The idea of building flats sparked Bangladesh’s real estate industry in the 1970s, and it has been gradually expanding ever since. The construction of apartments has recently spread to include model villages, shopping centers, and other commercial buildings, making the industry one of the main forces behind economic growth. The sector directly provides around BDT 5.0 million in government revenue each year and has a substantial impact on employment growth.
The bulk of projects is attracted to Chittagong and Dhaka, two of Bangladesh’s most populated metropolitan areas as a result of population growth. The demand for housing finance will increase in the fiscal years 2020–21 compared to the prior year, according to Bangladesh Bank, with private banks controlling the majority of outstanding housing loans as of the end of June 2020. This industry’s development was impeded by the nationwide lockdown last year, but it is now gradually recovering owing to the enormous support provided by the government. Additionally, the substantial liquidity that drove the banking industry’s reduced interest rates had a significant impact on this.
The development of new, vast territories outside of Dhaka, which calls for the creation of urban infrastructure, has created several opportunities for the burgeoning real estate industry. They will have the chance to research locations outside of the mainstream thanks to the construction of new roads and railroads. The demand for lower middle-class people’s homes has risen as their population has grown. Along with the government aid already indicated, banks and NBFIs are also making considerable contributions.
Unfortunately, the real estate market is also dealing with other problems than the pandemic. Occasionally, poor management by a few developers might result in dissatisfied customers. Urban planning chaos and a lack of coordination amongst development organizations make the issue worse. To address the needs of the public, the government and business stakeholders must cooperate. Furthermore, real estate should start emphasizing low-cost affordable housing in order to accommodate the influx of lower-middle-income families.
Contribution to the Economy
Due to Bangladesh’s rapid economic development, increasing housing demand, a growing middle class, and rising per-capita income, the real estate industry is expanding quickly. In the 1970s, there were just five enterprises that were officially registered. Apartment development in Bangladesh gained popularity in the 1980s among middle-class city residents, and by the late 1980s, it was a common practice across all socioeconomic groups. The concept of real estate is now expanding to include not only the construction of homes but also model villages, shopping centers, substantial infrastructure, and commercial setups with a focus on high-profit margins. At the end of the 1980s, 42 such developers were working in Dhaka. In comparison to 2013, when there were around 800 businesses, there are now 1073 registered businesses engaged in this sector, of which 879 are businesses enrolled with REHAB (Real Estate & Housing Association of Bangladesh). The real estate sector in Chittagong has significantly improved during the last 20 years. The overall demand for real estate items was influenced by the demand for apartments in Chittagong. In the overall real estate industry, a sizable number of unregistered businesses is crucial.
The Impact of the COVID-19 Pandemic on the Real Estate Industry
Since people did not make such significant expenditures during a crisis, there was little demand for apartments when the government imposed a two-month nationwide lockdown between March 26 and May 30, 2020. All house projects were stopped as a consequence. Around 6,000 REHAB member projects had to be placed on hold due to the lockdown since staff members, including construction workers, had to go home. Due to the lack of funding and the fact that many customers were unable to pay their payments on time, housing business owners were especially anxious about how they would pay their employees.
The government allowed the use of untaxed money to purchase property, land, and flats without having to account for the source in the current fiscal year’s budget, which helped the real estate industry rebound after the Covid-19 disaster. In addition, industry players claim that as a secured investment for the lenders, banks and NBFIs are providing home loans at very cheap interest rates of less than 9%. As a consequence, a larger segment of customers now has easier access to purchasing real estate in Dhaka. Given that they are already a year behind schedule as a result of the lockout, real estate investors are now paying greater attention to ongoing projects even before they are finished. More ready-to-sell apartments are being offered to customers every day.
The unanticipated increase in demand during the outbreak was caused by a number of significant factors. People wanted to make sure that their successors had a permanent address in the city because they were afraid. Since the world was blocked and individuals couldn’t Several people also made real estate investments, whether to move money or invest in other countries. The surge was also influenced by the government’s decision to let untaxed money in the real estate sector. We predict that demand will be strong once again this year. On the other hand, the pandemic’s effects on revenue will continue to hurt current customers.
After COVID-19, Real Estate Has Seen Some New Developments
The real estate sector received a boost of optimism when the COVID-19 situation started to improve. The market saw a few fresh trends and seized the opportunity without hesitation. In Dhaka, more individuals are displaying a desire to purchase a new apartment. The industry soon started to rebound from the pandemic period’s negative trend. The COVID-19 experience could change people’s behavior in the long run, which might affect demand for other real estates assets like hotels and short-term rentals. After the pandemic period, people are taking children’s needs into account while purchasing houses. If substitutes like video conferencing prove to be sufficient or even preferred, even a temporary stop to business travel may have long-term effects. The near-shoring of supply chains may further reduce demand for cross-border business travel, while consumers who are hesitant to go abroad may shift their leisure travel to local destinations. Following the COVID-19 period, the following new tendencies may be seen in Bangladesh’s real estate market.
The Rise of New Potentials
The Bangladeshi real estate market offers a wealth of opportunities, including the following:
settling in fresh locations like Purbachal, Bosila, Keranigonj, and the outskirts of Dhaka that are undeveloped and lack urban amenities. This is feasible if the government supports reputable colleges and universities to provide specific transportation options, including intra-city train service, as well as public transportation in general. In addition, a well-known area like Dhanmondi is providing a discount for potential clients.
In Bangladesh, the government has started a number of sizable road and highway development projects. Real estate companies should concentrate on bringing new projects to various cities in Bangladesh as transportation is the main necessity for growth everywhere and the government is slowly working to relieve this need.
Urbanization is now occurring at a rate of 5–6% each year. About 40% of the world’s population will reside in urban areas during the next several years. Only 40% of the people in Dhaka have access to decent or subpar housing. The comparative analysis led specialists to conclude that the increase in home demand would last for a considerable amount of time.
Affordable housing options for people in the lower middle class should be prioritized. Some of the nicest locations to live with a family are available in Dhaka. Demand for affordable housing increases as more people joins this class, presenting profitable business opportunities for private real estate companies.
68 percent of Dhaka’s population now lives in rented homes. ICE Business Times reports that 82% of them think their rent is more than they can afford. Real estate companies will have a potential market for this category if they can provide apartments at a reasonable price.
In the budget for the current fiscal year, the government authorized the use of untaxed income to buy real estate, farmland, and apartments. The head of REHAB claims that over the preceding six months, the sector received investments totaling around BDT 3,500 crore in untaxed income. As a consequence, the real estate market will soon see an increase in investment.
Housing loans with low-interest rates are increasingly being offered by banks and non-bank financial institutions (NBFIs). As a consequence, more people will be drawn to purchasing flats. The demand for apartment purchases has already increased significantly as a consequence of this.
People are more likely to purchase units if property registration costs are reduced.
Challenges of the Real Estate Sector After Covid-19
With just a little rise in risk over the last several decades, real estate investments have consistently outperformed more conventional income sources, such as corporate debt, in terms of cash flow and returns. The reality has changed since the virus pandemic, and real estate players have been severely affected throughout the whole value chain. Service providers work to maintain the well-being of their customers and employees. Many developers struggle to get approvals, which causes construction to stall or stop altogether and may lower rates of return. Nearly all asset owners and operators are worried about how many tenants will default on their lease payments while many are facing a drastically diminished operating income. The terms “concession” and “abatement” are all the rage right now, and players are frantically trying to decide who and how much to apply for.
According to official statistics, Dhaka’s population grows by at least 1,418 people every day. Currently, there are 80,000 people living in each square kilometer of Dhaka. The average area per person in Dhaka is 12.5 square meters, compared to 32.3 square meters in Mumbai, 230.2 square meters in Tokyo, 167.6 square meters in Shanghai, and 87.4 square meters in Delhi. The numbers are shocking, and Dhaka is failing badly to provide housing for its expanding population. The real estate industry has faced several difficulties for a long time. The following list of key difficulties is provided:
Some real estate companies and individual buyers exhibit a lack of dedication. There is also no legal structure in place to safeguard the interests of buyers in the real estate industry.
The marketing methods of certain businesses involved in real estate and land development usually lead to issues. A number of new and established companies have recently posted misleading advertisements for land sales and apartment developments, which constitutes unethical activity.
Real estate experts predict that after the Covid 19 impact, the major players in the sector will require less time to resume operations. On the other hand, those tier-2 or tier-3 developers must assess their current situation and inform their clients of the future stages, such as if there will be late handovers or any changes to the project’s schedule.
A planned urbanization strategy and incentives from relevant authorities are absent. A new urbanization strategy is required, one that includes enough infrastructure for utilities, the construction of roads, and facilities for healthcare and education. Reaching emerging markets is tough for real estate businesses when they miss out on these growth activities.
The 330 municipalities and 12 city corporations that make up the different development organizations are not coordinated.
A poor salary is offered to those working in real estate. As a consequence, real estate companies—with the exception of a select few top-tier firms—are unable to find qualified human resources.
High registration and transfer costs for real estate: Although Bangladesh’s registration fee has decreased from 14 to 10 percent of the total cost of the apartment, it is still more than in many other Asian countries.
In the near future, it will be difficult to keep home loan interest rates for individual customers low. Consumers have been encouraged to take out loans to buy assets because interest rates have been low, but the opposite might happen if rates go up.