Real estate sector plays a dominant role in economies of both developed and developing countries. Bangladesh, a small country with a huge population, has seen ever-rising demand for housing. The main reason for demand is demographic. The country's population size and growth invariably highlight the importance of housing to the economy and to the lives of the people. Demand and supply of property are important determinants for development and growth of the real estate sector.
Shelter is one of the basic needs of human beings and a constitutional right of a citizen. The right to live in own house or to have shelter is a fundamental right of people and it is nationally and internationally recognised. The demand for housing facilities in urban areas in developing countries like Bangladesh is hysterically increasing due to population increase and its fast growth rate. Poor rural people are migrating to find jobs and many wealthy people too are moving to urban areas like Dhaka and Chittagong cities to fulfil their expectations of better life of their future generation and for enjoying modern facilities of city life. This has resulted in a high demand for housing all over the country, especially in major cities of Bangladesh. The private real estate firms have taken initiatives to ensure optimum uses of land in a planned way and provide housing facilities like houses, residential apartments and commercial flats in the last few years. They have been providing housing facilities to all sections of people, the rich and the middle class at economic, competitive and affordable prices.
But this important sector got an unbearable shock in marketing its products due to unstable economic situation prevailing in the country. It is known to all that the performance of an economy of a country is dependent on the performance of all sectors, viz., service, industry and agricultural sectors. The demand for real estate market is still very high but the unstable and uncertain economic situation created by the political situation has downsized people's investment in real estate and other areas. Increase in borrowing costs, poor availability of local and overseas credit for housing finance, falling industrial output and weak private sector investment are the key reasons behind bleak economic outlook of Bangladesh.
The adverse effects on the economy have already come in the forms of unemployment, abnormal rent hike, scarcity of houses, negative effect on GDP (gross domestic product) growth and social imbalance. The contribution of the real estate sector to the Bangladesh GDP is 7.15 per cent, 6.92 per cent, 6.88 per cent, 6.91 per cent and 7.08 per cent for the FY 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 respectively. But the sector has been stuck in a crisis since 2010. No improvement is noticed up to now.
The real estate sector had been performing well from 2004 to 2009 in all respects. After the crash of stock market in 2010-11, the real estate sector was getting severely affected in terms of expansion, development and turnover. This sector now faces great challenges in marketing, poor macroeconomic environment, land regulations, enhanced registration fees, AIT, VAT, financing constraints, high financing charges like high interest rate, lack of gas and electricity connection. Distortions in savings rates and resource mobilisation, high interest rates offered by various government savings instruments compared to those of private financial institutions make it difficult for private sector institutions to raise housing funds for development of real estate business.
The prices of materials for housing such as bricks, cement, rod and sands have been swelling. Labour costs have also been increasing but the prices of apartments have been dwindling in the last few years. As a result, realtors and their businesses are getting problems in recovering the cost of investment. Some housing companies have ended up in huge losses and some are closed. Owing to the high property prices, the capital requirements today pose the greatest impediment on the path to home ownership for wide-ranging sections of the population. If the present scenario of real estate continues for long time it would have appalling effects on housing for millions of people who have already migrated to urban areas. House rents would go up beyond the capacity of the middle-income group. The backward linkage industries would suffer and unemployment rates will go up in the country.
However, the real estate sector, contributing significantly to GDP, employing millions of people in various professions and skills, providing shelter to millions of people in urban areas, deserves economic and financial support from the government, financial institutions, the central bank and private sector investors. Interest rates on home loans, which are generally long- term, are high compared to other developing countries around the world. Interest rates on housing loans from commercial banks in Bangladesh vary from 14 per cent to 18 per cent. This has severely affected the realtors and the buyers' financing capabilities.
The government took some measures to boost real estate sector but these seem to have failed to achieve any fruitful result. The activities of the Real Estate & Housing Association of Bangladesh (REHAB) to redress and rejuvenate the slow-moving real estate sector leave much to be desired. The policies of the government and the central bank need to be reviewed, analysed and evaluated to find out what has really gone wrong.
The real estate sector needs to be made buoyant. The authorities need to take effective steps for this. Such measures should include easing of housing loan policy, increase in limit for loans, reduction if sky-high rates of interest for housing loans, removal of lengthy and time-consuming RAJUK (Rajdhani Unnayan Kartripakkha) policies on real estate firms, reduction of high registration fees, AIT, VAT, stamp fees and providing gas and electricity connections to newly-built apartments.
The writer is the CFO of a private group of companies.
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