Real Estate Industry in Bangladesh Roars Back to Life after Covid-19
Bangladesh’s real estate business began in the 1970s with the notion of creating flats and has been steadily ascending since then. Currently, the development of apartments has expanded to model towns, retail malls, and commercial establishments, making the sector one of the primary drivers of economic growth. The industry has had a significant influence on job creation and directly contributes roughly BDT 5.0 million to government income on an annual basis.
Population expansion has transformed Dhaka and Chittagong into two of Bangladesh’s most populous metropolitan cities, attracting the majority of projects. According to Bangladesh Bank, housing financing demand would grow in the fiscal year 2020-21 compared to the previous year, with private banks holding the lion’s share of outstanding housing loans as of the end of June 2020. The statewide lockdown last year hampered the growth of this industry, which is gradually rebounding thanks to the government’s huge assistance. Furthermore, the strong liquidity that pushed the lower interest rates in the banking sector had an important influence here.
Many opportunities have opened for the thriving real estate business, including the growth of new and expansive areas outside of Dhaka, which necessitates the construction of urban infrastructures. The development of new roads and trains will provide them the opportunity to investigate areas other than the mainstream. The growing number of lower-middle-class individuals has increased the demand for their properties. In addition to the above-mentioned government assistance, banks and NBFIs are also making significant contributions.
Unfortunately, the epidemic is not the only challenge that the real estate industry is facing. Mismanagement by a few developers can occasionally lead to consumer unhappiness. The problem is exacerbated by a lack of collaboration among development agencies and chaotic urban planning. As a result, the government and industry actors must work together to meet the people’s requirements. Furthermore, in order to handle the inflow of lower-middle-income families, real estate should begin to prioritize low-cost affordable housing.
Contribution to the Economy
Bangladesh’s real estate market is rapidly developing as a result of the country’s fast growth, rising housing demand, expanding middle class, and rising per-capita income. It all began in the 1970s with only five registered businesses. During the 1980s, middle-class city dwellers in Bangladesh embraced apartment construction, and by the late 1980s, it had become a standard practice for people of all income levels. At the moment, the notion of real estate is expanding to include not just the development of residences but also model towns, retail malls, significant infrastructure, and commercial setup with an eye toward large profit margins. In Dhaka in the late 1980s, 42 such developers were employed. There were around 800 firms in 2013, but there are presently 1073 registered companies active in this activity, of which 879 are REHAB (Real Estate & Housing Association of Bangladesh) enrolled companies. Over the last two decades, the real industry in Chittagong witnessed a significant improvement. Demands for flats in Chittagong contributed to the cumulative demand for real estate products. A substantial number of unregistered firms play an important part in the entire real estate market.
The housing sector is critical to achieving economic stability. It is a significant generator of economic growth because it has large multiplier effects on economic activity. It contributes 7.96 percent of GDP. Furthermore, the industry aided the national economy through linkage industries such as MS bar, cement, brick, sand, ceramic tile, paint, and other fixtures and fittings. According to REHAB statistics, this industry and its associated sectors generated around 12% of the national GDP.
After agriculture and readymade clothes, it is one of the greatest job creators. The top real estate development companies in Bangladesh have contributed to boosting the demand for auxiliary sectors such as steel, cement, tiles, sanitary ware, cable, electric ware, paint, glass, aluminum, brick, construction materials, and consumer durables, among others. According to the most recent population census, overall housing demand will be 0.8 million units in 2020 and 1.14 million units in 2030. Furthermore, this industry directly contributes roughly BDT 5.0 billion to government income each year (through VAT, registration fees, utility fees, and so on).
Impact of COVID-19 Pandemic on the Real Estate Industry
When the government implemented a two-month statewide lockdown between March 26 and May 30, 2020, the demand for flats was nil since individuals did not make such large investments in a time of crisis. As a result, all housing developments were halted. Because of the lockdown, some 6,000 REHAB member projects were put on hold as construction workers and other personnel were required to return home. Many clients were also unable to make their installments on time, and as a result of the shortage of finances, housing entrepreneurs became particularly concerned about how they would pay their staff.
After the Covid-19 catastrophe, the real estate business saw a comeback as the government permitted the use of untaxed income to acquire property, land, and apartments without having to account for the source in the current fiscal year’s budget. Furthermore, according to industry participants, banks and NBFIs are offering house loans at very low-interest rates of less than 9% as a secured investment for the lenders. As a result, buying property in Dhaka became more accessible to a wider range of consumers. Real estate investors are now paying closer attention to current projects before they are completed, as they are already a year behind schedule owing to the lockout. Each day, more ready-to-sale flats are being available to the consumers.
A number of major variables led to the unexpected surge in demand during the epidemic. First and foremost, people were terrified and wanted to ensure that their successors had a permanent address in the city. Some people also invested in real estate items since the globe was closed, and they couldn’t transfer money or invest in distant nations. Furthermore, the government’s decision to let untaxed money in the real estate industry contributed to the increase. We anticipate that demand will be high this year as well. Existing consumers, on the other hand, will continue to suffer as a result of the pandemic’s impact on income.
New Trends in Real Estate Industry After COVID-19
As the COVID-19 situation began to ease down, the real estate industry found a new beam of hope. The market found a handful of new trends and made no mistake in grabbing the opportunity. More people are showing eagerness to buy a new flat in Dhaka. Soon, the industry began to roar back from the downward trend of the pandemic period. The COVID-19 experience may potentially permanently alter behaviors, influencing demand for other real estate assets such as hospitality properties and short-term rentals. People are considering children’s needs while buying homes after the pandemic era. Even a brief halt to business travel might have a long-term impact if alternatives such as video conferencing prove adequate or even preferable. Near-shoring of supply chains may lower demand for cross-border corporate travel even further, while consumers who are fearful of visiting overseas may shift leisure travel to domestic locations. Here are a few new trends in the real estate industry of Bangladesh after the COVID-19 era:
Studio Apartment Trend in Today’s Urban Landscape
Studio apartments are made up of a single spacious room that ranges in size from 250 sqft to 1000 sqft and includes a bedroom, dining lounge, tiny kitchenette, and associated toilets, making them a perfect living place for single city dwellers and small families.
Government Goes Green, Hollow Bricks Become Mandatory
Md. Shahab Uddin, Minister of Environment, Forests, and Climate Change has proclaimed that the manufacturing and usage of hollow bricks and blocks will be progressively made mandatory in the country by 2025 to avoid air pollution. There are multiple holes in hollow bricks. These bricks have been shown to be far more useful than standard bricks. Hollow blocks are both fire-resistant and significantly safer than regular bricks.
Steel Structures Gaining Popularity in Cities
Prefabricated steel structures are becoming more prevalent in cities as corporations choose this style of building for safety and ease. This sort of construction is quick to build and can withstand natural calamities like earthquakes better.
Opportunities in Real Estate Industry After COVID-19
From a historical standpoint, this sector has been active in the corporate world since shortly after our independence. Bangladesh still has a lot of changes ahead of it. According to a recent analysis, Bangladesh will be the 28th largest economy by 2030. We anticipate that during the next 50 years, at least USD 700 billion will be invested in housing alone. These populations can be converted into customers with the correct product and positioning, and there appears to be enormous potential outside of Dhaka as well.
Market Players Following International Examples
Taking examples from different nations, we may identify some exemplary methods that have been implemented to tackle the real estate problem for the general public.
Singapore has had the greatest success in resolving its housing crisis. Singaporeans have the greatest homeownership rate in the world because they may borrow from their pension accounts as soon as they start working. In this way, even low-income individuals may obtain finance to own their own property.
Japan also has a strong track record of providing inhabitants with cheap homes. Over the decades, the city emphasized vertical growth, which helped keep home prices within reach.
New York authorities established maximum rents for all properties, a concept known as rent control, which gave relief to millions of its inhabitants. A resident must be at least 18 years old to be eligible for rent control.
Last year, the Indonesian government established legislation on public housing savings, which would assist employees in financing the purchase, building, or repair of their first house. All formal workers and people earning at least the minimum salary must contribute 3% of their earnings (2.5 percent from employees and 0.5 percent from employers) to housing savings.
Rise of New Potentials
Given its large market, the Bangladeshi real estate business has enormous possibilities, including:
- Moving into new places such as Purbachal, Bosila, Keranigonj, and the outskirts of Dhaka, which are open and have yet to be developed with urban infrastructure. This is possible if the government encourages good schools and universities to accommodate special commuting facilities and public transit such as intra-city rail service. Apart from that, an already established region like Dhanmondi is offering a bargain for new customers.
- The government has launched massive road and highway construction projects throughout Bangladesh. Since transportation is the primary demand for growth in every place, and the government is gradually attempting to alleviate this need, real estate businesses should focus on delivering new developments to different cities in Bangladesh.
- The current yearly pace of urbanization is 5-6 percent. By the next several years, urban regions will be home to about 40% of the entire population. Only 40% of Dhaka’s population has access to standard or below-standard housing. As a result of the comparison investigation, experts believe that the rise in housing demand will continue for a long time.
- The emphasis should be on affordable housing alternatives for lower-middle-class people. Dhaka offers some of the best places for living with family. As more individuals reach this class, the demand for inexpensive housing rises, creating a lucrative commercial opportunity for private real estate firms.
- Currently, 68 percent of Dhaka people live in leased housing. According to ICE Business Times, 82 percent of them believe their rent exceeds their ability to pay. If real estate businesses can deliver flats at a fair price, they will have a potential market for this category.
- The government approved the use of untaxed income to acquire property, land, and apartments in the current fiscal year’s budget. According to the president of REHAB, around BDT 3,500 crore in untaxed income has been invested in the industry during the previous six months. As a result, more investment will flow into the real estate sector in the near future.
- Banks and non-bank financial institutions (NBFIs) are increasingly offering low-interest housing loans. As a result, more individuals will be interested in buying apartments. This has already resulted in a significant increase in the demand for apartment purchases.
- A reduction in the registration cost of a property will encourage people to acquire units.
Challenges of Real Estate Sector After Covid-19
Over the last few decades, real estate investments have delivered consistent cash flow and returns that have outperformed traditional sources of income, such as corporate debt, with only a minor increase in risk. However, since the viral epidemic, this reality has shifted, and real estate players have been heavily impacted across the value chain. Service companies are fighting to keep their staff and consumers healthy. Many developers are unable to secure permissions, resulting in building delays, halts, and potentially decreasing rates of return. Meanwhile, many asset owners and operators are facing a significantly decreased operational revenue, and nearly all are concerned about how many tenants would fail to make their lease payments. “Concession” and “abatement” are the buzzwords of the day, and players are scrambling to figure out who and how much to apply for.
Every day, at least 1,418 individuals are added to Dhaka’s population, according to government figures. Dhaka’s population density is now at 80,000 people per square kilometer. Dhaka has an average area per person of 12.5 square meters, while Mumbai has 32.3 square meters, Tokyo has 230.2 square meters, Shanghai has 167.6 square meters, and Delhi has 87.4 square meters. The figures are staggering, and Dhaka is failing miserably to house its rising population. The real estate sector has been facing several challenges for many years. The main challenges are described below:
- Some real estate businesses and individual purchasers are showing a lack of commitment. A legislative framework to protect purchasers’ rights is also lacking in the real estate business.
- Some real estate and land development enterprises’ marketing strategies frequently cause problems. In recent times, several new and existing businesses have engaged in unethical behavior by posting false ads for land sales and apartment projects.
- According to real estate specialists, the industry’s titans will need less time to restart operations following the Covid 19 effect. Those tier-2 or tier-3 developers, on the other hand, must review their present condition and communicate with their customers about the next steps, such as if there will be late handovers or any changes in project plans.
- There is a lack of a planned urbanization strategy and incentives from relevant agencies. A new urbanization plan is needed, one that includes enough utility infrastructure, road development, education, and medical care facilities. Missing out on these development initiatives makes it difficult for real estate enterprises to reach new and growing markets.
- There is a lack of coordination among various development bodies, which comprise 12 city corporations and 330 municipalities.
- Real estate employees have a poor pay package. As a result, with the exception of a few top-tier real estate firms, real estate companies are unable to recruit competent HR.
- High property transfer and registration fees: Although the registration charge in Bangladesh has been cut from 14 percent to 10 percent of the entire price of the flat, it remains higher than in many other Asian nations.
- Maintaining a reduced interest rate for individual consumers’ home loans will be a significant issue in the foreseeable future. Lower interest rates have encouraged consumers to take out loans to acquire assets, but the converse may occur if interest rates rise.
The real estate sector offers a lot of room for investment in many areas. However, growth is only feasible with the combined efforts of business and government. The government must encourage developers to provide low-cost and affordable homes for the masses. To stimulate investment and growth in Bangladesh’s real estate, the government must provide realistic and long-term policy direction for the industry. The concept of “affordable housing” must be disseminated in order to provide a minimum quality of living for all residents. Without adequate housing, we will be unable to produce a capable workforce capable of contributing to the national economy. Given the multifaceted character of housing, it is evident that one or two isolated efforts will not enough to address the total housing problem. For Bangladesh’s real estate sector to have a bright future, the government and private development enterprises must collaborate.
How has the pandemic changed the global real estate market in terms of demand, price, and what buyers want?
Ans: It’s reasonable to argue that Covid-19 has accelerated already existing tendencies. Prices have risen while decreasing interest rates contributed to this.
What is happening to the prices of real estate products after the pandemic?
Ans: Prior to the pandemic, residential property prices were growing as a result of decreasing loan rates, which fueled demand. Moreover, despite the epidemic condition, costs are still rising. People demand more private space, and because there aren’t as many options on the market, costs have risen.
Is it the right time to buy my own home in Dhaka?
Ans: In terms of long-term investments, house values have consistently risen. Given this, investing in property has always made sense, and self-used property should be viewed as a long-term investment decision.
Other than the Corona Virus pandemic, what other factors are influencing the development space?
Ans: The new generation of consumers is focusing on minimalism. Hence, the houses and offices of the modern world are being structured in a minimalistic fashion these days.
Did the pandemic leave a lasting impact on the real estate industry of Bangladesh?
Ans: It is too early to comment on any lasting impacts that resulted from the pandemic. However, certain new trends are surely set off the pandemic.