 2009-10 fiscal, realtors sold more than 18,000 flats but in
2011-2012 fiscal, the sale declined by 30 per cent as only 15000 flats were sold amid
uncertainties over power connections.
The situation has worsened because of the government order that made installation of solar
panels in the completed buildings mandatory and the banks' reluctance to give housing loans.
The skyrocketing price of land and construction materials and increased taxes, including land
registration fees are also taking toll on the growth of this sector.
The lack of land valuation rules appears to be harmful for the construction sector. The overvaluation of the land is causing the price bubble. The excessive value of the land pushes up the
price of flats but due to power and gas shortages they could not be sold. So, the real estate
sector fears a stagnancy of business although there is necessity in the market.
The availability and cost of building materials to a large extent influence the supply of housing
in Bangladesh. Where building materials are readily available and less costly, all things being
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equal developers can build many houses thereby increasing supply. In Bangladesh, building
materials is ranked the second biggest constraint to house construction. It is expensive and
supply is inconsistent. This is attributed to the high-dependence on imported materials
components including cement, and cement clinker, lime, galvanized iron and asbestos cement
roofing sheets, sanitary ware and fittings, electrical fittings and fixtures, glass, steel reinforcingbars, paints etc. It is estimated that construction cost of an average residential property in
Bangladesh is split between 70 percent material cost and 30 percent labor cost. Increase in cost
of importing of raw material is contributing to price of flats. This is also causing decline in the
demand of flat in the market.
Ongoing law and order situation in country have also been hurting real estate sector for the last
few months. For political unrest in the country real estate business had been facing
inconveniences in their activities. Companies failed to release imported raw materials from port
and transmit them to the site of development. As a result companies failed to complete their
job in time and hand over them to buyer which brought about stagnancy in this sector. These
circumstances led to the growing of uncertainty among people about performance and
reliability of this sector which have caused demand to decline.
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Reasons behind Decreasing Demand
The present situation of real estate sector in the country is a demand-supply mismatch. This
sector has been the prospective sector but gradually its attraction is diminishing. The reasons
for decreasing demand in real-estate sector are too many to be told. Some specific rationales
behind this scenario are shown below:
High Cost Apartments
The apartments which are ready for sale are too costly from what the people are looking for.
The time when these apartment projects started the economic shape of the country was
different which changed a lot in last four years.
Lack of Basic Facilities
People are looking for cheap apartments with basic facilities which the real estate companies
cannot provide. The government barred the gas and electricity connection to households which
is also creating huge problem to this sector.
High Interest Rate
Moreover, the real estate projects need cyclic finance which is also becoming very costly these
days. The high interest rate of banks and lack of utilities are the most apparent problems at this
moment which are holding back the sector.
Lack of Co-Ordination between Government and Real Estate Companies
Lack of long-term planning is the core problem to this sector. The government needs to find out
a solution for accommodation problem in urban areas which is very intense. The real estate
companies are doing their job to meet that demand but a coordinated effort is very much
needed to solve the problem.
Inflation in Raw Materials Prices
The prices of raw materials for the real estate are stable for a long time but the over valuation
of the land is causing the price bubble. The government also needs to look into the land pricing
issue to change the situation.
Role of REHAB
REHAB is doing a fine job but there is always a chance for battement. The problem with such
association is that it has no execution power. It can bargain with the government in many issues
but cannot give any policy decisions.
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Governments Disinterest
The government also needs to allow the developers to use the land beside the River Buriganga
for making high-rise buildings. These are the land which can be used to solve the
accommodation crisis of the urban areas but the government seems reluctant to it.
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Prospects
The Real Estate and Construction Industry plays an important role for sustainable development
of a country. In Bangladesh many construction projects are undertaken under development
programs. The construction industry is an important sector for physical and economic
development of the country. It provides physical expansion and economic development. This
sector is well linked with human settlements, employment and environment. In case of
Bangladesh it is not actively patronized by the policies of the government. As a result, this
sector could not grow under a systematic environment.
Saving Land for Settlements
Being one of the most densely populated countries of the world with a huge population,
Bangladesh has already surrendered nearly 25% of its land to human settlements and related
uses. With the current 30 million urban populations, the share of urban land is about 2 percentof all lands and nearly 10 percent of land under settlements.
Urbanization helps saving land for settlements. This is because of the possibility of higher
density. As of today 30 million urban population are squeezed on about 3370 square kilometers
(1300 square miles) of land in the country giving a gross density of 8870 persons per square
kilometer (23000 persons per square mile) as opposed to about 700 persons per square
kilometer (1800 persons per square mile) in rural areas. Thus the urban density is more than 12
times that of the rural density. But urban population will be more than double in the next 20
years and the trend would continue. By the year 2040 Bangladesh would possibly have half of
its population (of 200 million or so) in urban areas that would amount to 100 million people in
urban areas.
Housing in Dhaka City
Housing conditions of Dhaka City vary greatly between high and low-income groups as well as
by area. The gap is obvious between luxurious high income apartments/houses which exist in
high-income areas such as Gulshan, Baridhara, Dhanmandi, Uttara areas and poorly
constructed temporary housing (Jhupri) with extremely small floor space, very densely located
on the lands prone to flood disasters. About 30% of the slum dwellers live in Jhupri, 24% in
Chhai, 13% in Tong, 30% in Tin-shed, 2.5% in Semi-pucca and 0.5% in Pucca type of structure.
Housing requirements in Dhaka is 218,000 units including dissolution of backlog until 2001 and
replacement, wherein the requirements of urban poor are 140,000 units, which share almost
two-thirds of the total requirements. In terms of tenure, 54% of the households are on private
rental basis while 31% are owned. Only 1.2% is on social housing. It can be pointed out that
people from all socio-economic backgrounds in Dhaka are facing housing problem of one type
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or another. In recent years there has been a new trend of housing development mainly in the
private sector. A new type of residential development has come on the scene, which can be
broadly termed as apartment development. In most of the cases an individual or a company
constructs one or more buildings comprising of several apartments, which are later sold to
individual purchasers. This has prompted many individual entrepreneurs to develop apartmentbuildings resulting in an increased number of real estate companies in the city.
Housing Access and Affordability
The rapid growth of city population has led to a phenomenal increase in housing demand in the
city. The housing market of the city consists of five tenure groups owner occupied, private
rental, rent free, squatters and slums. Physically, housing has extended from makeshift
arrangement and permanent houses. Dhaka City has a very high proportion of poor population
(65%) and as such affordability of housing is significantly affected by the income distribution.
The access of poor to housing is constrained by high land and material prices. In one study(DMDP, 1995), it has been observed that the first quintile of city household has zero
affordability to housing; the second quintile can afford Tk. 140 to Tk. 300 per month; the third
quintile can afford Tk. 300-400 per month; the fourth quintile of household can afford Tk. 480
to Tk. 600 per month and the fifth quintile of household can afford Tk. 1000-2500 per month.
Only 3.85% of household can afford above Tk. 2500. The affordability indices of Dhaka City
imply that the govt. has to play the role of both provider and facilitator/enabler for different
income groups.
Real Estate Development in Dhaka City
Three decades back the city dwellers were reluctant to live in flats while ten years back
someone would have thought twice before buying an apartment/flat. But in the last couple of
years people have shown an increased interest in owning apartments. As mentioned earlier the
main reason is economic due to increased land cost as well as construction cost. There are also
other reasons such as reluctance of individuals to spend time and energy in house construction,
increased awareness of apartment living, and western influence. As a result apartment-owning
is becoming increasingly popular. Moreover the absentee i.e. the wage earners in Middle East
and other countries are also a major contributing factor towards the increasing demand for
apartments. As a result of increased demand, many apartment builders have appeared in the
market in recent years. Twenty years ago there were fewer than five companies in Bangladesh
engaged in developing apartments while today there are more than 200 developers. It may be
mentioned here that in 1988 there were less than 20 such developers in Dhaka. At present
there are 80 such developers working in Dhaka City who are members of REHB. But there are
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many other companies/individuals engaged in such development in smaller scale and selling
apartments to friends and relatives only.
Construction and Development Process
The contribution of construction industry in the Gross Domestic Product (GDP) is significant.Over the last 15 year the Real Estate Development sector 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. The fact that many cement manufacturing industries have now been set up in
Bangladesh is a reflection of the impetus the Real Estate Development sector 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 Real Estate Development sector. Several new mechanized construction material
manufacturing industries have recently come up due to the existence of this sector. Todayabout 200 architects and consulting engineers are directly supported by this sector; over 500
graduate engineers are holding management positions in this sector and almost 2500 diploma
engineers are engaged by this sector. The construction sector is directly linked with
employment. There are both formal and informal building firms, who undertake works. In the
period 1985-90, this sector contributed more than 5.55% in GDP. It is estimated that about 1.77
million man/ year in 1994/95 (according to Fourth Five year plan) were engaged in this sector. A
large number of companies/firms in Dhaka are engaged in construction activities Contribution
of construction industry may be summarized as:
Construction industry generates huge formal and informal sector employment. This factneeds to be remembered more generally while policy making.
Income redistribution through employment generation, skill upgrading, favorablefinancing for low-income housing, capital spending for large-scale civil engineering
works, all contribute to redistribution of national products downwards (social justice
component).
On-the-job skill acquisition frequently leads to further specialization, both in theconstruction sector and in serving other industrial sectors. Skill generation is thus
possible by construction industry. The low-income population, after the provision of shelter and civil infrastructure, feel
morally upgraded (direct contribution to labor productivity). It has also been observed
that improved dwellings are frequently transformed into some sort of informal
economic production units. Improved road systems make commodity outputs of small
units more easily accessible. Construction industry thus contributes to higher
productivity.
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The construction sector directly relates to employment, power and transport sectors. The
construction industry is a very labor intensive, providing many jobs for skilled, semi-skilled and
unskilled workers both in the formal and informal sectors. The informal sector also employs
many people in construction industry. For the migrants from the rural areas the construction
industry is a stepping stone to urban life.
Development of High-rise Building
High-rise buildings probably were first constructed in response to the corporate need for
increased direct communication and expansion of business operation. Businessmen understood
the need for proximity and personal communications and quickly recognized the value of
going vertically up within a compact business core in the central city. This philosophy has
remained, all over the world, despite the extraordinary technical advances made over the last
50 years in both transportation and telecommunications. The corporate world is not the only
beneficiary of high-rise development; often other enterprises that serve corporate business orits employees also locate themselves in high-rise structures. Offices for lawyers, accountants
and other business related professionals are established in close proximity to the corporations,
often being located in the same building. Todays high-rise building usually contains a variety of
tenants. The city itself benefits from the concentration of business space and business activity
that high-rise development generates. Land values are greater in the down town areas of cities
and at other prime locations that are highly attractive. In most cities, high-rises have evolved in
concentrations, and those concentrations generate the highest tax returns to local government.
Thus tall building development in the form of office towers, hotels and residential apartment
buildings can become a critical part of revitalization in major cities of the world, includingDhaka.
Commercial Real Estate
The boom in the Commercial Real Estate (CRE) segment is being fuelled by a robust demand
from MNCs and corporate Bangladesh alike, particularly from IT/ITeS, BFSI, Telecom and
Pharmacy companies.
Key Growth Drivers:
Entry of MNCs from different country Growth in knowledge and technology intensive sectorsThe primary growth driver of commercial real estate is the MNCs, which, is growing at 9.5-
12 per cent annually. According to a survey industry is expected to grow to US$ 120 billion by
2012. As per estimates this translates into in excess of 180 million sq. ft of commercial office
space requirement by 2012 -13.
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Residential Real Estate
In Bangladesh residential real estate is driven by increasing urbanization, rising incomes and
decreasing household sizes, the residential segment has been on an upswing over the past few
years. Several other sectors such as financial services, biotechnology, telecom, pharmacy,
insurance, and consulting businesses are witnessing strong growth and have added to the rising
demand.
Key Growth Drivers:
Growing number of first-time home buyers Increasing income levels Increasing number of households Increasing affordability of homes Affordability of housing Penetration of mortgage financeAs economy of Bangladesh is changing rapidly that results market is becoming too much
competitive and customers are becoming focal point of all the activities. At present some
companies are already come up with quality that maximizes the customers satisfaction and
started operating in this market. So as time goes, market becomes very competitive in nature.
In this situation before launching a new model apartment, the ADHL must carefully develop
every step of the marketing decisions and should be based on market information, customer
perception, quality and gut feeling. Beside this competition, there are some opportunities for
the marketers in Bangladesh. These are as follows
The size of the real estate sector and its contribution to the economy in terms of employment
generation, accrual of investment, contribution to exchequer, output trends and linkage
contribution of this sector are stated bellow:
Employment Generation
The real estate sector at present employs about one million people, either directly or indirectly
involved about 30 lacs people in the sector. According to the Labor Force Survey (LFS), in 2006
5.5% of the labor force was engaged in construction whereas for 1999-2000 it was 2.1% and
1995-96 it was 1.8%.
Investment
Recent information concerning investment in the housing sector shows steady growth in both
absolute terms and as a percentage of total private investment and GDP. During the first three
years of the fifth Five Year Plan period, the investment in housing and construction was US$
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1273.65. According to this trend till 2007 the investment in housing & real estate sector will be
more than 2500$USD.
Linkage Contribution
The real estate sector has also made substantial contributions to the growth of a host ofbackward and forward linkage sectors which include Rod, Cement, Bricks, paints, ceramics,
aluminum, furniture, consultancy and many others. In this context, he provided examples of
catalytic influence of the real estate and housing sector in development of linkage industries
whereby the sector is immensely contributing to employment and the GDP. Those include
Bangladeshi state-of-the-art ceramic industries, Thai and Kai aluminum, More than a dozen
paint industries, A large number of furniture making and interior design companies, An
exponentially growing cement sector, which is helping the country to attain self-sufficiency in
this important input.
Opportunities of real estate in Bangladesh may also be:
Health Cities: Large scale integrated development Hospitals: combining the services of a hospital and a hotel Slum-rehabilitation Mass housing Free trade and warehousing zones/logistics parks
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Recommendation
In Bangladesh perspective, it is almost impossible for the government to ensure housing for all.
As the public sector failed to provide this, people have taken their own initiative to ensure their
fundamental need for shelter. Government alone cannot provide housing to all and realizing
this, they decided to share the task of providing safe decent places to live with Real Estate
Developers, to make people productive resources. So, government should provide much
flexibility to the developers to provide better housing facilities not only to higher income
people but also middle and lower income people.
The construction in Dhaka has multi-faceted roles for sustainable development. It provides the
direct means for physical development, expansion, improvement and preservation through
maintenance. It is the key sector in citys development. It provides the direct means for physical
expansion, development and improvement. The planning and design component of
construction is very vital and it contributes to high productivity. Appropriate planning anddesign for construction, use of modern equipment, efficient use of building materials,
participation of construction actors and effective management are considered important
factors for construction industrys development.
At the present time, the population of our country is increasing at very alarming rate but total
rent are remains constant. The demand of housing is very high, particularly in Dhaka city. So,
the prospect of real estate business is very high. Now if the real estate companies run their
business according to the demand of middle class, lower middle class, and higher middle class
people, the business must be profitable. Considering all issues, following broad generalrecommendations both in the public and private sector should be taken into consideration:
The government needs to bring down the interest rate into single digit and allow gasand electricity connections to the household. If these two requirements are fulfilled, a
lot of other problems will be solved automatically.
The government can set up solar panels at the public buildings where powerconsumption is needed mainly during the day and for remote areas where setting up
national power plants is costly. If necessary, realtors may be asked to give subsidy or
special tax to set up solar panels at the public buildings and in the remote areas.
The government needs to formulate a long term policy for the construction industry andreal estate as well. Increasing population demands increased accommodation which the
government cannot ignore. So, to accommodate the population in the best possible way
and to ensure the infrastructural development a coordinated and long term policy is a
must.
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The plan about real estate sector needs more coordinated effort from differentgovernment agencies. Even the government needs to have a plan about the proportion
to which land will be distributed between cultivation and construction. Regarding the
laws, safety and security related to real estate is very much ignored. The land price is
highly inflated in Dhaka. In an open market it should be based on demand and supply. Appropriate planning and programming for the construction project would be framed
based on the nature of works.
A major concern in the construction industry is the apparent backwardness in theadoption of new construction technologies for the adoption of new construction
technologies and practices, which can reduce cost and increase quality.
The authority with help of professionals should formulate general guidelines of buildingdesigns. Special attention would be given to prepare appropriate planning rules,
building codes etc. based on the character of the area. It will also cover building
regulations and related detailing of the building and also cover selection of materials. It has been observed that the construction material and equipment differ from place to
place, considering this fact, specialized standards and code should be made.
Simple and innovative technologies should be introduced in the construction sector forhigh productivity. The attention should be given on its acceptability to the construction
actors. Affordability to the government as well public enterprises should be taken into
consideration.
Research and innovation for development should be encouraged. Proper researchsupport and financial support should be provided both in public and private sectors.
Even groups of entrepreneurs and individuals should be encouraged by the policies. Research outputs, available materials, energy consumption cost, environmental impacts
and other information should be made available to the public through institutions and
mass media.
Selection of building materials, the consultants are required in conjunction withexperienced contractors
Local based building materials as well as cheaper alternative/substitutes should beencouraged.
Special financial policies for consultants/contractors financing should be introduced. Itwould be included: reduction of bureaucracy generous advance payments risk guaranties etc.
Overall management effectiveness is essential for the construction sector. It should bemanaged on an institutional basis, and the construction actors have contractors,
laborers, managers and other related actors as active participants
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Adequate legislative support is needed to recognize the construction sector as animportant for national development. An extensive and multifold regulation is needed. It
should include civil engineering works, durability of construction outputs, all safety
measures including loads, imposed deformations, environmental issues, fire and natural
disasters etc. The establishment of regulations and control procedures is the traditional function of
the government. It is needed to recognize the construction industry as an important
sector for national development. The regulations and control can contribute a strong
positive impact to reduce construction cost, environment hazards, promote greater
energy efficiency in building and limit energy consumption and pollution etc.
Special attention would be given to protect the physical environment of the projectssite. Existing Legal action procedures would be updated in which legal action can be
taken against the faulty actors.
Its present contribution to the gross domestic product (GDP) is about 16 per cent. Given
proper supports, this contribution can increase substantially in the near future. As it is, the
sectors real contribution to the GDP is already greater if the turnove r of the linkage industries
of the sector such as rods, cement, tiles, electrical goods and equipment and other construction
materials are counted. Nearly three million skilled and unskilled workers earn a livelihood from
this sector and the further employment creating potentials of it are considered as particularly
high.
Thus, this sector would certainly deserve all round supports from the government.
For example, the registration fee for real estate is already considered as very high. The inabilityto pay such high fees frustrates many otherwise intending buyers from buying real estate. The
Real Estate and Housing Association of Bangladesh (REHAB) and its customers say that it should
be maximum 5 per cent to really create a big enough stimulus among the prospective buyers.
REHAB leaders are of the view that unless a section of the income tax rules which in the past
provided for not questioning the source of wealth in relation to buying of houses, if this rule is
not reintroduced, then potential clients will continue to shy away from buying flats or houses.
Government provides cash incentives for some export products to provide incentives to
exporters to export more and earn more foreign currency. REHAB leaders are for similar giving
of cash incentives to them as they make sales of real property to Bangladeshis living abroad.
The cash incentives will give a spur in selling real estate among overseas buyers leading to
growth in the industry. The sales, on the other hand, will also add to the countrys foreign
currency reserve. REHAB has also demanded that government should explore the ways and
means of extending long term housing loans at nominal interests to encourage greater housing
and construction activities.
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Conclusion
Residence is one of the basic needs of human beings. The right to live in ones own is a
fundamental right of people and it is internationally recognized. The demand of housing in
urban areas in developing countries like Bangladesh is dramatically increasing due to natural
increase and its fast growth rate. Rural people are migrating not only to find jobs but many
wealthy people are moving to urban areas like Dhaka city for the fulfillment of their
expectations of better of their future generation, and for enjoying the modern facilities of the
city life. This has resulted into a serious crisis all over the country especially in the major cities
of Bangladesh. In recent time, the private real estate firms have taken initiatives by ensuring
maximum uses of land in a planned way. In this system it is possible to accommodate more
people in a comparatively small place.
Emerging situation demands that something should be done to protect the interests of the
buyers of apartments, industry operators and the economy. The government and the leaders ofthe real estate sector should sit together to devise means to bring an end to the ongoing
stalemate. The suggestion to introduce pre-paid meters for use of gas and electricity by
residents of Dhaka does deserve a close scrutiny. For power and gas, thus saved, could be made
available to newly construction. If the sluggishness in the real estate business continues, the
country's economic growth will be affected. Thousands of the people connected with the sector
will be rendered jobless. The government should look into the affairs of the real estate sector
and help it come out of these problems.