In the last few decades we have seen a major demographic shift in Bangladesh. We have been experiencing steady growth in an aspiring middle class and not just in terms of absolute numbers. By definition the middle class is a class of seekers and strivers putting in the most effort for change in search of a secure future. For instance, they want to educate their girls for better marriage prospects in mobile, upwardly families, which would enable better social connections. Owning a house in the capital and other major cities is one of the most desired goal of the low to middle income groups of the population. Making middle-class housing more affordable and plentiful are important first steps toward reducing economic disparity. Say a decade or so back Bangladesh was quite definitely a part of the nearly global boom of the real estate market. The prices were rising steadily for quite some time. The property in prime locations of cities like Dhaka and Chittagong was in high demand among both realtors and consumer. However the good times were not to last. One of the reasons was that those who own the property simply refused to sell it anymore and waited for the prices to go even higher. Unfortunately this waiting and denying willing buyers did not work out in the long run and the market simply fell apart. Making housing more affordable
However even after the recent slump in the sector real estate in Bangladesh remains terribly expensive and is now selling at prices making it practically unaffordable for almost
everybody who wants to buy a home to live in–especially those belonging to low and middle income groups
Syed Mehdi Momin
In the last few decades we have seen a major demographic shift in Bangladesh. We have been experiencing steady growth in an aspiring middle class and not just in terms of absolute numbers. By definition the middle class is a class of seekers and strivers putting in the most effort for change in search of a secure future. For instance, they want to educate their girls for better marriage prospects in mobile, upwardly families, which would enable better social connections. Owning a house in the capital and other major cities is one of the most desired goal of the low to middle income groups of the population. Making middle-class housing more affordable and plentiful are important first steps toward reducing economic disparity. Say a decade or so back Bangladesh was quite definitely a part of the nearly global boom of the real estate market. The prices were rising steadily for quite some time. The property in prime locations of cities like Dhaka and Chittagong was in high demand among both realtors and consumer. However the good times were not to last. One of the reasons was that those who own the property simply refused to sell it anymore and waited for the prices to go even higher. Unfortunately this waiting and denying willing buyers did not work out in the long run and the market simply fell apart.
Varying trends have been observed in the real estate market in the past few years. There is a question mark as to whether or not the housing and accommodation needs in the country at present be fulfilled considering growing rate of urbanisation. Bangladeshs real estate market is constantly declining, and a fall in property prices is evident in almost all major cities and areas. The property transactions are reported to be record low at present
In countries of the global North, urban affordable housing means unaffordable housing subsidised by the state (formerly called social or public housing). But this cannot be the answer where public funds are scarce and are often misused. In many developing countries, low incomes mean that the houses are inadequate as evidenced by the slums and squatter settlements that have come to define cities in the South.
So the obvious but radical answer could be to pay people a decent wage. Another answer is to revisit the terms and conditions of conventional housing finance: getting a mortgage is off limits for those without high or proven incomes who either
cannot borrow, or cannot borrow enough, to buy the cheapest house on the market.
Microfinance can help with repairs or extensions, but has limited application to housing purchase. A non-conventional model for greater reach and impact might, for example, incorporate short-term, sequential loans for incremental construction, paid off with variable amounts (for example, via mobile phones) using a network of community-based retail agents. With our housing system so dependent on the private sector, the real question is how to keep construction running when the market cools.
Providing incentives for developers to provide affordable homes is an obvious solution and one that the property industry itself has been lobbying for. This entails government support to drive investment towards affordable rental housing and to enable a new range of housing products such as shared equity and low cost home ownership.
Many other interlinked factors have contributed to the stalemate in the sector. Real estate developers, used to steadily rising realisations on new launches in the last decade, have been unwilling to slash prices enough to stoke demand. Until a few years back, appreciating property values prompted buyers to ignore rents. But with price gains no longer a given, buyers are putting off purchases hoping for better prices. Developers on their part are not willing to oblige they are either exorbitantly leveraged and are hoping to salvage their balance sheets through higher prices or are funded by private equity investors, who set a high bar on minimum returns from every project. Yes, lower interest rates could have made homes more affordable to buyers without a haircut for developers. History shows that property purchases are related to strong economic and income growth rather than interest rates.
However even after the slump real estate in Bangladesh remains terribly expensive and is now selling at prices making it practically unaffordable for almost everybody who wants to buy a home to live inespecially those belonging to low and middle income groups. The only way that real estate will become more affordable is if the black money going into real estate slows down to a trickle so that only genuine buyers are left in the market. However, this is easier said than done. The government has had some focus on black money and lets hope that continues and improves in the days to come, with the government focusing more on domestic black money. A point worth noting here is that ultimately almost all the black money is domestic given that it is generated within the country. Also, it is worth remembering here that real estate prices dont fall as rapidly as stock markets do. So, the right answer here is that real estate prices will fall and they will fall dramatically, but only over a period of time. Globally, Property market is mostly highly leveraged, which is why risk of Bubble and Burst is unavoidable. But unlike global markets our market is not leveraged and has no such risk. However, mechanics of our Real Estate Market is entirely different from the rest of the world.
Providing housing for Dhaka City dwellers is very significant for ensuring sustainable urban development as it is one of the largest growing mega cities in the world. High growth of population in Dhaka city is creating extra pressure on land and making an adverse impact on house rent. The high rental price of housing in Dhaka city makes it impossible for the people, especially middle income group to afford housing. It reveals that the rent paid for housing varies with income and expenditure of the tenants in different locations. Researchers observe that access of the middle income group people to housing is constrained by high house rent compared to their income. Some measures should be taken to make the housing affordable for middle income group so that they can live in Dhaka with standard living condition. As a whole, Housing includes not only the dwelling itself but also engulfs lot of other amenities and infrastructures in its fold. A formal affordable housing is crucial for the healthy growth of a livable city otherwise the informal (so called Real Estate) sector would come up in increasing manner and would obliterate the city in longer version. Until recently, Government agencies had taken initiatives only to allot lands to the general citizens, which were again meant for the upper income segment of the city dwellers. However, the Government in its very recent endeavor has decided to construct 30,000 apartments in Uttara area and sell them in at affordable price. Though affordable sounds compatible for the middle and lower income strata but in reality if we look into the above monthly income classification then easily can understand the fate of the intention. Apart from Land Developers there are more than a few thousand real estate companies, some giants and some small scale, who are now operating in Dhaka city to construct Apartments. Some of them have also extended their operations in other major cities. But the irony of fate is that again the dilemma between the costs versus target group remains same. Seldom are the efforts able to trickle down to the lower segments even the middle income group in true sense. Its not because of their intentions of drifting bigger markups but due to the scarcity of land and its premium prices, cost of construction materials and virtually no incentives from government. As a matter of fact it is no more a hypothesis that the government must come forward to mitigate the huge dwelling demands prevailing in the city either by themselves constructing dwellings or by providing subsidies to the private developers.
A boom in the real estate sector can give birth to several service sectors, industries relating to building industry in Bangladesh. Such humongous growth in the private real estate sector also called for international companies operating their offices locally that include the electrical, mechanical equipments like substations, generators, elevators providers etc. Though not formally calculated, a huge amount of financial movement is involved in this sector which in turn playing a pivotal role in the
economic development of the country and also generating a bulk of employments for the professionals and laborers.
A recently released study by IFC (International Finance Corporation, a member of World Bank group) identified some key challenges faced by the low and middle income housing finance market:
Inefficient environment for the enforcement of mortgage rights: Rural mortgage enforcement rights are not clear. In addition, mortgage enforcement in the Artha Rin Adalats (Money Loan Courts) can take many years in case of defaults. Restrictive regulations for primary tenders, especially scheduled banks: scheduled banks total exposure to housing finance is capped, and they face restrictive regulations on loan to value ratios, risk weights, provisioning and NPL(non performing loans) recognition. Capacity constraints facing state-owned financial institutions and Bangladesh House Building Finance Corporation (BHBFC)
Lack of long term financing for housing loans, leading to asset liability mismatches.
There is a serious lack of affordable land and limited real estate developer interest in low and middle income segments. According to the findings of the study these constraints can be alleviated through the following policy level reforms:
Improving the legal environment for mortgages. Clarify regulations on the enforcement of mortgage rights on rural properties. In addition, improve the capacity of the Artha Rin Adalat to fast track legal enforcement of mortgage rights upon default. Introduce consumer protection and responsible lending regulations to prevent potential exploitative: practices. Accelerate the digitization of land records. Instituting enabling financial sector regulations: Review prudential regulations governing scheduled banks and consider easing restrictions on mortgage portfolio size, provisioning and loan to value rations if banks are lending to low and middle income segment.
Experts believe that it is possible to have affordable housing that is both acceptable and sustainable for households and for society but ultimately it requires a change in the way politicians and government view housing. This is difficult for three reasons. First, it is widely believed that providing housing will attract migrants, when in fact what they come for is jobs, education and to work for a better future for their children.
Second, many in the authorities see the poor (and their housing) as a drain on resources rather than as contributing to its development, both as workers and producers and indeed as consumers.
Third, slums and squatter settlements often act as convenient vote banks groups with which politicians have a client-patron relationship, getting votes in return for protection from eviction. Providing housing usually requires relocation, dissipating the vote bank or passing it on to another politician. The people also often oppose relocation, fearing loss of jobs and earning opportunities.
There cant be affordable housing as long as it is viewed as a cost that requires rationing and the doling out of subsidised houses. Instead, governments must see affordable housing as the necessary and positive force driving urban development.
The writer is Assistant Editor of The Independent and can be contacted at: [email protected]
