Feasibility of Apartment Project Development

FIN 475

REAL ESTATE FINANCE

Submitted To
Tashfeen Hussain
Senior Lecturer School of Business

Submitted By
Mohammed Mahib Ullah
ID # 073 267 030

Date of Submission | 06.02.2011

Page | 0

Acknowledgement
One of the most pleasant parts of submitting a report is the opportunity to thank those who have contributed to it. Unfortunately, the list of expression of thanks no matter how extensive is always incomplete and inadequate. These acknowledgements are no exception. My first thanks goes to the almighty Allah for giving us the patience and courage to finish this unconventional task within its deadline. I am grateful to the employees, managers and the directors of various real estate developers who helped me to fill to giving me significant information on real estate industry. Special thanks to Mr. Enayet Ullah for encouraging me to continue the project. We would like to thanks my family to be patient and support always without any bother. At last, i sincerely acknowledge my debt to Mr. Tashfeen Hussain, honorable faculty of FIN 475 course, for his valuable counseling towards the improvement of the project. Without his encouragement, this would have been impossible.

Page | 1

Executive Summary
This paper is intended for evaluating the feasibility of the Real Estate Developers of Dhaka city who are doing joint-venture apartment development project with land owner. The analysis involves the most up-to-date data of the land price per katha and apartment price per square feet. To evaluate the feasibility we have found some factors behind why developers and also land owners are interested into apartment development project. To initiate a project developers have to do calculation of financial feasibility. They also cannot ignore socio-economic factors, macro-economic factors, legal restrictions, rules and regulations by city development authorities like RAJUK and ministry of housing and public works, fiscal policy of government and infrastructural facilities like gas, water & electricity. The steps of developing an apartment from the initial approach with land owner and site selection are showed chronologically. Legal steps are very important part in the development process before a developer initiate the foundation of the building. Finance & Marketing plays a big role in cash inflows and cash outflows. Afterwards, feasibility of different areas of Dhaka city has shown in a way that everyone understands. For comparing the net profit, apartment of Dhaka City has divided into three parts; Luxury, Standard & Economy. Floor Area Ratio (FAR) & Maximum Ground Coverage (MGC) plays a very important role in apartment size. The construction cost is more or less same except the finishing materials which ornament the beauty of the apartment. But the main reason why apartment price varies is depends on mainly land price of respective areas. As the sector is flourished in last two decades, I have analyzed a SWOT analysis which comes up with the strength and huge opportunity to the sector as well as weakness like bureaucratic legal procedures and finally threats from government like delay and unavailability of connection utilities like gas, water & electricity.

Page | 2

Table of Content
Topic 1 2 3 i ii iii iv v vi vii 4 5 i ii iii Introduction Scenario of Apartment Project In Bangladesh Factors Affecting Apartment Development Cost Benefit Factors Socio Economic Factors Macro-Economic Factors Legal Framework Financing Opportunities Fiscal Policy Infrastructure Apartment Development Process Feasibility Analysis Luxury Apartment Feasibility Analysis Standard Apartment Feasibility Analysis Economy Apartment Feasibility Analysis Page 4 5 7 8 11 13 13 16 14 17 18 21 22 23 24 25 26 27 28

7 SWOT Analysis 8 Conclusion 9 References 10 Appendix

Page | 3

INTRODUCTION
In our everyday life, we use Real Estate in some manner; we make use of Real Estate resources to provide shelter, comfort, convenience, and privacy, a place of work, recreational facilities and related services. In an estimate Real Estate represent more than 40% of the national wealth (Hyote Weime, Principles of Real Estate). The basic component of realty is not only the surface of the earth but also the property rights and interests that attach to ownership of realty. Thus the Real Estate means acquirement of land and building which is called inherent right. The men who are owner, user, maker, financer or marketer of the property have some rights to the property. Real estate development has got a momentum in the recent years in Bangladesh. During the Eighties, Eastern Housing was the pioneer who started the apartment development concept to mass people and later many real estate companies has grown to meet the growing demand of apartments. Financing the development of real estate projects such as apartment, office buildings and shopping centre is not a simple approach. Developers of such projects face changing conditions in the national and local economies, competitive pressure from other developers, and changes in location preference of buyers or tenants. All together they affect the ability of the developer to acquire the land, build apartments, sell them to buyers and earn sufficient revenues to cover operating and all other expenses. By Apartment Project Development, we refer to the process of financing the acquisition of a tract land with the intent of constructing a building and eventually selling the completed project. As a part of financing and estimating the development, certain process may affect: The size and cost of the proposed apartment The price that a developer may pay to acquire a land The price that a project may bring when it is sold to apartment buyers

Page | 4

SCENARIO OF APARTMENT PROJECT IN BANGLADESH

In Bangladesh apartment project is recent phenomenon which was started in 1964 by Ispahani Group. But in early 1980s with the inception of Eastern Housing Ltd. the apartment project started flourishing. Now it is a booming sector of the economy. Since the 1980s it came into the horizon of business field. This business initially concentrated in Dhaka due to the reason that it is the fastest growing city of Bangladesh. Some limited scales of activities gradually expanded later to Chittagong and Khulna city. At present there are more than thousands of firms (Source: Rehab) operating apartment business and they are producing apartment project in Dhaka city and some other cities. Over the last 25 years the real estate development sector has made significant contribution to many sectors in our economy. Since 1985 this sector has created homes for over 20,000 families in the Dhaka mega city. Additionally, thousands of acres have been developed into housing estates where lower and middle-income families can construct their own dwellings. The Dhaka metropolitan city has seen a new dimension of modern shopping complexes due to the initiative of the Real Estate Developers. Since 1985 this sector has been procuring construction materials worth over Tk. 1500 crores. It gives employment to about 12000 construction workers and pays wages to construction workers amounting to about Tk. 60 crores annually. Approximately Tk. 2 crores is paid annually by this sector towards professional fees for architects and consultants. The sector employs about 5,000 management staffs like accountants, sales personnel, engineers, supervisors, administrative staff and others and pays approximately Tk. 25 crores to these peoples in annual salaries. Apart from the VAT and taxes paid by the Real Estate Development to the government exchequer, the government should have collected VAT amounting to approximately Tk. 150 crores from importers and manufacturers of construction materials since VAT was imposed in 1993. The fact that many cement manufacturing industries have now been set up in Bangladesh is a reflection of the momentum Real Estate Development sector has given to our economy. In the last decade many steel mills would have shut down but it did not due to the support of
Page | 5

the Real Estate Development sector and several new mechanized construction material manufacturing industries have recently come up due to the existence of this sector. Today about 2000 architects and consulting engineers are directly supported by this sector and almost 5000 diploma engineers are engaged by this sector. The Real Estate sector in Bangladesh operates in the private market and accounted for 5.5% GDP in the period 1985-90 in the construction sector and another 8.41% of GDP in the housing sector. It is considered that the industry is very labor intensive, providing many jobs for skilled, semi-skilled and unskilled workers. The informal sectors also employ many people in the construction of simple shelter structures. For the migrants from the rural areas, the construction industry is a stepping stone in urban life.

Page | 6

FACTORS AFFECTING APARTMENT DEVELOPMENT

Cost Benefit Factors (Cost of land, Infrastructure (Housing land,Electricity,Gas, Water) Cost of construction materials, Feasibility of the project) Finance (Private and foreign banks, DBH, NHFI)

Socio- Economic Factors (Population growth, Mobility of people, Migration, Level of income)

Apartment
Project Development

City Development Authorities

(RAJUK, RDA, CDA, KDA)

Macro- Economic Factors (GDP, Inflation, Savings, FDI)

Fiscal Policy Legal Framework

(Companies act, Partnership act, RAJUK building Code, etc.)

(Tax, Vat, Registration)

Page | 7

Cost Benefit Factors Every Real Estate Developer wants to build their apartment in Dhaka city but there is scarcity of land and the price of lands are increasing gradually. According to recent trend, Real Estate Developers follow joint-venture strategy with the land-owner. It allows Developer not to buy the land but build apartment and sharing the build flats with land owner. The financing in joint-venture techniques are stated below:I. II. Give land-owner a certain percentage of flats equal to the value of land. If the values of flats are less than Land-owners expected value of land, developer has to offer some additional cash to the land owner which depends on the land price of the respective area. III. IV. Collect some down payments of flats before commencing work Taking external investors/loan if needed

Before going to the calculation how a developer will set their apartment price and what additional cash he might give to land owner, lets look at the land and apartment price of Dhaka City

Page | 8

Land price in Dhaka metropolitan area per Katha [1 Katha = 720 Sq ft].

Area
Gulshan Baridhara Banani Bashundhara Uttara Niketon Nikunjo Mohammadpur Adabor Mirpur/ Pallabi Dhanmondi Lalmatia Eskaton Badda Rampura/ Banasree Moghbazar/ Malibagh Shantinagar/ Shegunbagicha Khilgaon/ Bashabo Wari Azimpur Rayerbazar/ Jhigatola

Price (per Katha in BDT) Min 20,000,000 20,000,000 15,000,000 5,000,000 6,000,000 10,000,000 6,000,000 6,000,000 4,000,000 3,000,000 20,000,000 10,000,000 8,000,000 3,000,000 4,000,000 6,000,000 7,000,000 3,000,000 6,000,000 5,000,000 6,000,000 Max 40,000,000 40,000,000 20,000,000 8,000,000 8,000,000 20,000,000 7,000,000 7,000,000 6,000,000 5,000,000 30,000,000 15,000,000 10,000,000 4,000,000 6,000,000 7,000,000 8,000,000 5,000,000 7,000,000 6,000,000 8,000,000

Page | 9

Apartment price in Dhaka metropolitan area per Square feet.

Area
Gulshhan Baridhara Banani Bashundhara Uttara Niketon Nikunjo Mohammadpur Adabor Mirpur/ Pallabi Dhanmondi Lalmatia Eskaton Badda Rampura/ Banasree Moghbazar/ Malibagh Shantinagar/ Shegunbagicha Khilgaon/ Bashabo Wari Azimpur Rayerbazar/ Jhigatola

Price (per Sq. feet in BDT) Min 12,000 12,000 8,000 4,000 4,000 6,000 4,000 4,000 3,500 3,000 10,000 7,000 5,000 3,000 3,000 5,000 6,000 3,000 5,000 4,000 4,000 Max 20,000 20,000 12,000 6,000 6,000 8,000 5,000 7,000 4,500 4,500 15,000 10,000 8,000 4,000 4,500 7,000 8,000 5,000 7,000 5,000 6,000

Page | 1 0

Feasibility Calculation We assume that a developer is going to build an apartment in a land in Gulshan with a land owner with the ratio of 50:50. The land area is 10 katha. The average price of the land is Tk. 30,000,000/ Katha. So the market price of the land is Tk. 300,000,000. From our data we assume that the flat price of the area is Tk. 16,000/ Sft. From the new rule imposed by Ministry of Housing & Public Works the FAR (Floor to area ratio) is 4.50 for 10 katha with 25 feet width road which means a building of 10 katha can be build up to (10x720x4.50)=32,400 Sft. Whether the Maximum Ground Coverage (MGC) is 65% for the land means that the building cannot be extended more than 65% of the land. So the MGC of the land is (10x65%) = 6.50 katha = 4680 Sft. So each floor size could be highest 4680 Sft. and maximum floor could be built 32,400 /4680=6.927. But In order to build 7 floor except ground floor we have to maintain FAR of 32400 so the floor size is minimized to 32,400/7 = 4630 sft/per floor Now, we consider each floor having 2 flats, so the neat flat size, 4630/2 = 2315 Sft By adding 10% common space the sellable flat size is 2315 + 10% 2550 Sft There will be total of 14 flats consisting 2550 Sft and Developer and Land owner both will get 7 flat each. Price of 7 flats (2550 Sft. x 7 x Tk. 16000) = Tk. 285,600,000 So initially the developer has to give about Tk. 15,000,000 to 30,000,000 in order to compensate land owners land value. Total construction, Utility connection, consultancy fees including architectural design, management and office overhead costs are Approximately Tk. (57,000,000 1,000,000 + 2,000,000 + 3,000,000) = Tk. 63,000,000. So the total costs for developer (63,000,000 + 30,000,000) = Tk. 93,000,000 So, the profit of the developer (285,600,000 - 93,000,000) = Tk. 192,600,000

Page | 1 1

Socio Economic Factors The demand for housing is one of the major factors that lead to the development of apartment projects. Socio-economic characteristics of people influence the demand for permanent houses. There are four major socio-economic characteristics of population that influence that demand for houses I. II. III. IV. Population growth Income level of people Migration towards cities Mobility of people

Population growth is one of the major factor that requires increased number of residential houses. Bangladesh experienced high growth of population over the decades, which led to high demand for residential houses. However, the rate of population growth reduced significantly, the backlog in the creation of residential houses has still been significant. Here is the statistical information of rural and urban population of Bangladesh Year Population (in Millions) Rural 1980 1990 2000 2010 78.2 92.5 101.1 110.1 Urban 9.9 17.2 27.2 41.7 Percentage of total population Rural 88.7 84.3 78.8 72.5 Urban 10.3 15.7 21.2 27.5 (Source: The Daily Star) The growth of population in urban areas is affected not only by birth rate but also the rate of migration from the rural and suburban areas and other towns. Migration towards major cities is increasing because of there being most important business centers as well as employment opportunities. The rate of migration is acute in Dhaka City as it is the capital city of Bangladesh. Most of the migrated people dont want to move back to rural areas. City having more than 5 million of population has been defined as Megacity. The population of Dhaka city (areas under the jurisdiction of the Dhaka city corporation) stands at approximately 7.0 million. The city, in combination with localities forming the wider
Page | 1 2

metropolitan areas like Savar, Gazipur, Uttara, Keraniganj and Narayanganj, is estimated 12.8 million as of 2008. The population is growing by an estimated 4.2% per year, one of the highest rates amongst Asian cities. Macro-Economic Factors Macro-economic factors influence the choice of entering apartment market. There are three major macro-economic factors that affect the development of apartment projects. I. II. III. Rate of economic growth Rate of inflation Rate of savings

Higher growth of economic growth leads to increased income to people. With the economic growth of the country more people are likely to be economically able to afford a house with necessary facilities. Savings are also an important factor for members joining in housing cooperatives. In the absence of institutional loans for purchasing land, personal savings is the source of finance for real estate investment. Apart from economic growth and savings, the rate of inflation also affects the decision to make real estate investment. Inflation leads to the loss of purchasing power. To cope with inflation, people try to hold those assets, which have less purchasing power risk. Real estate is the most widely chosen assets that is believed to have least purchasing power risk in Bangladesh. Therefore, on the presence of high rate of inflation, people are more likely to invest more in real estate. Legal Framework The checklist is usually the first step that a developer reviews when evaluating a site for possible development. Floor to area ratio (FAR) One of the important tools used by the city planners to control size and activity desired within a geographic area. It is usually calculated as gross building area divided by square footage of land area. For example, an FAR of 3 to 1 would, for one acre of land (43,560 sq. ft.) provide that a structure with a gross building area of 130,680 sq. ft. may be developed (3
Page | 1 3

x 43,560 = 130,680). The greater the FAR allowed for a site the larger the project that may be constructed on that site. Setback/ Building line Construct the building in a specified number of feet (setback) from the other landmarks in order to ensure conformity with adjacent buildings and provide clear visibility for pedestrians or motorists. Maximum Ground Coverage Maximum ground coverage is used to restrict builders to build in only certain areas of their land. It varies from 50-67.5% depends on land size and front road. Here is the data of FAR & MGC which is collected from Ministry of Housing & Public Works. Plot Size (Katha) 2 > 2 to 3 > 3 to 4 > 4 to 5 > 5 to 6 > 6 to 7 > 7 to 8 > 8 to 9 > 9 to 10 > 10 to 12 > 12 to 14 > 14 to 16 > 16 to 18 > 18 to 20 > 20 Any Size Any Size Road width (Meter) 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 9.0 9.0 9.0 9.0 9.0 12.0 18.0 24.0 FAR 3.15 3.35 3.50 3.50 3.75 3.75 4.00 4.00 4.25 4.50 4.75 5.00 5.25 5.25 5.50 MGC % 67.5 % 65.0 % 62.5 % 62.5 % 60.0 % 60.0 % 60.0 % 60.0 % 57.5 % 57.5 % 55.0 % 52.5 % 52.5 % 50 % 50 %

6.00 50 % 6.50 50.0% Source: Ministry of Urban Planning & Housing

In a state where road width is 6 to 24 meter, then FAR will be added to 0.05 for every 0.30 meter additional road width.

Page | 1 4

There are so many acts, which affect the behavior and functions of housing cooperatives. Building Construction Act, Rules & code. i. ii. iii. iv. Building Construction Act 1952 Bangladesh National Building code 2006 Building Construction Rules 1996 Dhaka Metropolitan Building Construction Rules 2008

Associated acts related to Building Construction I. II. III. IV. V. VI. VII. VIII. IX. X. Bangladesh Environment Conservation Act, 1995 Fire Control and Protection Act 2003 Town Improvement Act 1953 (CDA ordinance 1959 ) Cantonment Act 1924 (Building Construction Rules 1985) Private Housing (Land) development ordinance 2004 Open Space and Wetland Preservation Act, 2000 Public Park Act 1904 Antiquity act 1968 City corporation Act Municipal Ordinance 1977

Apartment companies function under the legal status of companies or a firm, like any other Public or Private Companies or a Firm. A Real Estate Developer has to abide by the Companies Act, 1994 or Partnership Act, 1932. The Companies Act, 1994 defines legal framework for formation, management, responsibilities and winding up of companies. As a part of their functioning, Real Estate Developer has to procure housing land at the primary stage. The state acquisition and tenancy act, 1950 allows transferring of ownership of land or part thereof to any other persons. This act defines the legal framework for the purchase of land by the apartment companies from others to accumulate and develop the land under planned area. The Objective of the Building Construction Act, 1952 are to provide precaution for haphazard construction of building.

Page | 1 5

City Development Authorities There are four city development authorities in Bangladesh, I. II. III. IV. RAJUK (Rajhdhani Unnayan Kartipakkha/ Capital Development Authority) CDA (Chittagong Development Authority) KDA (Khulna Development Authority) RDA (Rajshahi Development Authority)

Rajdhani Unnayan Kartripakkha, or RAJUK literally the Capital Development Authority of the Government of Bangladesh, is a Bangladeshi public agency responsible for coordinating urban development in Dhaka, Bangladesh. RAJUK is composed of various public officials, city planners, urban administrators, engineers and architects. It is the National Authoritative Board on building planning, estates and resources, plot allotment and construction approvals from both public and private entities. It utilizes the Dhaka Improvement Trust (Allotment of Land) Rule of 1969 and The Town Improvement Act of 1953, both scribed since before the Independence of Bangladesh.

Financing Opportunities In developed countries, institutional loans are available both for land and building. In Bangladesh, loans are available for house building but generally not for the land purchase. The only government own housing finance institution, House Building Finance Corporation (HBFC), provides cheaper loan than commercial loans. Decades ago, private sector came forward into this segment. Delta Brac Housing Finance Corporation (DBH) and National Housing Finance and Investment Ltd. both are public ltd companies licensed from Bangladesh Bank as nonbank financial institution. They are involved with financing to the apartment buyer at 15-16% simple interest rate. They finance Developers also to provide financial assistance. DBH is the pioneer, largest and specialist in Housing Finance institution in the private sector of the country. After commencing operation in the early 1997, DBH has registered commendable growth in creating home ownership among more than 7,500 families in Dhaka and other major cities of the country.

Page | 1 6

Fiscal Policy The fiscal policy of government has some impact on the development of Apartment business. VAT imposed in different items would be payable by the apartment company during the time of material, machinery and equipment purchase. The registration charge for transfer of land has to be borne by the developer. The apartment buyer also face the VAT imposed by the government.

Infrastructure There are a number of necessary infrastructures that are prerequisites to developing apartment companies. First, there must be adequate and cheap land for a housing site within the main city or city areas. Second, there must be good road connections from the housing site to the city centre. Without good or potentially good road connections, people will be reluctant to buy apartment from that area. Third, utility services such as Gas, Water supply, Electricity must reach or be expected to reach project site. In the absence of utility services, people will not be interested to build their house in the site, even if they purchase plot there.

Page | 1 7

APARTMENT DEVELOPMENT PROCESS

As each stage in process the potential builders has to rely his knowledge and association with other people as each stage difficulties are placed in the way of the developer. 1. Initial Search for land, prior to purchase or co-sharing with the land owner Developer comes into an agreement with the landowner to develop the land. The basis of agreement may be the sharing apartments or cash payments or both. Sometimes the land owner may take initiative and find a suitable developer for development of this land with the aforesaid agreement. But the very recent phenomenon is different that the developers are searching for vacant and suitable land in urban areas. 2. Acquisition, possession and registration of land when buying After acquiring the land the Real Estate Company has to do the legal procedure in registry office. It costs single sum of legal fees 3. Signing agreement and transfer Power of Attorney and its registration from the land owner if co-sharing The developer has to sign an agreement with the land owner about the percentage both party is getting in the joint venture. Land owner also has to transfer the Power of Attorney to the Developer which is the clearance of giving permission to start the building process. 4. Initial planning and designing of the apartment Usually initial planning and design is done by the architects and civil engineers of respective developers. Many developers manage to get this job done by consulting engineering firm and who charges approximately Tk. 25-30 per Square feet. 5. Soil investigation for proper structural design of the building Structural design and soil investigation is done through reputed firm. The process cost Tk. 3000-5000 per Boring. Boring depends on size of the land. For example, in a 5 katha land, a developer company needs at least 5 boring (4 in the corner, 1 in middle). 6. Obtaining plan permission by Rajuk Obtaining permission from RAJUK is one of the most important parts of the apartment development process. As this is a bureaucratic organization work process is depends on only the officials of the authority. Sometimes developers have to pay some backhander to grease the process and the total process costs approximately Tk. 50,000-300,000.
Page | 1 8

7. Selection of contractors/vendors for different items of works A developer company mostly looks after the management of the company but they also have to select a good and experienced contractors and vendors for different items of works like piling, construction, sanitary works, tiles works, interior works etc. Approximately 20% of total construction cost is assumed to be the cost of contractors and vendors. 8. Overall financial management and marketing The management has to calculate the upcoming costs of the proposed apartment and management has to decide which medium they should use to potray their advertisement. Before marketing the product, pricing is the most important task for the producer. Many techniques can be used for apartment pricing. But whatever the price is fixed the market mechanism is the vital factor. In years, apartment developers have been using two types of pricing techniques; a) Mark up Policy (Price is fixed by adding a target percentage of profit/margin with cost of sales) b) Competitive Pricing (Price is fixed by demand and supply interaction). Most of the developer follows competitive pricing policy Most of the developers use national dailies as advertising media. Many use brochures, calendar, diaries etc to get public attention. Few of the Real Estate Developers use TV & Radio as promotional media as it is quite expensive and not feasible for all. A common platform for apartment buyers and sellers is fair which is organized by REHAB (Real Estate Housing Association of Bangladesh) in every year. A developer company may obtain a loan if necessary for part of expenditure. The company can use the building as collateral to obtain the loan 9. To ordering and purchasing of building materials Apartment project requires various types of materials which an apartment developer can procure from either local or foreign suppliers. If they procure maximum materials from foreign market then it would cost them a good amount of money. But if they collect the materials from the local market then they could get them easily at cheaper rate. But if a developer only uses local materials then the quality of apartment cannot be ensured, and their product will not acceptable to all types of customers. So, for serving
Page | 1 9

all types of customers demand developers are bound to depend on imported and high quality construction materials, especially floor fittings and electrical fittings. Actually the cost of exclusive apartment varies mostly using the imported fittings used by the developers. What type of material will be used depends on various factors, a) Location of the project, b) Prospective buyers, c) Total price of apartment Imported materials are used for making posh or luxury apartment. But in developing standard apartments, the developers use mixed components of materials. But when making economy apartments developer use maximum locally produced materials. Availability is an important factor getting construction materials. Many construction firms get the items on credit if they maintain good relation and regular payment with the retailer. 10. Preparation of foundation works Initial development of construction starts with foundation of the building. Every land does not require piling. But those land which required piling cost Tk. 300,000/Katha. Approximately 30-45 days to pile a 5 katha land. 11. Provision and connection of basic infrastructure service Basic infrastructure such as Electricity, Gas & Water connection is required to process by management. This bureaucrat process requires approximately Tk. 1,000,000 and could be done within 2 months. 12. Complete Construction of building Construction process consists of roof casting of every floor. Every roof casting is done approximately after 30 days. The total construction time depend on land and floor size of the building. After construction there is some finishing work which made the total work presentable to the purchaser of the apartment. Finishing work depends on the flat price. Luxurious apartment developers use expensive finishing materials to make the apartment gorgeous which also help them to promote their business

Page | 2 0

13. Transfer of the title for purchase of flats/apartment Developer hand over the flat when the finished their finishing process. If developer fails to deliver on time they should compensate both land owner and apartment buyer as par agreement and vice versa.

FEASIBILITY ANALYSIS
The apartment project mainly develops in Dhaka city. The main areas are Gulshan, Baridhara, Banani, Dhanmondi, Mohammadpur, Lalmatia, Adabor, Uttara, Mirpur etc. Considering the land and apartment price the Dhaka city is divided into three categories. Category Luxury Area Gulshan, Baridhara, Banani, Dhanmondi Bashundhara, Uttara, Niketon, Lalmatia, Standard Eskaton, Moghbazar, Shantinagar, Wari, Mohammadpur Adabor, Mirpur, Nikunjo, Badda, Economy Rampura, Banasree, Khilgaon, Bashabo, Azimpur, Jhigatola 3,000 5,000 5,500 11,500 Flat price per Sft. (in BDT) 12,000 - 20,000

The demand of apartments in Dhaka city varies with different demographics of people. People living in Gulshan want to buy those flats which are more than 2500 Square feet. On the other hand people living in Adabor prefer to buy flat between 900-1500 Square feet. The profit margin is not same in all area also as the price and demand varies. Floor Area Ratio (FAR) & Maximum Ground Coverage (MGC) also played an important role in the feasibility of the project. In a situation where road width is 6 to 24 meter, then FAR will be added to 0.05 for every 0.30 meter additional road width. Financial feasibility of three categories (Luxury, Standard and Economic) is given below.

Page | 2 1

Luxury Apartment Feasibility Analysis Area Avg. Apartment Price (per Sft.) Avg. Land Price (per Katha) Sample Land Size Market Value of the land Gulshan Tk. 16,000 Tk. 30,000,000 10 Katha Tk. 300,000,000

FAR (Floor Area Ratio for 10 katha land 4.25 + 0.25 = 4.5 with 25 feet road) (0.25 added for 25 feet road) Maximum Floor area (10 x 720 x 4.5) = 32,400 Sft. MGC (Maximum Ground Coverage for 10 65% katha land with 25 feet road) Maximum Floor Size Maximum # of floor (Total FAR/MGC) (10 x 720 x 65%) = 4680 Sft. / per floor (32,400/4680) = 6.92 floor

Minimized floor size to make 7 floor in 32,400/7 = 4630 Sft./per floor order to maintain FAR Neat flat size (each floor having 2 flats) (4630/2) = 2315 Sft Sellable flat size (adding approx. 10% common space) Total # of flats Ratio (Land owner : Developer) Flat Ownership (Land owner : Developer) Price of 7 flats Feasible signing money for land owner (2315 + 10%) 2550 Sft 7 x 2 = 14 50 : 50 7:7 (7 x 2550 x 16,000) = Tk. 285,600,000 (300,000,000-285,600,000) = Tk. 14,400,400

Signing Money (Developer to Land owner) Construction Cost Utility Connection

Tk. 15,000,000 to Tk. 30,000,000 (Approx.) Tk. 57,000,000 Tk. 1,000,000

Consultancy fees including architectural design Tk. 2,000,000 Management and office overhead costs Total Cost Profit Before Income Tax Tk. 3,000,000 Tk. 93,000,000 (285,600,000-93,000,000)=Tk. 192,600,000

Page | 2 2

Standard Apartment Feasibility Analysis Area Avg. Apartment Price (per Sft.) Avg. Land Price (per Katha) Sample Land Size Market Value of the land Lalmatia Tk. 8,000 Tk. 13,000,000 6 Katha Tk. 78,000,000

FAR (Floor Area Ratio for 6 katha land 3.75 with 20 feet road) Maximum Floor area (6 x 720 x 3.75) = 16,200 Sft. MGC (Maximum Ground Coverage for 6 65% katha land with 20 feet road) Maximum Floor Size Maximum # of floor (Total FAR/MGC) (6 x 720 x 65%) = 2808 Sft. / per floor (16,200/2808) = 5.76 floor

Minimized floor size to make 6 floor in (16,200/6) = 2700 Sft./per floor order to maintain FAR Neat flat size (each floor having 2 flats) (2700/2) = 1350 Sft Sellable flat size (adding approx. 10% common space) Total # of flats Ratio (Land owner : Developer) Flat Ownership (Land owner : Developer) Price of 6 flats Feasible signing money for land owner (1350 + 10%) 1500 Sft 6 x 2 = 12 50 : 50 6:6 (6 x 1500 x 8,000) = Tk. 72,000,000 (78,000,000-72,000,000) = Tk. 6,000,000

Signing Money (Developer to Land owner) Construction Cost Utility Connection

Tk. 6,000,000 to Tk. 12,000,000 (Approx.) Tk. 32,000,000 Tk. 1,000,000

Consultancy fees including architectural design Tk. 1,500,000 Management and office overhead costs Total Cost Profit Before Income Tax Tk. 2,500,000 Tk. 35,300,000 (72,000,000-49,000,000)=Tk. 23,000,000

Page | 2 3

Economy Apartment Feasibility Analysis Area Avg. Apartment Price (per Sft.) Avg. Land Price (per Katha) Sample Land Size Market Value of the land Adabor Tk. 4,000 Tk. 5,000,000 5 Katha Tk. 25,000,000

FAR (Floor Area Ratio for 10 katha land 3.5 with 20 feet road) Maximum Floor area (5 x 720 x 3.5) = 12,600 Sft. MGC (Maximum Ground Coverage for 10 65% katha land with 25 feet road) Maximum Floor Size (5 x 720 x 65%) = 2340 Sft. / per floor Maximum # of floor (Total FAR/MGC) (12,600/2340) = 5.38 floor Minimized floor size to make 6 floor in (12,600/6) = 2100 Sft./per floor order to maintain FAR Neat flat size (each floor having 2 flats) (2100/2) = 1050 Sft Sellable flat size (adding approx. 10% common space) Total # of flats Ratio (Land owner : Developer) Flat Ownership (Land owner : Developer) Price of 5 flats Price of 7 flats Feasible signing money for land owner (1050 + 10%) 1150 Sft 6 x 2 = 12 41.66 : 58.33 5:7 (5 x 1150 x 4,000) = Tk. 23,000,000 (7 x 1150 x 4,000) = Tk. 32,200,000 (25,000,000-23,000,000) = Tk. 2,000,000

Signing Money (Developer to Land owner) Construction Cost Utility Connection

Tk. 2,000,000 (Approx.) Tk. 18,500,000 Tk. 1,000,000

Consultancy fees including architectural design Tk. 1,000,000 Management and office overhead costs Total Cost Profit Before Income Tax Tk. 2,000,000 Tk. 22,500,000 (32,200,000-22,500,000)=Tk. 9,700,000

Page | 2 4

SWOT ANALYSIS
Critical Appreciation of Real Estate Sector can be done by analyzing its Strength, Weakness, Opportunity and Threats. Significant features of this industry have been summed up in the following SWOT Analysis. Strength Expanding market and intensifying profitability. Good purchasing power of target customer group. Governments keen interest to solve housing problem with the rapid increase in urban population Open market economy, recent housing policy might favor substantial growth of housing industry. Weakness Increased price of construction materials will be difficult to pass on to the customers, because the agreement in respect of price and construction standard is made 2 to 3 years before the actual handing over of the apartments. The industry as a whole does not follow any standard business rules. So, there remains scope of unethical practices by some of the developers. Delay of getting utility connection due to the shortage of water, gas and electiricity which stretches the hand over time and incurs loan interest. Opportunity Real estate sector is highly profitable investment opportunity for individuals as well as financial institutions. This sector gives a wide scope for foreign investors. Urban population is developing favorable attitude towards apartment living. Although the present market of apartment houses is limited within the high income group of the society, there exists opportunity for middle and lower middle income group also.

Page | 2 5

Threats Political instability and unrest directly or indirectly threatens all the business sectors including Real Estate. Bureaucratic complexities imposed by RAJUK, DESCO, WASA and many other government and semi-government agencies. No cooperation rendered by National Board of Revenue in Relation to the taxation and import facilities.

CONCLUSION
It is a recognized fact that the condition of the Real Estate Development sector is one of the barometers of the national economy. Housing is indeed one of the most important priorities of any government. Though the Real Estate Development sector of Bangladesh is growing rapidly all over the nation, there is still the scope as well as need for improvement. Many construction projects are left incomplete moreover; most developers cannot hand over the apartment to the customer due to the unavailability of connection of gas, electricity, water etc. People who have invested their money face uncertain future; and many related industries will face consequences of this depression in the immediate future. One of the major constraints to the private housing market is the lack of trust between the plot owner and the builder. Unless a reputable professional (architect or engineer) is used, the owner spends a great deal of time personality ensuring that the correct materials are provided and that, with help of knowledgeable person, that the construction is sound. At present therefore, there is little reliability on the standard of construction by speculative builders and a verifiable basis for their market worth. And last but not the least because most developers undertake many projects at the same time, they are not able to effectively and efficiently handle all of them and some of the projects and clients are neglected. For example there have been complaints that some developers there have been complaints that the developers are usually not present in the construction sites due to their busy schedules. If this is not checked then the bond between the client and the developer will not grow and the industry may see a decline even before it can rise.

Page | 2 6

REFERENCES
I. II. III. IV. REHAB (Real Estate Housing Association of Bangladesh). Bangladesh Gazette by Ministry of Housing & Public Works Brueggeman & Fisher. Real Estate Finance & Investment "Prospect of Private Housing Sector by Toufiq M Siraj (Managing Director, Sheltech Ltd.)

Page | 2 7

APPENDIX

Page | 2 8

Construction Cost of Luxury Apartment in Gulshan

SERIAL NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 ITEM OF WORK CEMENT SAND LOCAL SAND SYLHET VITY SAND M.S. ROD PICKED JHAMA BRICKS BRICK FIRST CLASS SINGLES STONE CHIPS GRANITE/ MARBLE WORKS TILES FLOOR BATH ROOM TILES WALL BATH ROOM TILES FLOOR KITCHEN ROOM TILES WALL KITCHEN ROOM TILES FLOOR STAIR TILES GRILL THAI WITH MOSQUITO NET MAIN DOOR WITH DOOR FRAME INTERNAL DOOR WITH DOOR FRAME WOODEN DOOR RAILING STAIR RAILING PAVEMENT TILES ROOF TILES INCLUDING LIME TRACING PLASTIC PAINT WEATHER COAT CAT DOOR ENTRY POINT GRANITE GROUND FLOOR FALSE CEILING SANITARY WORK ELECTRICAL CIVIL WORK LABOUR TILES WORK LABOUR MAIN GATE PILING LABOUR BILL LIFT, GENARATOR, SUB STATION G. TOTAL SFT NOS 74800 1 14 NOS SFT SFT SFT SFT SFT SFT CFT SFT SFT SFT SFT SFT SFT SFT SFT SFT NOS UNIT BAG CFT CFT CFT KG NOS NOS QUANTITY 12340 32480 10930 22520 139630 256000 245400 5950 6420 3660 26560 15400 2670 1380 2650 3260 7770 6700 28 110 80 960 870 6000 4460 162560 32380 85 635 4250 RATE IN TAKA 360 10 20 5 50 6.5 6.5 85 110 600 130 120 130 120 130 130 100 380 30000 20000 8500 400 400 120 170 12 10 2500 600 100 AMOUNT IN TAKA 4442400 324800 218600 112600 6981500 1664000 1595100 505750 706200 2196000 3452800 1848000 347100 165600 344500 423800 777000 2546000 840000 2200000 680000 384000 348000 720000 758200 1950720 323800 212500 381000 425000 3500000 3000000 5700000 1047200 300000 600000 5000000 57022170

Page | 2 9

Construction Cost of Standard Apartment in Lalmatia

SERIAL NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 ITEM OF WORK CEMENT SAND LOCAL SAND SYLHET VITY SAND M.S. ROD PICKED JHAMA BRICKS BRICK FIRST CLASS SINGLES STONE CHIPS GRANITE/ MARBLE WORKS TILES FLOOR BATH ROOM TILES WALL BATH ROOM TILES FLOOR KITCHEN ROOM TILES WALL KITCHEN ROOM TILES FLOOR STAIR TILES GRILL THAI WITH MOSQUITO NET MAIN DOOR WITH DOOR FRAME INTERNAL DOOR WITH DOOR FRAME WOODEN DOOR RAILING STAIR RAILING PAVEMENT TILES ROOF TILES INCLUDING LIME TRACING PLASTIC PAINT WEATHER COAT CAT DOOR ENTRY POINT GRANITE GROUND FLOOR FALSE CEILING SANITARY WORK ELECTRICAL CIVIL WORK LABOUR TILES WORK LABOUR MAIN GATE PILING LABOUR BILL LIFT, GENARATOR, SUB STATION G. TOTAL SFT NOS 37400 1 14 NOS SFT SFT SFT SFT SFT SFT CFT SFT SFT SFT SFT SFT SFT SFT SFT SFT NOS UNIT BAG CFT CFT CFT KG NOS NOS QUANTITY 6170 16240 5465 11260 69815 128000 122700 2975 3210 1830 13280 7700 1335 690 1325 1630 3885 3350 24 100 70 480 435 3000 2230 81280 16190 45 320 2125 RATE IN TAKA 360 10 20 5 50 6.5 6.5 85 110 500 70 65 70 65 70 70 100 215 20000 25000 10000 400 400 80 140 12 10 2500 500 100 AMOUNT IN TAKA 2221200 162400 109300 56300 3490750 832000 797550 252875 353100 915000 929600 500500 93450 44850 92750 114100 388500 720250 480000 2500000 700000 192000 174000 240000 312200 975360 161900 112500 160000 212500 2500000 2000000 3500000 523600 150000 400000 4000000 31368535

Page | 3 0

Construction Cost of Economy Apartment in Adabor

SERIAL NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 ITEM OF WORK CEMENT SAND LOCAL SAND SYLHET VITY SAND M.S. ROD PICKED JHAMA BRICKS BRICK FIRST CLASS SINGLES STONE CHIPS GRANITE/ MARBLE WORKs TILES FLOOR BATH ROOM TILES WALL BATH ROOM TILES FLOOR KITCHEN ROOM TILES WALL KITCHEN ROOM TILES FLOOR STAIR TILES GRILL THAI MAIN DOOR WITH DOOR FRAME INTERNAL DOOR WITH DOOR FRAME PLASTIC DOOR RAILING STAIR RAILING PAVEMENT TILES ROOF TILES INCLUDING LIME TRACING PLASTIC PAINT WEATHER COAT CAT DOOR ENTRY POINT GRANITE GROUND FLOOR FALSE CEILING SANITARY WORK ELECTRICAL WORKS CIVIL WORK LABOUR TILES WORK LABOUR MAIN GATE PILING LABOUR BILL LIFT, GENARATOR, SUB STATION G. TOTAL SFT NOS 33773 1 12 NOS SFT SFT SFT SFT SFT SFT CFT SFT SFT SFT SFT SFT SFT SFT SFT SFT NOS UNIT BAG CFT CFT CFT KG NOS NOS QUANTITY 4810 12660 4260 8780 54450 100000 95700 2320 2500 300 10360 6000 1040 540 1040 1500 2800 2613 24 100 36 450 411 2500 1780 64000 12600 40 250 2000 RATE IN TAKA 360 10 20 5 50 6.5 6.5 85 110 600 59 40 45 40 49 48 80 380 15000 10000 6500 250 250 60 110 9 7 2000 450 100 AMOUNT IN TAKA 1731600 126600 85200 43900 2722500 650000 622050 197200 275000 180000 611240 240000 46800 21600 50960 72000 224000 992940 360000 1000000 234000 112500 102750 150000 195800 576000 88200 80000 112500 200000 1050000 1000000 1037000 405276 50000 200000 2600000 18447616

Page | 3 1