Making home ownership viable
Home ownership is an instinctive human need but will remain a cherished fantasy for most Bangladeshis as aspirations alone aren't enough to market houses.
Home ownership and very similar investments in property need to be a good viable economic proposition.
A pragmatic government policy is required to assure a robust housing sector for the united states that will in turn, help materialise the wish to own a home for as much people as possible.
In 2019, the true Estate and Housing Association of Bangladesh (REHAB) started out various new tasks that, once comprehensive, would provide 12,000 apartments for general use in Dhaka.
However, for a metropolis with approximately 15 million inhabitants and a GDP of $170 billion, a meagre 12,000 models being introduced in a calendar year are pitiful.
Compare this statistic to Mumbai, that includes a population of 20 million and GDP of $450 billion, but saw 79,810 flats paid in 2019.
Even Bengaluru, that includes a population of 11.8m and GDP of $210 billion, had 33,772 latest apartments unveiled found in the same period.
I have intentionally certainly not brought into reference the statistics of the more developed countries to ensure that we may compare and contrast apples to apples instead of oranges.
In the end, India and Bangladesh have a far more or not as much similar nominal per capita GDP and so are ranked closely in the Human Creation Index (HDI).
I am incredibly pleased with the improvement Bangladesh has made in virtually all sectors amid the last two terms of the present government.
Our financial fundamentals have a sound footing. The GDP growth, foreign exchange reserves, credit debt as a share of GDP have all been quite strong but this is even more reason to ponder why our real estate industry is performing therefore poorly.
The true estate industry is normally regarded as the backbone of a nation's economy. The Geneva UN Charter is usually a non-legally binding record that aims to make sure that member states present respectable, adequate, affordable and healthful casing for all its citizens.
In mild of the above, has enough been completed for the housing marketplace of Bangladesh? Our casing sector makes up about 8 % of the countrywide GDP. A substantial contribution indeed nonetheless it is trailing method behind in comparison with neighbours India, where it contributes 15 %.
The idea I am trying to make here is that is a very important sector which isn't being managed properly.
The first thing to comprehend is that the industry isn't benefitted by desperate price cuts from designers. In an extremely competitive industry like ours, where builders work with paper thin margins, savings and selling price cuts can only just be accommodated by reducing corners.
Price decrease also harms anyone who has already purchased their homes in previously higher rates. This creates negativity among shareholders and the results is a unpredictable manner due to a lack of confidence on the market.
The end result is lower monetary activity which also influences the country's GDP growth due to lower new projects being launched and residence ownership remaining a distant goal for the masses.
It is paradoxical that whenever apartment prices start growing, the sales volume as well boosts. This proves that the marketplace is very much indeed sentiment driven.
Clients fall into two broad categories. The aspiring residence owner and the potential investor. I want to analyse the problem from both perspectives.
There are many self-proclaimed experts who frequently criticise developers for just building homesteads for the wealthy. What they fail to comprehend is normally that the programmer will build just where there's a demand.
It really is up to the federal government to make plans that creates demand from any particular socio economic group. Seeking at it from a middle-money person's perspective, owning a flat in metropolitan Dhaka is definitely beyond affordability.
The common middle-income person spends about 30 to 40 % of his monthly earnings on rent. He can only just afford to pay the same amount towards his monthly EMI if he is to buy an apartment.
Let's assume that he wishes to possess an apartment of similar criteria to the one he presently rents, this individual can only borrow up to a maximum of 50 % of the worthiness of the new apartment.
The other 50 % of the price should be arranged from his own sources as his share of the equity. That is unaffordable for a the greater part of middle-income persons and therefore puts to rest their dreams of residence ownership.
In countries where a large segment of ordinary people own homes, it really is usual to just pay 10 % of a property's value as the buyer's equity and the rest in casing loans through EMIs, which will be a comparable as the rent the buyer would otherwise be paying out.
Of course, this is possible for the reason that economy in those countries is far more robust and therefore, the buyer's affordability is higher as well.
We may not be able to bring home ownership within the means of all persons but with the proper policies, the industry could be expanded to create home ownership easy for many more people.
From a possible investor's viewpoint, buying an apartment in metropolitan Dhaka isn't an extremely attractive proposition either. The ratio of hire to price is quite low (between three to four 4 %) whereas the house loan interest is 9 %.
This implies that if he's to service your debt on the purchase of a flat from rental income, he has to also put up a very big percentage of the price tag on the apartment as his share of the equity.
Over the years, unless you will find a good appreciation to the value of his apartment, his investment will not be incredibly lucrative. When designers are forced to issue price reductions and savings on account of a dull marketplace, it influences the investors incredibly badly. Nobody really wants to invest in a secured asset that depreciates.
In response to the assault of covid-19, our Primary Minister demonstrated her sagacity in promptly announcing a stimulus package to support the economy. Shortly, there have been demands from several trade bodies and associations, trying to find fiscal support for his or her respective sectors.
I will not comment on matters relating to other sectors but I will qualify my views relating to the real estate sector. I am entirely against providing any type of fiscal support, become it in the type of fascination waivers or latest loans on low interest levels to inept developers who have come across financial distress due to their unique greed and incompetence.
This will only give a wrong signal that it is okay to be irresponsible and incompetent because you'll eventually get bailed out. They are the programmers who designed havoc in the market by offering high costs to landowners and indication innumerable deals without any regard to the monetary viability of the tasks.
Bailing them out would be harmful to the real estate sector. These shoddy designers also deliver untold misery to the unsuspecting customers who get lured in by fancy advertising and marketing and colourful brochures and then get that with any turbulence available in the market, the programmer offers indefinitely delayed the completion of the job, or in some instances, abandoned it completely.
Such malpractice gives the entire industry a bad name and destroys the buyers' confidence.
The aim of the government's policies ought to be to make the marketplace strong and vibrant. Not to bail out non-executing developers. Policies ought to be directed at making home ownership affordable and investment in casing to become a financially lucrative proposition.
There is an old proverb, 'you can't have your cake and eat it too'. This pertains to our policy makers when it comes to housing. Do you wish to allow the maximum number of people to own homes and the housing industry to prosper, or would you like to maximize government revenue by imposing immediate and indirect taxes which makes house ownership unaffordable? You cannot own it both ways.
