Special Report

Present Condition and Future Prospects of Real Estate in Bangladesh

A city’s economic and socio-cultural situation can be reflected by the housing condition of its inhabitants. Dhaka, one of the most densely populated cities in the world, has severely concerning housing conditions. Industrialization and concurring urbanization have imposed social, behavioral and physical consequences on urban life. These changes have reshaped the housing sector by modifying the production process and consumption pattern of different socio-economic groups.
Dhaka at present is one of the fastest growing megacities in the world with a population of about 14.17 million in 2009 over an area of 1528 sq.km, with. Approximately 9% of the national population. The population growth rate of the city is 4.65% against 1.48% of the national growth rate as per the Bangladesh Bureau of Statistics (BBS). Average dwelling size is 4.9 persons per household. Dhaka is now growing with an unprecedented growth accommodating more than 600,000 people per year. It means that every year more than 120,000 household units are required to house the added population in Dhaka. In this situation, the supply of housing in the city is only around 25,000 units in private sector, and the government contribution is almost negligible. The private sector contributors include formal private sector (Real Estate Development Companies) and informal private sector (Individual Initiatives). Among these 25,000 units, real estate developers contribute 15,000 units (appx.) per year, and individual developers provide the rest. It is nominal in the context of the total demand, but they have the potential to increase this number under improved policy guidelines. 

Factors associated with and affecting present condition
Varied factors are associated with and changing the current state and pattern of development of real estate growth. Physical aspects like variation in size of the apartments, size of plots, price and rent of residences in different location and socio-economic condition of the dwellers, land tenure ship pattern, car ownership pattern, level of satisfaction of apartment owners with services provided by real estate developers, problems faced by apartment owners, factors working behind apartment purchase decision, willingness to purchase second apartment etc. affect the current pattern of apartment development in different location of the city.

PRESENT CONDITION AND TREND OF REAL ESTATE INDUSTRY
The growth of apartment development in Dhaka was sluggish until the latter part of last decade in the 20th century. In 1997 the apartment development got a boost and was growing until 2007 when the caretaker government assumed the power of the state and the overall business in the country was on the decline. Till 2010, 1275 developers were identified among them 29% were non-REHAB members, and they shared only 12% of the market based on the number of projects. Most of the non-REHAB private developers could develop one or two projects and then disappeared. According to REHAB, there are 1018 developers functioning till 2017.
Most of the concentration of the apartment has been in the planned residential areas, such as, Uttara, Dhanmondi, Gulsan and Khilkhet and Basundhara Residential Area, which have gone through vigorous apartment developments. Siddeshwari is where the earliest development took place, predominantly in the mid-1980s. Eskaton and Shantinagar also displayed similar growth pattern in a lesser extent.

PHYSICAL ASPECTS
The size of the residential apartments varies extensively. Nearly half of the apartments are found to be between 1000 square feet to 1600 square feet. Only a very small proportion (2%) of the residential apartments is less than 700 square feet. Although apartment size is an indicator of the income group, this barely represents the reality in case of Dhaka as the apartment price largely depends on the land price. Nearly half of the plots have their size ranged between 3 to 5 kathas. From the year 2000 to 2010 apartment prices have increased at an annual average rate of 14.4% according to a 2012 report. Intuitively, the increase of apartment price has been of different degrees in different parts of the city. Baridhara, the diplomatic zone of the city, went through the highest price increase while Banasree, Mirpur, Maghbazar, and Shyamoli have had the lowest growth of apartment price. Baridhara is the highest per square apartment price in 2017, which was about BDT 22,000. It means a typical 1200 square feet apartment would cost more than BDT 2.5 crore in Baridhara. Such a residence in Gulshan and Dhanmondi is cost more than BDT 1.75 crore. In Mirpur and Shyamoli, on the other hand, the price of the same size apartment is nearly BDT 70 lac.

APARTMENT OWNERS SOCIO-ECONOMIC CONDITION AND PERCEPTIONS
The apartment owners, on the other hand, decide on purchasing an apartment by several criteria. Locational advantages of the project get the highest priority in this regard. These include better transportation and communication facilities, proximity to the school, college, and workplace, and residential environment of the locality. The choice of developer comes second, after choosing the location. The developers are picked based on the price offered and the company reputation. Most of the families living in real estate apartments are headed by businessmen (51%) and service holders (40%) as per the 2012 report. The apartment users are employed in business and service. They are mostly higher-middle to middle income group having above average car ownership.

MAJOR CHALLENGES IN REAL ESTATE DEVELOPMENT
Real Estate developers have to face several challenges while providing affordable housing for inhabitants of the city. High land price, high price of construction material, unplanned and haphazard development of the city, high apartment price, high home loan interest and high property transfer and registration fee, etc. impose challenges to real estate developers.

RISE IN LAND PRICE
The major hindrance of providing affordable housing to all is the high value of land in Dhaka city. Land value in the city has drastically increased in last the decade showing about a four-fold increase in the average land value in last ten years. In some of the critical areas of the city, for example in Baridhara, an average land value is more than BDT 5 crores per katha. The high land value results in the high cost of housing units, for both purchase and rent. With the increase of population in Dhaka the housing demand is also getting an upsurge, thus further increasing the value of housing units. Consequently, the settlement area of the city is expanding and people are getting more inclined at the outskirts. As a result, the surrounding areas of the city are also experiencing a rise in the land price.

NCREASING COST OF QUALITY CONSTRUCTION MATERIAL
The housing problem of the city is further aggravated due to the price hike of construction materials. The price of construction materials is consistently increasing, thereby increasing the construction cost and apartment price.
Unplanned development of the city Unplanned and haphazard development of the city creates challenges for real estate developers to determine a suitable location for residential development. Haphazard development of commercial land use in residential areas, deterioration of transport facility and road network creates a continuous challenging situation for real estate developers while providing housing facilities in those areas.

HIGH APARTMENT PRICE
The consequence of the land value increase coupled with the price hike of construction materials is the increase in apartment price. The apartment price went through a sharp rise since 2000. In the last ten years per square feet, apartment value has nearly tripled. In places like Baridhara, an apartment of 1400 square foot now costs nearly BDT 03 crore. In Gulshan and Dhanmondi the same 1400 square feet apartment will cost approximately BDT 2 crores. In middle-income areas like Shyamoli a 1000 square feet apartment costs around BDT 55 lac. Without a bank loan, the middle-income people are often unable to buy a decent apartment in the city.

HIGH HOME LOAN INTEREST RATE
The apartment value in Dhaka is too high to afford by the middle and low-income people. To help people through buying apartments the governments in most of the countries have arranged house loan with low interest. The interest rates for house loan in other countries is relatively more economical than that in Bangladesh. Even in the neighboring countries like India and Pakistan, the house loan interest rate is 75% of the price in our country.

HIGH PROPERTY TRANSFER AND REGISTRATION FEE
In addition to the high apartment cost and loan interest, charges pertaining to property transfer and registration impose an extra burden to the buyers. Such expenses include Gain Tax (4%), Stamp Duty (3%), Registration Fee for the central government (2%) and City Corporation (2%) and fees for Sub-registers (0.5%) which together account for additional 11.5% cost of an apartment. Besides, the buyers have to pay Advance Income Tax (Tk. 2000 per sq. meter) along with a (1.5 – 4.5)% VAT which further worsens the affordability of the buyers.

GAP BETWEEN DEMAND AND SUPPLY OF HOUSING
During the period 2001-2011 population growth rate migration rate in Dhaka city was 3.96% and 2.49% per annum respectively. The Huge gap between demand and supply of housing units still prevails which leads to the development of informal settlements. Private real estate companies can contribute in constructing more than 15000 units out of annually supplied total housing units. The private real estate sector is now playing the leading role in the supply of serviced housing units. According to structure plan (draft) by the year, 2030 housing demand in DMDP area is expected to be 1,260,000 units per annum as per RAJUK. Supply of housing unit is needed to be increased to a large scale to cater the overgrowing demand. To reduce this massive gap between the demand and supply of housing private real estate sector has excellent prospect and the huge scope of contribution shortly.
If decentralization of economic sectors can be made possible from the central city to smaller urban sub-centers in the city periphery, population pressure can be reduced in the central city, and suburban towns and satellite towns can develop. Demand for housing and new infrastructure may also be shifted to these places. The private sector can even play a leading road in providing affordable housing in suburban towns.

NEW DIMENSIONS OF TRANSPORTATION SECTOR
At present the public transport system of Dhaka city is unable to manage the traffic pressure efficiently. By the year 2030 with a substantial increase in population and number of vehicles, some trips are expected to be tripled in DMDP area which may worsen the current traffic condition. To improve the deteriorated traffic condition of Dhaka city through introducing efficient public transport system RDP (Regional Development Plan), consultants have proposed 5 MRT and 3 BRT routes within DMDP area. Among them, construction work of MRT-6 (Uttara-Motijheel) and BRT-3 (Gazipur-Airport) have started. According to the structure plan, transit-oriented development is proposed along BRT/MRT stations which may create a vast scope of urban development in the corridor areas if implemented. Introduction of MRT, BRT routes will also reduce the significant challenges faced due to deteriorated traffic conditions in Dhaka city and create locational advantages in the corridor areas of this routes. This may lead to considerable prospect for real estate industry shortly.

CONCLUSION
The Real Estate sector contributes to the need for housing- one of the five requirements of human life but at the same time is playing a significant role in economic development of the country. The operation of the real estate business in Bangladesh is unique to the world. It is a blend of different housing cultures from different nations experienced by professionals whose construction companies had gathered expertise from working in other countries. At present, real estate sector is playing the leading role in case of providing dwelling units, but still, this sector has enormous scope to flourish in the housing market of Dhaka city. Proper implementation of planning policies can create great prospect for this sector shortly. To sum up, real estate sector can contribute a lot reshape the future of urban living in Dhaka city.

PHOTOGRAPH BY DIN M SHIBLY

The writer is the Deputy General Manager at Sheltech (Pvt.) Ltd.

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