Bangladesh's real-estate sector passes through bad days for both seller and buyer as property sales plummeted for price spiral fuelled by fallouts from the pandemic and the Ukraine war, industry insiders say.
The unusual price hike of all building materials apart, new rules in the detailed area plan (DAP) for the capital city and the government decision not to allow anymore undisclosed money in the housing sector are also stymieing its growth, they point out.
For the headwinds blowing from both inside and outside of the country, the realtors could not sign new deals with landowners in the last four months since there has been uncertainty with the highest floor-area ratio for new building construction in the detailed area plan.
Should the property developers construct a new project as per the new DAP, the price of residential units will go up by 25 to 30 per cent from the existing level.
The new city map limits the heights of residential buildings in the capital city's most parts in accordance with the plot size and streets next to them. As the builders can build fewer housing units, they should charge higher for each to sustain in their business.
Real Estate and Housing Association of Bangladesh (REHAB) president Alamgir Shamsul Alamin says since the floor-area ratio (FAR) has been decreased, most of the newly built structures in Dhaka city will be four-or five-storied, causing a crisis for accommodation, especially for lower-and middle-income groups of people.
"We were turning back following the pandemic, but now the sector is struggling again due to the high prices of building materials and the new DAP," he told the FE.
Mr Alamin mentions that the annual budget for the current fiscal year (FY) 2022-23 does not allow investment of undisclosed money in real estate which has limited the opportunity for the realtors.
"I think the decision is even subversive of interest of the national economy," he says, adding that the sector received additional Tk 100 billion in the FY 2020-21 on the back of undisclosed-money investment in the sector.
The sector is also facing difficulties from high building-material costs resulting from the Russia-Ukraine war and devaluation of the local-currency Taka against the US dollar.
"As a whole, overall sales of flats have declined in recent times," he said, adding that the REHAB members sell on average 8,000 to 10,000 apartments every year.
Officials of the apex trade body of the sector, REHAB, however, could not provide records of the specific number of apartments remaining unsold.
However, a number of participants in the recently concluded housing fair said some realtors have unsold flats or commercial spaces between 20 per cent and 30 per cent.
The fair, organised by the REHAB, also logged fewer bookings and spot sales compared to the last year.
The house-builders at the trade show bagged bookings and spot sales of flats, plots and commercial spaces worth over Tk 3.01 billion. Some 16,132 people visited the five-day housing fair held in the capital city.
However, the fair witnessed bookings and sales worth Tk 3.97 billion last year, when 19,237 people visited it.
Talking to the FE, a small business owner, Amjad Hossain, who has been looking for a flat within his means, said he is reviewing his plan to buy a flat as the average price has outstripped his budget.
"Now I am considering joining a group of my close ones who are planning to develop buildings themselves on a plot bought jointly to reduce the cost," he added.
According to the Trading Corporation of Bangladesh (TCB), better-quality or 60-grade mild steel or (MS) rod was selling between Tk 83,000 and Tk 91,500 per tonne on December 27--a significant hike compared to the price between Tk 77,500 and 81,100 per tonne a year before.
Similarly, prices of other materials, including cement, bricks, and ceramic tiles, have increased by 25 per cent to 30 per cent year on year.
The country's cement makers in a recent media briefing said the cost of manufacturing increased over 20 per cent due to the devaluation of the taka against the dollar.
Nearly 250 backward-linkage sectors are connected with the real-estate sector which contributes 15 per cent to the national gross domestic product (GDP), according to people involved with the sector.
REHAB vice-president Kamal Mahmud says the sector is facing uncertainty as the estimation of the builders and buyers significantly mismatches due to materials' price escalation.
"On average, the cost of a flat now exceeds Tk 9.0 million which the buyer and seller agreed at Tk 7.0 million," he says, raising the question how a builder should continue construction amid such uncertainty.
The price of minimum per-square-foot floor of an apartment is now above Tk 7,000 that was TK 5,000 a couple of years ago, he says.
Regarding the DAP he says the government should focus more on the newly planned areas like Purbachal, Uttara third phase and Jhilmil so that people get better accommodation facilities.
Head of Loan Sales at DBH Finance Plc Golam Rasul Salim told the FE that the country's home-loan market remained sluggish amid high inflation following the Russia-Ukraine war.
However, it started showing some signs of recovery in recent times, he notes.
He suggests that the consumers could easily avail home loans while purchasing their desired accommodation to facilitate the finance.
"Currently, almost 80 per cent of the consumers don't take home loan, which indicates that there is huge market opportunity for the home loans in the country," he said.
According to central bank data, up to September this year, there is a cumulative Tk 1.112 trillion worth of total credits for construction and real- estate sector, provided by the banks and financial institutions, up from Tk 1.005 trillion in September last year.
According to the REHAB, its members had sold nearly 50,000 flats in a period of five years between 2010 and 2014. In the following five years, they sold nearly 37,500 to 40,000 residential units between 2015 and 2019, on average 7,500 to 8,000 units per annum.
As per data available, the number of sold apartments fluctuated between 12,000 and 13,000 in the fiscal year 2020-2021.
There are currently 839 members affiliated with REHAB. The member- organisations have handed over nearly 300,000 flats in the last three decades, while a number of buildings were constructed by the government, individuals and non-member builders.
REHAB officials say despite the pandemic fallout, the sector was doing ever so well on the back of undisclosed-money-investment opportunities in the sector without questioning the source.
They think the demand for flats ranging between 1300 and 1500 square feet in size will increase further in the days to come, especially in the overcrowded Dhaka city.
The association also says currently flats costing between Tk 5,000 and Tk 10,000 per square foot are selling most in areas like Uttara, greater Mirpur, Mohammadpur, Dhanmondi, Bashundhara residential area, Lalmatia, Gulshan, Bananai, Rampura, Banasree and Khilkhet.
A buyer has to spend around 12 per cent of the property value as registration cost including 4.0-percent gain tax, 1.5-percent stamp fee, 1.0-percent registration fee, 1.5-percent local government tax, and between 2.0- and 4.5-percent value-added tax.
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