As increasing number of rural people are migrating to the cities and towns to find jobs and better civic facilities, the demand for housing in the urban centres is on significant rise.
The onrush of such migration has created a serious housing crisis in urban areas, especially in the major cities of the country. In recent times, some real estate firms are facing challenges of building more flats by ensuring maximum usage of land in a planned way. They are building flats to accommodate more people on a comparatively small place.
As for the metropolitan city of Dhaka, only 30 per cent of the population occupies more than 80 per cent of residential areas with human settlements and supportive infrastructure. In such a way, land is becoming increasingly scarce to provide individual housing solutions.
A huge demand for and inadequate supply of houses have raised land price abnormally in the urban areas. This is making more people inclined to build and share apartments.
In Dhaka, five per cent of the population belongs to the high-income group, 45 per cent falls in the category of middle-income group and the rest in the low income group. Real estate analysts consider the middle-income group as a huge market for the housing sector. Builders have started constructing apartments for the middle-income class. For such a large group, the move is unlikely to bring about desired result.
Both the realtors and the middle-income residents are likely to be hit hard with the new budgetary move of imposing 15 per cent value added tax (VAT) on the purchase of flats and plots. If the new law is implemented, real estate sector will be in deep trouble.
The president of Real Estate and Housing Association of Bangladesh (REHAB), in a recent meeting with the media, said the 15 per cent VAT on the purchase of flats and plots will leave negative impact on the sector. The VAT on flat is now on an average 3.0 per cent (1.5 per cent-4.5 per cent), which might rise to 15 per cent in the upcoming fiscal year. The housing sector will be the worst sufferer by the new law, say analysts.
The real estate sector has been facing a slump in business for a long time due to the high construction cost. As the prices soar due to higher construction cost, the sale of flats and plots has declined by 70 per cent in Dhaka city.
Following imposition of additional tax in the proposed budget, the prices of five construction materials - rod, cement, brick, stone, and sand - will go up further with dire consequences for the sector. About 20 million people are directly or indirectly engaged in the real estate sector. They will be hit hard if the new law is enforced.
The realtors also demand the registration cost be reduced to 7.0 per cent of the total cost of a flat or apartment, down from existing 14 per cent. Analysts say investment of undisclosed money is increasing in the housing sector due to the high registration cost. The registration cost, to mention, is the highest in Bangladesh among the SAARC countries.
Many suggest that the Bangladesh Bank should launch a refinancing scheme for the housing sector, to make the flats more affordable to the buyers. The refinancing activities of the central bank for the housing sector have remained suspended since 2009. The government should also form a special fund of Tk 200 billion for the sector. The buyers should be able to take long-term loan from the fund at low interest rates, according to their budget proposal.
The recent Global Financial Integrity report disclosed that illicit flows of $75 billion had gone out of Bangladesh. Analysts believe such illegal outflow can be stopped by allowing investment of undisclosed money in sectors like housing under reasonable conditions.
A secondary market for the housing sector may also be launched similar to the one for used car market. If a flat is sold within five years of its purchase, then its registration cost should be 1.0 per cent, they added.
Proper development of the real estate sector requires pragmatic planning spanning over a certain period of time, steady and reliable source of finance, simplification of registration formalities, and strong regulatory framework. If Bangladesh Bank instructs commercial banks to offer loans at low interest rates, many companies will come forward with new projects.
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