BB's scheme for housing sector
Wednesday, 25 July 2007
Home - sweet home, these words indicate the craze of the common people for a dwelling house. Albeit belated, the BB's decision in this regard is praiseworthy. But setting of parameters based on outdated facts/variables may jeopardise the whole ideology vis-à-vis the effectiveness of the scheme, especially if it is a financial programme.
In the recent past even for calculation purpose the construction cost was considered about Tk.750 per sft. A middle class standard apartment could be booked on five years' installment basis @Tk.1000 per sft. And on a readymade basis it was @Tk.1250 to Tk.1500 per sft. Now keeping pace with the sky-rocketing price of the construction materials coupled with rising labour cost and specially the cost of land, the apartment's price become more than treble i.e. about Tk.3000 to Tk.4000 per sft. So the present price of an apartment measuring 1250 sft. (the standard set for in the scheme) would be Tk.37,50,000 which may rise to Tk.50,00,000 based on locational advantage. In future that is within next two to three years it will certainly increase. On the contrary, another parameter of the scheme is that it is meant for the low income group i.e. the incumbent's income should be with in Tk.30,000 per month. Even we consider this as the 'living wage', the savings out of it can hardly fill the financing gap i.e. cost of apartment minus the maximum loan ceiling of Tk.15,00,000.
Question may arise: how will the borrower then repay the installment with interest? This part, I think, is wellcovered under the scheme, as the rate of interest is subsidised i.e. @10% per annum and the tenor is proposed to be 20 years. So over the period it is almost sure that the incumbent's income bracket will be upgraded and hopefully the repayment can safely be taken care of.
The critical issue is the share of the concerned banks and non-banking financial institutions (NBFIs) in the loan amount. It is decided that 25% of the loan will be shared by the bank/NBFI. The 'cost of fund' not only for the NBFIs but also for most of the PCBs is above 10%. So this may not be a lucrative product for them. However, some of them may turn it as a 'loss leader' and take the chance of selling 'cross products' either asset or liability or both types.
Considering the above issues, the humble suggestion is to review the parameters of the scheme more pragmatically and of course on the basis of projected variables, not past or even present.
Abul Hashem Khan
Paradoger
Jatrabari, Dhaka
In the recent past even for calculation purpose the construction cost was considered about Tk.750 per sft. A middle class standard apartment could be booked on five years' installment basis @Tk.1000 per sft. And on a readymade basis it was @Tk.1250 to Tk.1500 per sft. Now keeping pace with the sky-rocketing price of the construction materials coupled with rising labour cost and specially the cost of land, the apartment's price become more than treble i.e. about Tk.3000 to Tk.4000 per sft. So the present price of an apartment measuring 1250 sft. (the standard set for in the scheme) would be Tk.37,50,000 which may rise to Tk.50,00,000 based on locational advantage. In future that is within next two to three years it will certainly increase. On the contrary, another parameter of the scheme is that it is meant for the low income group i.e. the incumbent's income should be with in Tk.30,000 per month. Even we consider this as the 'living wage', the savings out of it can hardly fill the financing gap i.e. cost of apartment minus the maximum loan ceiling of Tk.15,00,000.
Question may arise: how will the borrower then repay the installment with interest? This part, I think, is wellcovered under the scheme, as the rate of interest is subsidised i.e. @10% per annum and the tenor is proposed to be 20 years. So over the period it is almost sure that the incumbent's income bracket will be upgraded and hopefully the repayment can safely be taken care of.
The critical issue is the share of the concerned banks and non-banking financial institutions (NBFIs) in the loan amount. It is decided that 25% of the loan will be shared by the bank/NBFI. The 'cost of fund' not only for the NBFIs but also for most of the PCBs is above 10%. So this may not be a lucrative product for them. However, some of them may turn it as a 'loss leader' and take the chance of selling 'cross products' either asset or liability or both types.
Considering the above issues, the humble suggestion is to review the parameters of the scheme more pragmatically and of course on the basis of projected variables, not past or even present.
Abul Hashem Khan
Paradoger
Jatrabari, Dhaka