Bubble burst in housing sector?

Did Bangladesh ever witness a housing bubble? Officially, there has not been anything called housing bubble in this country. Detection of a housing bubble, however, is very difficult since the formation of the bubble is usually a slow and lengthy process. So is the process of its going off. Moreover, there is no recognised organisation having the responsibility of monitoring the demand and supply situation in the real estate sector.
But according to the Wikipedia, Bangladesh has witnessed a housing bubble in the recent past.
There is no way of knowing from local sources whether there was any housing bubble ever in the country. But if there was any, it might have happened between 2000 and 2010.
A research study, conducted by the Real Estate and Housing Association of Bangladesh (REHAB) in 2012 with the help a few teachers of the Institute of Business Administration (IBA) and some other departments of the University of Dhaka, does indicate to that direction.
 According to the study, between 1990 and 2000, the increase in real estate price in Dhaka ranged between 15 per cent and 55 per cent. But between 2000 and 2010, the increase was between 127 per cent and 830 per cent.
Over a decade, ending in 2010, the rate of increase in the real estate price was 127 per cent in Shantinagar. And the increase was the highest (830 per cent) in Baridhara. The real estate price recorded similar increase in most areas of Dhaka city.  The average rate of increase in property prices was 174 per cent between 2005 and 2010 compared  with that of only 8.0 per cent between 1990 and 1995.
The phenomenal rise in real estate price did take place despite substantial improvement in the supply side. For instance, the average annual supply of apartments in Dhaka city in 1982 was 147. The same increased to 13,300 in 2010.
The factors that are found responsible for building housing bubble in developed economies are more or less absent in Bangladesh. The first and foremost factor that helps buildup of a housing bubble is cheap loan. The origin of the worst recession that the United States had encountered during the 2007-2012 period was cheap housing mortgage loan. Not only the US suffered, the world economy had gone through a very difficult time. In fact most economies are yet to fully recover from that crisis.
In Bangladesh, the banks have never offered cheap loans. Getting housing loans remains a very tough job for the individual borrowers. The real estate companies are main borrowers in this particular area.
The reasons behind real estate prices shooting up abnormally during the 2000-2010 period include the astronomical rise in land prices in Dhaka and the hike in the prices of construction materials.
In fact the housing companies are finding it difficult to secure lands in prime locations of Dhaka city. The scarcity of land has led to abnormal hike in land prices.
However, if anyone tends to consider the unusual rise in real estate prices as a housing bubble in Bangladesh then the bubble, it seems, is now dissipating.
But in reality, the country's real estate sector is now experiencing a lean period in the context of overall economic situation prevailing in the country.
There is no denying that the economy has been achieving decent growth rates in recent years. But overall the demand for goods and services in the economy has gone down, to some extent. One can blame power and energy crises or deficiency in infrastructures. But the country's politics, it seems, is weighing heavily on the private sector economic activities.  
Banks have emerged as the major casualty of slowdown in the real estate sector.
According to the Bangladesh Bank statistics, nearly 38 per cent of loans extended by the commercial banks to the real estate sector until the end of last calendar year were found to be non-performing. The banks until that period extended loans amounting to Tk 335 billion to real estate companies. What is more worrying is that Tk 81 billion out of theTk 134 billion non-performing loans was classified as 'bad'.
The actual amount of classified loans recoverable from the real estate companies would have been even higher at the end of the calendar year 2013. The relaxation of the rules on loan rescheduling to accommodate the demands from chamber bodies had helped banks to trim their respective classified loans and earn respectable amount of net profit. But that opportunity does not exist anymore. So, the size of the classified loans recoverable from the real estate companies will be even bigger now.   
It is believed that the collapse of the stock market at the end of 2010 and banks' increased alertness about the quality of borrowers following a few major loan scams in the banking sector in recent years have been largely responsible for the decline in the demand for apartments. The prolonged halt to providing gas and electricity connections to residential houses and apartments is another reason.
Banks which have large amounts of classified loans are in deep trouble for they neither can recover money nor can take over the mortgaged property for virtually there are no customers for apartments.
According to the latest data of the REHAB, more than 22,000 ready flats have remained unsold for long. Realtors are finding it hard to sell flats even in prime areas despite a sizeable cut in prices.
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