Will flat prices be affordable for the middle-class?

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Shahiduzzaman Khan
Apartment customers are likely to benefit now from the sharp fall in the prices of iron rod in the local and international markets. Some realtors have already offered low-priced apartments by giving advertisement in the newspapers ahead of the ongoing REHAB fair. The buyers would, thus, expect the flat prices to become affordable, against the backdrop of the declining trend of rod prices.
A report published in the media this week highlighted the observations of some REHAB members who are eager to an expanding real estate sector, again. So far, the realtors failed to meet the demands of the middle class who want to buy flats within their affordable limits. With the declining trend of the rod prices, the realtors are now reportedly considering to offer flats at lower costs to the middle class people.
But the question is: Will the flat prices really be competitive? Although rod prices have come down, there has been hike in the prices of cement and stone, two other construction materials, which add to the apartment costs. However, the reasons for the hike in the prices of cement and stone are not clear. In the global market, prices of all kinds of raw materials are cooling down. Prices of scrap steel have come down to one-third of the last year's level.
Flat sales in the country had dropped by 65 to 70 per cent last year. Among other factors, different 'drives' initiated by a number of government agencies depressed the demand, discouraged potential real estate investors and slowed transactions with banks by the clients. An abrupt rise in prices of construction materials caused the potential buyers to stay off the market. The unjustifiable price hike of MS rods is one of the major reasons behind the rising price of apartments across the country. A number of construction firms had halted their work in anticipation of a decline in prices of rods. An uncertainty loomed over the construction sector. The government's failure to help rein in the market prices for rods largely caused this.
Between November 2007 and February this year, 12 scrap vessels were imported by Bangladesh Ship Breakers Association (BSBA) at Tk 36,900 per tonne. However, in March alone the BSBA imported 19 ships at approximately Tk 42,000 per tonne. The stock in trade for the 31 ships imported in five months does not finish all at once. It takes at least six months to one year to complete the sale of raw materials from each of those ships.
However, the international market price of scrap iron fell drastically from March this year. The decline still continues. What will happen to those importers who had bought the ships at exorbitant prices and forced to sell the finished MS rods at lower prices? The market price of the 60-grade MS rods is now Tk 35,000 per tonne in place of Tk 71,000 last year. If the international market price falls further, local market will, in all likelihood, ease further.
What's an evident contrast! Importers did not foresee such a sharp fall on the prices of scrap vessels. They are now at a loss about what to do with the raw materials bought at higher prices. Almost 30 per cent of the cost of construction of a building actually goes behind the MS rods. In fact, high prices of raw materials dealt a severe blow to the construction sector. Nearly 2.5 million day labourers, masons, carpenters and other workers are associated with this sector, along with a still larger number of the members of their families. Real estate is one of these sectors which are labour-intensive in nature, employing mostly the unskilled labour force. The price hike is aggravating Dhaka's prevailing accommodation problem as rent prices increase drastically.
Any unholy alliance among the ship breakers will need to be broken if the rod market has to calm down. The government should withdraw any association's exclusive right for importing mild MS and open the market for all. Earlier, such an 'alliance' was accused of withholding scrap supplies to artificially raise prices, misleading government officials about the prices at which they purchased the scrap. They are now active to raise the rod prices again. According to a newspaper report, rod prices have already jumped by Tk 8000 a tonne in the market without any justifiable reason.
Countries like Sri Lanka or Singapore which have successfully provided all citizens with proper housing have done a miracle through finance mechanism. In Sri Lanka, small easy term loans have been provided to a million families so successfully that the housing minister had landslide victory when he contested in the presidential election. Singapore has a supernumerary scheme whereby all employees are forced to save 22.5 per cent in the housing fund from their monthly wage. In a country which gave birth to micro-credit, why cannot one or several of such methods be introduced, at least for the regular employees in the organised sectors of the economy.
Since the 1990s, private-public partnership has been developing in the country whereby the government recognises its limitations in service delivery or meeting basic human needs. Hence the latter encourages private enterprises and the NGOs to operate within a properly-administered regulatory framework. In housing sector, this has been increasingly recognised as a valid method particularly since the 1996 Istanbul Habitat. The real-estate developers can play a strong role in this regard. On the other hand, the government by taking the real estate developers into confidence, does need to initiate various partnership schemes. Before that, deadlock created over the draft real estate ordinance between the government and the real estate developers must come to an end. By accommodating some reasonable demands of the real estate developers, the government may promulgate the ordinance that benefits both the realtors and the buyers.
szkhan@thefinancialexpress-bd.com