Following the 2010 share market crash, the once burgeoning real estate sector continues to display a sluggish trend, much to the dismay of the housing developers. The big housing companies are doing well due to their massive resources, wise investments and ability to purchase construction materials from the sources. Some of them even have powerful research cells. However, the situation is completely different for small developers. Many of them came to this line of business with the hopes for ready cash, only to find themselves in a big market with highly insufficient buyers. As a result, many of them have lost their investments and folded up their businesses. Some are still trying to keep their business afloat even with next to no profit. Despite the decreasing of the price of apartments a couple of times, the number of buyers could not be increased as per expectation.
The Real Estate and Housing Association of Bangladesh (REHAB) is trying to salvage the sector by regularly arranging annual housing fairs every winter. According to the REHAB leaders, people do have purchasing power, but they are afraid of investing in the housing business. The fair is a good way to remove this fear from prospective buyers, they think. However, many developers are on the verge of folding up their businesses due to the continuous drop in sales. Some developers said that sometimes they cannot even sell a single flat in a month, yet they have to bear the office cost, salary of the employees, etc. Overall economic recession, lack of security, and downward trend in foreign foreign currency flow are crippling the real estate sector, they said. The slowdown in real estate business is affecting the growth of its backward linkage industries. The construction materials industries including steel, rod, cement, sanitary fittings, electric cable, paint, etc., are suffering due to the slump in the real estate business.
Another fear people have over investing in the housing sector is the possibility of facing scrutiny by the Anti-Corruption Commission (ACC) and the National Board of Revenue (NBR). The fear of becoming victims of extortion is also far too real for the buyers and developers alike. The buyers and developers are being harassed by extortionists on a regular basis, but very little legal measures are generally taken against them. Despite pouring billions of taka into the construction industry, the developers are not being able to sell flats. In FY 2016-2016, over 10,000 flats of various companies remained unsold, REHAB sources said. The entrepreneurs are now worried about the BDT700 billion worth of direct and indirect investments in this sector.
People involved in this sector said that it is impossible to buy a flat with the personal savings of an individual. As a result, the potential buyers have to rely on housing loans. However, the bank interest rate is too high and unaffordable for most flat buyers in Bangladesh, which is one of the major reasons behind the drop in sale. They also said that the number of unsold flats has been increasing since 2010. Even after the falling prices, people are not interested in buying flats. In 2014, 92 REHAB enlisted companies were shut down after losing their capital.
According to REHAB statistics, 3,018 readymade flats built by 209 member companies remained unsold in 2010, 3,652 in 2011, 3,887 in 2012, and 5,514 in 2013. In 2014, a total of 12,185 flats worth over BDT88.11 billion remained unsold. The housing estate companies said that the real number of the unsold flats could be many times more, as a majority of the developers are not REHAB members. In total, the number of unsold flats has increased by at least three times in the last five years.
Another REHAB estimate shows that from 2010 to 2014, 11,165 flats of 209 companies were sold. During the same time, 9,779 pre-sold flats were handed over to the buyers. In 2014, 1,749 flats were sold, which is a significantly low number compared to the unsold flats. The overall cost of the unsold flats in 2014 stood at more than BDT88.11 billion. On the other hand, only BDT12.74 billion was earned from selling flats during the same period of time.
Even after a 30 percent drop in apartment prices in the last one and a half year, offering up to 25 percent discount and a wide range of gifts such as LCD televisions and cars, developers are failing to hook up with potential buyers. Currently, flats are being sold at BDT3,000-BDT5,000 per square feet in the Mirpur area. Only four years ago, the price used to be BDT4,500- BDT7,500 per square feet in this area. In Dhanmondi area, the price of flat dropped from BDT12,000-BDT20,000 per square feet to BDT7,000-BDT10,000 per square feet. In Gulshan, the price went down to BDT12,000 per square feet from BDT20,000. Similar price drops have been seen in other areas of Dhaka City as well. An officer of a developer company said that many developers are selling their flats at their production costs in order to pay back the bank loans. They are even arranging bank loans for the buyers in order to generate more interest in the market. Even after offering so many facilities, they are not getting enough buyers, he added
REHAB senior vice president Nurunnabi Shawon said, “Currently this sector has investments of around BDT80,000 to BDT90,000 crore. Over 3 million workers are employed in this sector, and almost 15 percent of the country’s GDP comes from this sector as well. However, some policy-related complications have raised major concerns about this sector. The REHAB members, who have invested large sums of money, are conducting their activities under immense stress and uncertainty. Almost 10,000 flats remain unsold as of now.”
In 1992, REHAB started its journey with seven members. Today, this organization has 1,151 members. According to REHAB, currently there are 3,500 housing companies in Bangladesh. Over 2,000 emerging organizations, which are yet to become REHAB members, are conducting small- to mediumscale businesses. If the sector were in a good shape, these emerging companies too could have become REHAB members. Due to the financial slump, hundreds of unlisted companies were closed in the last five years.
REHAB vice president Liakat Ali Bhuiyan said, “Despite lowering the price of flats, we are not getting enough buyers. While the law allows the investment of black money, the investment is not unquestioned, which discourages the potential buyers. In the FY 2014-15 budget, unquestioned legalization of black money in real estate was allowed, which brought a little pace in the housing business that year. We have proposed to raise a BDT200 billion credit fund for low-income and middle-class buyers and reintroduce the refinancing of loans at single-digit interest rates. While we have received verbal assurances about this proposal, no viable progress has been seen yet. There are many other obstacles in the sector –especially the high rate of land registration fee. This problem should be addressed soon.”