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   Volume 11 |Issue 04| January 27, 2012 |


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Cover Story


The real estate sector is often used as an indicator to measure a nation's economic growth. Flourishing economies in China and Dubai for instance, are represented by booming real-estate markets. The housing industry in Bangladesh, especially in Dhaka, has made remarkable progress in the last ten years. With apartment-sale charts consistently displaying positive curves, many predicted the housing industry to be the next golden sector of the country. However, an assessment of the sector, based on an annual survey conducted by Sheltech, one of the leading Real-Estate firms of the country, indicates a disturbing slump in the number of apartments sold in Dhaka last year.

Naimul Karim
Photos: Amirul Rajiv

According to Toufiq M Seraj, MD of Sheltech, the sale of apartments dropped by almost forty percent last year. One of the main reasons behind this drop, he claims, is the fast- increasing price rate of the apartments. “The cost of flats in Bangladesh is now one of the highest in the world and is completely disproportionate to the country's falling economy.” While there are several reasons behind the mounting price-rates of the flats, the high influx of developing firms and the increasing rates of construction materials, in the last five years, are some of the more prominent causes.

Booming Prices

Construction of several buildings have stopped half-way due to the lack of funds.

“After 2007, the economy was in a very bad state. This eventually led to an increase in prices of raw materials like cement, rods etc.” explains Seraj. Apart from increasing costs of construction materials, the sector also witnessed the entry of several developing firms guilty of accepting housing projects at high prices and eventually contributing to the increasing cost of the apartments. “Today there are more than a 1000 developing firms in the city, but only 20 of them can be considered professional,” explains F R Khan, MD, Bulding Technology and Ideas Ltd.

Apart from covering costs incurred due to economic reasons, firms also reserve a portion of their budget in order to adhere to governmental legislations. Officials of real estate firms claim that developing companies are forced to bribe government officials in order to get their approval, without which they cannot continue their projects. “The rules laid down by RAJUK states that we need to get approvals from several departments: traffic, environment, electricity etc. Their approvals are impossible to get unless you bribe them,” said an official of a real estate firm who preferred to remain anonymous. He further said that the costs incurred due to the above mentioned approvals also contribute to the prices of the apartments. A former official of Rajdhani Unnayan Katripakkha (RAJUK), when asked about these occurrences, says that although RAJUK plans a 'one-sit agreement' where all the approvals could be agreed upon in a meeting with the respective heads of the departments, it never works. “Every department raises objections during the meeting. After which they meet the developers separately and come to an agreement,” he explains.

The over-dependence on the Real Estate sector, according to Farhad-uz-Zamman, Marketing Manager, Eastern Housing, has increased the demand for flats; another reason behind the galloping price rates in the city. “Just like the other metro-cities in the world, the government should take some steps to decentralise Dhaka,” he says.

Dissatisfied Customers

While a combination of the above mentioned reasons continue to increase the prices of apartments, a large section of dwellers remain dissatisfied. For 34-year-old Robin Akhtar, an employee at a telecom company, the vicious increase in the prices of flats has made it almost impossible for him to buy an apartment of his choice. “Four years ago, I planned to buy an apartment for around Tk 25 lakhs, but I didn't have the necessary funding. Today, the cost of the very same apartment is more than Tk 1 crore! That's just ridiculous,” he exclaims. He adds that taking a bank loan was not an option due to the high interest rates. A similar fate awaited Dr Mamun, a non-resident Bangladeshi from Canada, as he arrived in Dhaka with an aim to buy a suitable apartment for his family. “It's difficult to afford an appropriate apartment in a good area with my budget. The prices of flats here are almost similar to the apartments in Canada,” he says.

Unlike Robin and Mamun, Shihab-ud-din, a banker from Dhanmondi, had booked his flat in 2005 and considers himself extremely lucky to have bought an apartment at the right time. “Honestly speaking the current scenario in the real estate sector is not too good. Loan requests from developers and firms are being rejected every other day,” he says. According to Mustafa K Mujeri, former Chief Economist of the Bangladesh Bank, the increased levels of uncertainty amongst investors during the caretaker government's reign, contributed to the sudden 'jump' in the price- rate of apartments after 2008. “The yearlong intervention by the caretaker government discouraged business. Thus investors tried to recuperate for the losses that took place during the emergency period.”

Inconsistency in the provision of utilities such as gas and electricity have discouraged buyers.

Apart from increasing prices, inconsistency in the provision of utilities like gas and electricity has also hampered the sale of apartments. The provision of gas lines have been stopped in many apartments with dwellers being compelled to depend on gas cylinders. A new law requires the use of a certain percentage of solar energy in order to receive the electricity-approval for a housing project. The forcible presence of solar materials in housing projects has caused various financial problems for developers. “It is impractical for the government to expect us to re-design our flats to suit the new rules that have been enacted. Making changes in flats that have already been built will cost extra money and our customers won't be willing to pay more than what they agreed to,” explains Farhad-uz-zamman.

The Rise and Fall of the linkage industries

The recent developments in the housing sector have affected more than just the buyers; various linkage industries have suffered dramatic declines in their sales over the last few years. “There are more than 20 lakh people working in this industry and the survival of their livelihood depends upon these apartments,” claims F R Khan. According to reports, the glass and furniture markets in Dhaka have taken a hammering due to the decline in sales. A recent report published in the Daily Star on December 11, 2011 states that the sales of glass manufacturers have been affected due to the new rules that have been enacted for the provision of electricity in the upcoming apartments. Forced to adapt to the new situation, the report states that several glass industries are now planning to produce 'tempered, low-emission and solar control glasses in order to increase their revenue. A similar depression took place in the tiles industry as the demand for tiles decreased due to the slump in the sale of apartments. According to Fazlul Karim Bhuiyan, Marketing Manager of Arman tiles, sales have dropped by over 60 per cent in this year. “A number of developers who have already ordered tiles from us can't afford to pay us since not many flats are being sold. They aren't even getting bank loans to continue their projects,” says Bhuiyan.

Markets linked to the real-estate sector such as the tile shops have been affected by the lack of sales.

Contrary to the situation of the various linkage industries, the unavailability of gas and electricity have surged the sales of ready-made apartments. According to Mushfiqur Rehman, who works for Flatbazar, a firm specialising in the sale of used-apartments, there has been an increase in the number of firms dealing with such flats. “ This business started in 2006; at that point of time there weren't many firms selling ready-made flats, now however, the number of firms in this business have increased, mainly due to the unavailability of the necessary utilities,” explains Rehman. He further said that although there wasn't much of a difference in terms of the costs of these flats, the availability of gas and electricity have encouraged people to invest in such apartments. “The main areas in Dhaka are almost full, so if someone wants to shift to a specific area, he has to come to us,” he says.

Undeclared Wealth: To be used or not to be used?

With the increased prices and the utility-inconsistencies creating a negative trend in the sales charts, developers have looked towards the government for legislations that would support the Real Estate sector. The re-enactment of section 19B of the finance act which legitimises undeclared wealth by investing in the purchase of apartments after having paid a certain amount of tax, is one such law that developers in the city have been vouching for. The provision which was abolished after 1/11 has, according to firms, discouraged people to invest in the real estate sector. “The usage of undeclared wealth will help the real estate sector by stimulating cash-flow,” explains Khan. He says that in order to maintain the flow of cash and support the twenty lakh people working in the Real Estate sector, the provision to invest undeclared wealth in the sector was a necessity. “The heavy losses incurred by potential buyers, in other sectors, has left very little money in the system, and people who have money won't come forward since they have to declare their source of income,” explains Khan. Supporting the enactment of the law, several developers claim that if the undeclared wealth is not used in the real estate sector in Bangladesh, the money will go to real estate developers abroad.

Responding to the claims of the finance act, the ex-chairman of RAJUK, KAM Harun, states that the re-enactment of such a law would be un-democratic and would send a completely wrong message to the future investors of the country. “It's a criminal offence and legalising it can further de-stabilise the economy,” he explains. Officials against the clause argue that one of the main reasons behind the fast-increasing land price of Dhaka was the enactment of the very same clause which was legitimate from 1999 to 2007. “I don't think the law will benefit the economy since it doesn't provide a level-field for investors,” says Mujeri.

The Future of Real Estate

With firms in the real estate sector expecting difficult years ahead, several steps are being taken in order to maintain the market. “We might have to compromise on luxurious flats in the future and build apartments that are more affordable to the buyers,” says Seraj. With the situation getting worse with time, developers hope that the government can stratesize a 'bailout' plan in order to support the sector. Some of the suggestions provided by developers include the smooth working of the processes laid down by RAJUK, selling of plots at cheaper rates and the provision of bank loans at cheap interest rates.

Empty flats are a common feature in the city.

New apartments require the installation of solar panels.

The current scenario is simple, the real estate sector is in trouble; the suspension of 21 housing companies last month and the fact that RAJUK has rejected a number of plans with respect to plots located in outer Dhaka, are indicators of the desperate measures taken by developing firms in order to survive in the market. As Haroon puts it, “Real estate companies often don't adhere to the plan that they submit to RAJUK. Sometimes they don't keep the required open spaces, or build buildings instead of mosques or other structures etc.”

The downfall of the real estate sector has taken place due to a combination of factors and it will take a while before the sector can re-group from such a setback. However, keeping aside the nitty-gritty economic details, the one thing that overshadows all the above reasons is the fact that the housing industry in Bangladesh breeds corruption. And while the real estate sector and the government continue to play the blame-game, the common man faces the music, be it through the falling linkage industries or through the distant dreams of the middle-class to be able to afford a decent home in their own backyard.

Copyright (R) thedailystar.net 2012