Introduction

This report on Problems and Prospects of Real Estate Sector in Bangladesh: A Case Study of Concord Group has been prepared as a requirement for the Real Estate Finance course in the BBA program of Finance Department, University of Dhaka. The course instructor, Lecturer Lubna Rahman assigned us the report. The report reflects all the related information collected from different sources relevant to Real Estate scenario of Bangladesh. Real Estate Finance (F-409) is one of the basic courses of Business Administration Program. The study of Real Estate Finance is very much important, because as a student of BBA, one has to be more concerned about different activities, approaches, histories, problems and prospects of the Real estate Business in our country and the impact of these activities on any particular organization, so that it will assist them in their future life and career. OBJECTIVES & SCOPES: The main purpose of this study is to create a bridge between our theoretical knowledge & the practical scenario. The specific objectives of the study are: 1. To gain an understanding about the overall situation of Real Estate Business. 2. To assess the role and contribution of Real Estate Business to meet the housing needs in the rural areas. 3. To identify the major problems faced by the companies; and 4. To assess the future prospect of the Real Estate Business.
METHODOLOGY:

The study is mainly an exploratory one and interview method was used to collect information from primary sources. Attempt was made to acquire relevant information available in the related field. Information has been collected from academic journals, research papers, company portals/profiles, government agencies, REHAB, daily newspapers, industry news and developments. A critical evaluation of the existing literatures on the issue is being provided for better understanding and application of the topic under review.
LIMITATIONS:

The study was conducted facing some obstacles and constraints. Data constraint: Due to the scattered nature of business and unwillingness of disclosing sensitive information as well as Problems and Prospects of Real Estate Sector in Bangladesh 1

unavailability of secondary data, this paper was done on the basis of primary data. So there remained a probability of getting opinion based data which are not real in true sense. Literature constraint: No major work has so far been done in Bangladesh in this sector. So there is a dearth of literature in this field.

Macroeconomic Situation Analysis

After an impressive growth performance for almost six years, the world economy has entered a period of uncertainty due to a financial turmoil triggered by the subprime mortgage crisis in the United States of America (USA). During 2002 to 2007, the world economic growth averaged 4.5 percent per annum compared to 3 percent in the 1990s. The sudden gloom in world economic prospects has come as a surprise in view of the persistent economic growth and stability. The crisis initially affected advanced economies and then its contagion spread over emerging markets and low-income countries, albeit, in varying degrees. Advanced economies were first hit mainly by the systemic banking crisis in the USA and Europe. Emerging markets with well-developed financial systems were initially affected, in most cases, by crossborder financial linkages through capital flows, stock market investors, and exchange rates. In less-developed countries, the growth and trade experienced major setbacks. The World Economic Outlook of April 2008 projects global growth to slow from 1.5 percent in 2008 to 3.9 percent in 2009 before recovering somewhat in 2010. A year later, April 2009 issue of Outlook forecasts the global growth to contract by 1.3 percent in 2009, lowest ever in last 60 years. The economy of Bangladesh continue to demonstrate considerable resilience during FY2008-09 despite the twin shocks arising from global recessions and the adverse effects of the consecutive floods and the cyclone-Sidr of the last fiscal year (FY2007-08). The economy is estimated to have grown at a rate of 5.9 percent, slightly below the growth rate (6.2 percent) of FY2007-08. The key feature of the economic performance during FY2008-09 is the strong recovery in agriculture sector coupled with moderate growth in industry and service sector. Moreover, the government is firm it its position to achieve a GDP growth of 6% in the fiscal 200910 considering the 11th month performance as on May 2010 in the current fiscal.

Problems and Prospects of Real Estate Sector in Bangladesh

The impact Fig: Trend of Economic Growth of Bangladesh of the ongoing global financial crisis on Bangladesh economy has not been as severe as it was anticipated, thanks to its well-managed financial sector. However, some adverse impacts were noted in certain areas. Although growth in key areas of potential impact-remittances and exports remained satisfactory, some weakening in remittance inflows and export earnings was observed in the months towards the end of the fiscal year. Since the beginning of the global economic crisis, the Government has been on high alert and has been monitoring its impact on the economy with the help of a Task Force involving the concerned stakeholders from both the public and private sector. Besides, a Technical Committee has also been formed by the Ministry of Finance to monitor and analyze the macroeconomic impact of the crisis, and to identify necessary short-term macroeconomic and fiscal management responses. After detailed examination in line with the recommendations of the Task Force, the Government declared an incentive package together with fiscal, monetary and policy support. Growth, Savings and Investment: Amidst the risk of low export earnings and the remittance inflows coupled with the lowering of domestic demand, the economic growth demonstrated strong recovery bolstered by agriculture along with the contributions by industry and services sector. The contributions of the agriculture, industry and services sectors are estimated respectively at 4.6 percent, 5.9 percent and 6.3 percent, indicating strong performance of all the three broad sectors. The share of services in GDP amounted to 49.7 percent followed by industry at 29.7 percent and agriculture by 20.6 percent at constant Problems and Prospects of Real Estate Sector in Bangladesh 3

prices. The dominance of the services sector in terms of its contribution to economic growth is largely attributable to the performance of both agriculture and industry sectors. The growth in the agriculture sector during FY2008-09 rebounded strongly in crops and horticulture sub-sector from 2.9 percent in FY2007-08 to 4.8 percent in FY2008-09. The growth rate of the large and medium scale manufacturing sector, however, moderated to 5.9 percent from 7.2 percent growth rate of previous year, with an uneven performance of its major subsectors. On the expenditure side, total consumption as a share of GDP increased slightly to 80.0 percent in FY2008-09 from 79.7 percent in FY2007-08. The investment climate slightly affected during FY2008-09, as indicated by a deceleration in the ratio of total investment to GDP to 24.18 percent from 24.21 percent in FY2007-08. With an upsurge in remittance inflows, gross national savings in FY2008-09 grew to 32.4 percent of GDP. The per capita GDP exceeded US$ 600 for the first time. The per capita GNI and GDP stood at US$ 690 and USD 621 respectively during FY2008-09. Trend in import and Export growth: The country has experienced a slower 4.1 percent import growth during FY09. However, import payments started to decline since the Q3 FY09 and continued the trend of decline till the first quarter of FY10 with lowest 19.0 percent y-o-y decline in Q1FY10. Import payments sharply rebounded and increased by 9.6 percent during Q2FY10. Though a strong recovery has been recorded in Q2 the overall growth showed a decline of 5.7 percent y-o-y during H1FY10. During Q3FY10 imports recorded a positive 7.7 percent y-o-y growth to USD 6.03 billion compared to USD 5.60 billion during the same period of FY09.

Problems and Prospects of Real Estate Sector in Bangladesh

 Foreign Exchange Reserve, Remittance and Exchange Rate: The inflow of workers remittance though recorded a somewhat slower rate of 15.9 percent y-o-y growth in Q1FY10, which helped the foreign exchange reserve in a hefty position along with maintaining the foreign exchange rate stable.

Consumer Price Index (CPI): CPI inflation in Bangladesh revealed a mixed picture during Q3 of FY

2010. Point to point (p-tp) CPI inflation was creeping up till February 2010 then turned around in March 2010. Point to point CPI inflation declined to 8.78 percent in March 2010 from 9.06 percent in February 2010, contributed by good domestic production and downturn in international commodity prices, despite it maintained upward trend up to February 2010. 12-month average CPI inflation continued to creep up and increased to 6.26 percent in March 2010 from 5.42 percent in December 2009. Problems and Prospects of Real Estate Sector in Bangladesh 5

 Real Estate and Bangladesh Economy: Over the last 10 years, Bangladeshs Real Estate sector had grown at an average of 3.64% reaching the peak at 3.83%. Though it had a fall in 2000-2001, there was recovery in 2001-2002. For the last 5 years this sector grew impressively and showed a smooth rising trend. The comparative scenario of GDP shows a steady 6% growth for Bangladesh. According to real estate developers, as GDP of Bangladesh is still below that of other South Asian Countries, Bangladesh has more scope to grow which can be fostered by the continuous increase in the share and growth of real estate sector in the country.

This contribution of real estate and construction in GDP of Bangladesh was 16.20% in 1994-1995, which became 16.69% in 2000-2001 and attained 17.22% in 2004-2005. This share slowed down around 8% in 2008 which is due to the high price barrier for larger portion of population to buy real estate apartments, and also almost saturation of the already existing high end population market.

Analysis of Real Estate Industry

Problems and Prospects of Real Estate Sector in Bangladesh 6

Beyond providing physical shelter, housing may have significant impact on the lives of the dwellers in terms of skills enhancement, income generation, increased security, health, self-confidence and human dignity. In Bangladesh, real estate is a recent phenomenon, although such activities started sometime in 1964. Ispahani Group was the pioneer in this sector. During 1970s there were fewer than five companies in Bangladesh engaged in this business. But in early 1980s with the inception of Eastern Housing Ltd., the apartment project started flourishing. Now this is a booming sector of the economy. Since late 1980s, it came within the purview of business field. As a fast growing city of Bangladesh, such business was initially concentrated in Dhaka. Such activities were later on spread to Chittagong and Khulna cities. At present, there are about 400 firms operating apartment business and they have apartment projects in Dhaka City as well as in some other cities. In the real estate business process, some prospects and problems are involved. Prospect is that human being is able to dwell in, despite the fact that they have limited land and problems are of several types. In categorizing provision of shelter as one of the fundamental responsibilities of the state, the Constitution of the Peoples Republic of Bangladesh recognized shelter to be among the fundamental human rights. The UN Declaration on Fundamental Rights also reveals that every person has a right to an adequate standard of living, which includes housing. But making shelter available to all is increasingly becoming a significant challenge. Though population growth rate in Bangladesh has plateaued at 1.6 per cent, an increasing expanse of living space at this rate will also be necessary to accommodate the demographic momentum. Statistics show that Bangladesh will need to construct approximately 4 million new houses annually to meet the future demand of the next twenty years. Estimates for annual requirements for housing in urban areas vary from 3 lakh to 5.5 lakh units. In Bangladesh 25 per cent of the population (some 35 million people) now live in urban areas; this proportion will be 34 per cent (75 million) by the year 2015. Dhaka, with a total population of 10 million, is now the 22nd largest city in the world. The paper identified this as a consequence of high rate of in-migration to Dhaka. By the year 2015 Dhaka is projected to rank as the 5th largest city in the world, where 19 million people will have to find their house. On the other side, with the continued growth of population land for agriculture and forest will shrink in tandem. This calls for high density settlement either in high rises or in small unit low rise apartments. The area occupied by human settlements and supportive infrastructure in Bangladesh is quite high at 30 per cent. Land is Problems and Prospects of Real Estate Sector in Bangladesh 7

becoming increasingly inadequate to provide individual housing solution to all and as a result demand for apartments is growing rapidly. Inheritors are inclined to building apartments as a means to share common property. Remittance flow which is clocking a high growth also drove up demand for housing. Real estate sector has made substantial contributions to the growth of Bangladesh economy. But research on the real estate sector is quite inadequate. Most of the studies by academics are mostly theoretical with an academic bias; when they are conducted by developers, business gets the utmost emphasis; when the government themselves perform the study only the thoughts of the government are reflected. Despite significant growth of the housing sector in the recent past, good research dealing with the development of this sector is lacking. This is compounded by the fact that there is a paucity of statistical information. A large part of the relevant information is inaccessible since it is classified as commercial secret. Real Estate business, especially apartment projects, took off in the Dhaka City in the late 1970s. From the early 1980s the business started to flourish and showed robust growth. At present, more than 250 companies are active in the real estate business in the country. About 95 per cent of this business is still dominated by the top 10 companies. Ullah, Bhuiyan, & Akhteruzzaman had identified the reason for the growth of the real estate business. Their study revealed that the main reason for the growth of this industry is scarcity of open space in the important areas of the city where Hossain, Islam and Alam investigated the nature of real estate business, psychological aspects of the buyers and the policy decisions of the firm. Another study was conducted on housing for low Income People in Bangladesh. The paper was an endeavor to present and analyze the importance of real estate business in rural areas and to identify the actual problems to expand it in those areas. They mentioned that housing situation in Bangladesh has never been satisfactory. The majority of dwelling units are temporary, sub-standard, unsafe and overcrowded. The ancillary physical, social and economic facilities and services essential for the development of healthy and harmonious community life are highly inadequate both in the urban and rural areas. In that studies they found that lack of infrastructural facility is the main obstacle for the land developers to expand real estate business in rural areas. Another study was conducted on Urban Housing and Financial Institution in Bangladesh. They mentioned housing is just one of many national priorities that call for government fund but since they involve large investments and long term commitments sometimes the govt. failed to provide the desired service despite of the fact that Problems and Prospects of Real Estate Sector in Bangladesh 8

the government tries to encourage investment through tax incentives, interest subsides etc. Unfortunately in Bangladesh a systematic institutional structure to channel financial resources by way of mortgage loan into housing investment is still locking. Talukder & Bhuiyan found that the present market of apartment houses is limited within the high income group of the society only and there exists room for improvement of the present marketing system. One of the interesting findings of the study is that people are gradually developing favorable attitudes towards apartment living which is gaining cultural acceptance. From the context of Dhaka City, with a rising population and increasing housing demand, apartment culture has grown up in Dhaka sharply. The horizontal expansion of the city is very limited as Dhaka is hemmed by a network of rivers that makes outward expanding difficult and only vertical expansion is possible to accommodate the growing numbers of residents. Apartments were first introduced by the formal private developers in early 80s to the housing history of Dhaka. It first appeared in Dhaka near Eastern Plaza and subsequently Dhaka experienced a boom in apartment development in all residential areas including Paribagh, Maghbazar, Siddeshwari, Shantinagar, Dhanmondi, Mirpur, Banani, Old DOHS, new DOHS, Gulshan and Baridhara, to name just a few. Soon after, small scale developers, individual home owners choose apartments to construct on their own properties demolishing the earlier house form due to high demand of housing as a result of rapid urbanization and population growth. Later building apartments become well accepted to this informal housing provider and spread out all over the city. Twenty years ago there were fewer than five companies in Bangladesh engaged in developing apartments while today there are more than 250 developers. But there are many other companies/individuals engaged in such development in smaller scale or in informal sector. In most of the cases an individual or real estate company constructs one or more buildings comprising of several apartments, which are later sold to individual purchasers. This has prompted many individual entrepreneurs to develop apartment buildings resulting in an increased number of real estate companies in the city. There is an acute shortage of housing supply in all urban areas and its increasing with current demand of 600,000 to 800,000 units all over the country, and particularly in Dhaka this demand is estimated at 60,000 units of real estate apartments combined with 200,000 units of replacement plus backlogs, according to REHAB. Thus there exists a high unfulfilled demand for plot and flats. This huge demand is highly attractive for the real estate producers. REHAB, being the sole organization of real estate agents, developers and builders, has more than 450 members registered in 2009 and

Problems and Prospects of Real Estate Sector in Bangladesh

around

350 non-

registered real estate developers are making business in this sector.

According to REHAB, they are currently supplying only around 8,000 and 10,000 units of housing apartments against the above mentioned huge demand. The approximate turnover in the real estate sector has been TK 20 billion, which contributes revenue of around TK 2 billion a year to the government. The real estate developers and builders have already supplied approximately 60,000untis to this sector market in the past 20 years. The sector now employs 2 million people, which constitute architects, engineer, management official, direct and indirect labor. A good number of real estate companies are working under one umbrella association named 'Real Estate and Housing Association of Bangladesh' (REHAB). Almost 83 Companies are at present affiliated with this association, while more than 200 companies are working Problems and Prospects of Real Estate Sector in Bangladesh 10

independently. BTI took a leading role in the formation of the industry association and is one of the founder members of the REHAB. Objectives of REHAB: a) To offer finest apartments in excellent locations to the clients; b) To provide sound construction with aesthetic design to the clients; c) To install best possible fittings and fixtures; d) To satisfy clients by expert-oriented service; e) To help solving the residential problem of Dhaka city; f) To perform social responsibility for a happy future. Almost all socio economic groups both in urban and rural areas in Bangladesh experience housing problem. In a developing country like Bangladesh with a low level of industrialization but a very high growth rate of urban as well as total population, housing is perceived as a very acute national problem. Due to the lack of proper government policy and shortage of fund accommodation is becoming major problem in the country especially in the large cities. Reasons for development of the industry: The main reasons why real estate business developed in Dhaka city are as follows: a) Scarcity of open space in the important areas of the city b) Hazards of purchasing land c) Hazards of construction of building d) Rapid increase in population of Dhaka e) Decrease in the rate of bank interest f) Price of land and apartments is increasing day by day g) Rent of the apartments is comparatively higher than the rent of privately constructed flats h) Open Market Economy. Remittance of foreign currency is very easy i) Security j) Service facilities such as garbage disposal, central satellite TV connection, apartments services saves time, roof top facilities, lift and so on Informal Development: According to the definition of UN Habitat (2003), informal housing are the one which begins informally, without a title deed or services, and which the members of the household design, finance and often build with their own hands. Such housing usually belongs to the poor and gradually improves over time. In case of Dhaka, most apartments are built in their own land but construct building violating the development rule. Problems and Prospects of Real Estate Sector in Bangladesh 11

In some cases informal apartments in Dhaka are also both legal and
Urbanization Data of Bangladesh (In '000) 1970 1980 1990 2000 Urban Population 5,059 12,713 21,750 34,354 Urban Population in % 7.6 14.9 19.8 25.0 Urban Annual Growth Rate 7.8 5.8 4.7 4.3 Area Based Dhaka 1,474 3,257 6,621 12,519 Urban Chittagong 693 1,332 2,265 3,651 Population Khulna 325 632 973 1,442 Rajshahi 108 238 517 1,035 Source: Rural and Urban Development Case Study- Bangladesh, Oxford Policy Management, June 2004 2010 52,223 31.1 3.7 19,393 5,389 2,081 1,676 2020 74,432 37.7 3.0 N/A N/A N/A N/A

illegal service deficient settlements. For example, informal developers are constructing apartments without honoring the height limit of residential areas and covering 70-80% of the plot which eventually treated as an informal apartment. In the absence of well-established formal land and housing markets, informal sector has been playing the major role to cater the housing needs of a vast majority of urban population. Small-scale builders and developers, (self-help) ownerbuilders, slum landlords and their intermediaries, operating in the informal private sector, are the largest suppliers of land and shelters in Dhaka. The dominant role of the informal sector is revealed as it has the 95%
Urban growth Rate Projection (%) Population Growth (million) 2015 34 36 18 32 Projected Annual Average Growth (%) 2000-2015 3.7 2.7 4.9 3.1

1975 2000 Bangladesh 9 25 India 21 28 Nepal 5 12 Sri Lanka 22 24 Source: Making Cities Work, Urban Fact Sheet, USAID

share of the total owned properties. In Dhaka, the rental sub-market in informal apartment is the single largest supplier of housing. Informal rental apartments in Dhaka have been estimated to vary between 50% to 55% of the total housing stock in Dhaka. With regard to the types of new housing produced, formal private developers generally serve only the upper and upper middle income groups. The informal sector is estimated to have produced 85 percent of the 1.0 million housing units in the Dhaka city area. Among them private informal sector (apartments) accounts for half of the total stock and formal sector represent the only 15 percent of it. Increasing Urbanization: Statistics & studies show that in 2000-2015, urban growth rate has been expected to be at an average of 3.7% for Bangladesh. India one of the most attractive markets for global real estate is expecting Problems and Prospects of Real Estate Sector in Bangladesh 12

4.9% growth of urbanization. Moreover where India is estimated to

Urbanization Data of Bangladesh (In '000) 1970 1980 1990 2000 Urban Population 5,059 12,713 21,750 34,354 Urban Population in % 7.6 14.9 19.8 25.0 Urban Annual Growth Rate 7.8 5.8 4.7 4.3 Area Based Dhaka 1,474 3,257 6,621 12,519 Urban Chittagong 693 1,332 2,265 3,651 Population Khulna 325 632 973 1,442 Rajshahi 108 238 517 1,035 Source: Rural and Urban Development Case Study- Bangladesh, Oxford Policy Management, June 2004 2010 52,223 31.1 3.7 19,393 5,389 2,081 1,676 2020 74,432 37.7 3.0 N/A N/A N/A N/A

have 36% people living in urban areas by 2015, Bangladesh is expected to have 34%. The scenario is further evident by the per square kilometer population density growth in Graph-4. Thus in South Asia, Bangladesh holds the second position in terms of urbanization rate & proportion of urban population. This scenario tells that, as India is a rapidly growing real estate market for the world, Bangladesh also may attract more real estate investment. By 2010, Dhaka is estimated to have about 20 million people that show about 55% estimated growth from 2000. With this amount of people Dhaka is estimated to be the 5th largest city in the world by 2015. This fast urbanization needs enough accommodation and housing supply, which is expected to create a huge market for the real estate sector in Bangladesh. Rising House Rent: House rent has been increasing in Bangladesh since 1990 at high rate. In 1990 and 1995 the inflation in house rent was around 25%. Though in the recent times this inflation has been a little bit lower, still in 2004, statistics shows increase of house rent at about 10% in the country. According to the real estate participants, the inflation in the house rent is encouraging people to buy apartments in order to avoid the increasing expenditure of house rent. A recent study conducted by Consumers Association of Bangladesh (CAB) shows that house rentals in Dhaka have more than doubled (249.62 percent) in the last 17 years. The rentals in Dhaka witnessed a jump in 1991 by over 23 percent and it continued the trend later on, finds the study. The increase was around 17 percent in 2007 and 16 percent in 2006. Recent estimates indicate that over 70% of housing is rented in Dhaka and there is an annual requirement of over 60,000 new homes per annum. Tenants who are from upper middle, middle, lower middle and lower income groups are the worst victims of the rising trend of house rentals. This section of the population spends nearly 50 percent of their monthly incomes in house rentals alone.

Problems and Prospects of Real Estate Sector in Bangladesh

13

 Active Role of REHAB and Quality Certification: REHAB is now just an association and thus does not intend to take the responsibility of delivering the customers need on behalf of its members. REHAB does not take any action against any member although found guilty as they intend to deny any such responsibility as well as authority. Moreover, any real estate supplier can become a member of REHAB by paying nominal fees. There are many such suppliers who have membership but do not maintain quality services to the customers. REHAB does not have any activity to monitor and control the quality of the services of its members.

Budget 2010-2011 and Real Estate in Bangladesh

In the national budget 2010-11, a special emphasis has been given to the real estate sector and has been recognized that Real Estate is a promising sector in our economy. It has created massive scope for investment and employment generation. Considering the importance of Real Estate sector, a bill titled the Real Estate Act 2009 has been placed for passage in Parliament. In order to construct environmentfriendly, safe and risk-free structures, revision of Bangladesh National Building Code (BNBC) is being carried out. Regarding tax on this sector, following proposals have been made by the Finance minister in the national budget for FY 2010-11: Tax to be collected at source from real estate developers at the time of registration of flat or building at the following rate(1) Taka 2,000/- per square meter (Tk 185.80 per square feet) for a building or apartment situated at Gulshan Model Town, Banani, Baridhara, DOHS, Dhanmondi, Lalmatia, Uttara, Basundhara, Motijheel, Dilkusha, Dhaka Cantonment and Karwan Bazar of Dhaka and Khulshi, Agrabad and Panchlaish of Chittagong. (2) Taka 800/- per square meter for all other areas i.e. Tk 74.32 per square feet.

Regulatory Environment of Real Estate Sector

Before 2004 there were no mandatory building regulations or laws in Bangladesh. There is Bangladesh National Building Construction Code 1993, which is not mandatory and well enforced by the government. The government has taken initiative to make it mandatory. According to newspapers, many developers do not follow Problems and Prospects of Real Estate Sector in Bangladesh 14

the codes, which run the customers in risk. In 2004 Land Development Act for Private Residential Project 2004 has been passed which is mandatory to be complied by the developers. Government amended The Building Construction Act of 1952 in February 2006. The Bangladesh National Building Code (BNBC) of 1993 came into effect on November 15, making mandatory to comply with, in any building construction under The Building Construction Act of 1952 to ensure accountability in the management of overall building construction and safety of the buildings. Developers also have to comply with the Dhaka Metropolitan Building Rules of 2008 to ensure safe building constructions. To protect the interest and ensuring safe investment of the buyers, the Government of Bangladesh has designed the Real Estate Management Ordinance 2008 but it is yet to be passed.

Financing Sources of Real Estate Companies

Financing the apartment purchase for individual has become more easy and available. In 1952 Bangladesh House Building Finance Corporation (BHBFC) was established as government organization to finance the middle-income civil service holders, which was the first housing finance institution in Bangladesh. Now there are a number of private specialized housing finance institutions, financial institutions and banks, which provide housing finance facility up to 70% to 80% of the value of the house or apartment. Interest rate is competitive ranging from 12% to 14%. Maximum amount can be financed is BDT 5 million to 6 million with maximum 20 years repayment option, which varies with the different financing institutions. Loans can be taken to buy apartments or for construction purpose in any part of the country. Institutional Bangladesh, like many other developing countries face an acute shortage of affordable housing both in the urban and rural areas which is followed by extremely small and highly segmented housing finance system. Financial intermediation in the housing sector is not found adequate because of high interest rates and limited sources of funds. This is true both for the financing of the developers and the purchasers. The state-owned House Building Finance Corporation (HBFC) is burdened with bad loans, and loan disbursement has tended to be low in recent years. Recently, private housing finance institutions (such as Delta-BRAC Housing Finance Corporation Ltd. and the National Housing Finance and Investment Ltd.) and non-bank financial institutions (such as IDLC of Bangladesh and MIDAS Financing Ltd.) have started to operate in this market targeting middle income households. Several micro-finance institutions (such Problems and Prospects of Real Estate Sector in Bangladesh 15

as Grameen Bank, Proshika, BRAC, and ASA) have extended noncollateralized credit to a small proportion of poor rural households. Non-Institutional Besides the state-owned BHBFC & commercial banks, other sources of housing finance currently available in Bangladesh are employee loans, life insurance policies, informal means (such as own savings, contributions from relatives, friends or employers, or short-term money-lenders), and housing co-operatives in the rural sector.

Housing Quality
Although the informal apartments are playing an important role in Dhaka, there exists a wide range of differences in the quality of housing provided by the informal sector in comparison with the formal one. Characteristics and the difference in the housing quality by both the providers are figure out in the following Table. Factors Finance Formal Private Apartments Housing projects are usually backed by strong financial support i.e. banks, housing financing institutions and mortgage bodies which eventually provides quality housing. Industrialized and costly construction method are practiced generally High quality Mid to high rise Informal Private Apartments Weak, poor and informal finance like loan from individuals, relatives, selling other assets in rural origin are most common. Thus finance remains the main barrier to provide quality housing. Self help activity and low cost construction are common Average low to mid rise, walk up apartment

Construction

Material Structure Dwelling Unit size Planning

Units are over 100 sq. Unit are between 50m size is typical 70 sq. m Fairly good (Planned as owner user) Poor (Planned as rental use) 16

Problems and Prospects of Real Estate Sector in Bangladesh

Utility and service Environment

Adequate Good

Inadequate and lack of infrastructure Poor neighborhood

Major Players in the Real Estate Sector of Bangladesh

Historically major market players in the Bangladesh real estate market have been Eastern Housing Limited, Shinepukur Holdings Limited, Bashundhara, BTI, Concord, and Sheltech. Their market shares have not been changed much during the last years. Eastern Housing occupies 35% and Shinepukur has 35% as the two major market leaders. The other companies absorb the rest 30% of the real estate market. Eastern Housing has been earning on an average of Tk. 62 million approximately with net turnover of around Tk. 450 million. Shinepukur is earning in an average Tk. 41 million with turnover of around Tk. 337 million (Aims, 1999). As this data shows the status of around a decade back period, a detailed survey is badly needed to examine the profitability of this sector. Therefore a recent statistics could not be generated and with expectations of fresh interesting insights, this issue may be a further research area.

Problems of Real Estate Sector in Bangladesh

Financial problems
Scarcity and High Cost of Land in Appropriate Areas: Scarcity and high cost of land is a major impediment to the growth of proper housing in urban Bangladesh. Most housing and infrastructure programs faced problems for the want of quality land in right amount and at appropriate locations. The poor occupy 20% of Dhakas residential land; 97% of them do not own the plot on where they live which create scarcity of land. Increasing Price of Flats: The price of flat is increasing because of increase in the price of raw materials. In 2004 average price of per square feet was 1900 taka and in 2008 price goes to 5100 taka. In every year the price of flat is increasing whereas the income level of fixed income people is not Problems and Prospects of Real Estate Sector in Bangladesh 17

increasing and inflation rate of other products is also so high. So it becomes impossible for fixed income people to buy a flat. There is no common strategy for pricing in the market. Pricing strategy depends upon the cost of land developments, market condition, location etc. Developers and builders charge price based on their individual choice. But there has been a standard of pricing practice in the market depending on the size & location of the residential or commercial projects. For an apartment the average price per square feet is Tk. 2,300 with varying price range from Tk. 2,500 to 12,000 in Dhaka city, Tk. 2,800 to 5,500 in Chittagong city area varying with importance of location. The price is rising rapidly in response to the shortage of land and increase in building material price. Real estate prices in Dhaka continue to remain high and the house price to income ratio is estimated at over 16 times. Less Stable Sales Volume: Total sale of apartment was more or less stable up to year in 2007 but in 2008 was so bad for real estate business because the reason of increasing the price level of the flat. The causes those are affecting the housing are given bellow. 1. Higher inflation rate. 2. Active role of ACC for finding corrupted people. 3. Uncertainty of the business. 4. Political crisis. Few Financial Sources: Financial intermediation in the housing sector is not found adequate because of high interest rates and limited sources of funds. This is true both for the financing of the developers and the purchasers. The state-owned House Building Finance Corporation (HBFC) is burdened with bad loans, and loan disbursement has tended to be low in recent years. Delta-BRAC Housing came into this market as private-NGO collaboration, but their interest rates are as high as 16 per cent which is higher than even that of the HBFC by one per cent. Formal mortgage finance is only available to households with incomes above BDT 25,000 per month (well above the 10th percentile of the urban income distribution) and is restricted to selected housing sub-markets in Dhaka. Differentiated Lending Rate: Financial institutions in Bangladesh have a non uniform interest rate. There are different types lending mechanisms basing on different loan payment criterion. These mechanisms has interests rate that varies from one firm to another firm. For example, the basic housing loan 8% in Grameen bank but 12% in Midas financing. Overall lending rates for Banking Institution are 13-14% and for NBFI it is above 15%. Problems and Prospects of Real Estate Sector in Bangladesh 18

Complex Collateral Requirement: In Bangladesh real-estate market in not much organized so as mortgage market. So lenders often requires complicated and high margin in collateral requirement. These requirements may not meet by all level of borrowers. So this creates limitations on the business of the lender and financial institutions. Moreover, financial institutions often seek high security while borrowing, this often raise the need of complex collateral requirement. High Cost of Construction Material: The availability and cost of building materials to a large extent influence the supply of housing in Bangladesh. In Bangladesh, building materials is ranked the second biggest constraint to house construction. This is attributed to the high-dependence on imported materials components including cement, and cement clinker, lime, galvanized iron and asbestos cement roofing sheets, sanitary ware and fittings, electrical fittings and fixtures, glass, steel reinforcing bars, paints etc. It is estimated that construction cost of an average residential property in Bangladesh is split between 60 percent material cost and 40 percent labor cost. It therefore goes without saying that a command of local building materials is a necessary requirement for any meaningful housing. Irregular Supply of Construction Materials: In our country, supply side often faces challenge to manage the supply of quality materials and equipments. Managing the supply of quality materials becomes highly challenging for developers when there is growing demand for quality materials and fittings. Suppliers often blame government rules and restrictive policy for those advancements and to some extent luxurious materials. This irregular supply hurts the production process results in delay in project completion and dissatisfaction of buyers. Low Investment: Per capita income in Bangladesh was Tk. 21,681 in fiscal 2005-2006, and Tk. 20,486 in fiscal 2004-2005. The World Bank rates countries with less than $750 per capita income as LDCs. Nearly half Bangladeshs 140 million people live in poverty, according to official statistics. As a country in Least Developed Country (LDC) regime the developments are hindrances by low rate of savings followed by low rate of investment Capital Constraints:

Problems and Prospects of Real Estate Sector in Bangladesh

19

Growth of the real estate sector is not possible without proper available finance. Regarding finance they are to depend mainly on internal financing to meet their capital requirement. As secondary source they use advances from financial institutions and buyers. They dont raise fund from capital market up to that extent (there is only one listed company) High Registration Fee & Other Related Charges: The registration fee is fixed at 21% of the total value of the land and other miscellaneous charges are 2%. Thereafter, another problem is the procedure of Sale Deed or Transfer of Property. For the flats or apartments which are built out of RAJUK area, the cost of sale deed or transfer of property charges are as a VAT and a transfer fee. Higher registration fee & other related charges are most important problematic issue for both the land developer and flat builder. In summary, one of the main constraints in housing production is the high cost of housing in relation to incomes. Large Amount of Duty and VAT: VAT and stamp duty in Bangladesh (more than 12.5%) are higher compared to other neighboring countries (5-12.5% in India). This higher stamp duty has increased the load on the buying power of lower income group. These issues can be addressed by following the practice of neighboring countries. Intricacies and troubles involved in buying land: It is very difficult to detect the original owners of land. Many buyers have to encounter with fraudulent land owners. Besides, buying land requires long process of recording in the public records. Frequently buyers have to face red tape problem and bribe giving is common in all level of public sectors. It is a very troublesome and costly matter to handover or transfer or to execute any sale deed against any land property. Problem in Foreign Support :

It may be mentioned here that the major problem with the policies taken by the government is the Fund. The bigger is the required the greater the problem is. The second problem is, when foreign or international funds are available; they endeavor to imply their own ideas and principles, which mostly go in their favor and against the essence of the country. As a result the confidence of the apartment buyers falls making the real estate business under threat. Varieties of Flat Size: Problems and Prospects of Real Estate Sector in Bangladesh 20

Most of the developer firms are building accommodation for the high income people. The small sizes flat build in undeveloped area. If the developer build house in prime location in Dhaka city their first choice is high income people where size of the flat become big. This flat size discrimination causes huge cost for developers. Poor Productivity of Developer: It is needed that real estate companies use the services of skilled professionals such as Architects, Engineers and Quantity Surveyors. It is a matter to be concerned that whether the companies are using the skilled professionals. Quality of construction materials cannot ensure the aesthetic and functional features of the apartments as well. At present there is no way to know how many of the building have been constructed with quality materials. Sometimes they cannot ensure quality materials due to capital constraint. As a result the confidence of the apartment buyers falls making the real estate business under threat.

Other Non-financial problems

Improper Urban Planning: Though planning is an important aspect of Dhaka City, there is no defined system of budgeting and a setting up. Therefore, it is quite impractical to expect the general public to do something by their own initiative unless the government comes forward. Dhaka city is growing up in an unplanned way. For the real estate sector, development faces problem of acquiring land, setting well functioned construction. Also there is problem of no interlinked policy between buildings and city planning codes and between building and environmental codes. Inadequate Capacity of Utility Services: It is not the developers, rather the inadequate capacity of the utility lines which is responsible for blockages in sewerage lines. The utility providers are not able to properly project the demand. Developers had carried out developmental work in an isolated manner and did not take into account such issues as aesthetics, transportation, garbage disposal, sanitation or water supply for which many unwanted consequences came up. This approach is creating severe problems in the process of housing development. High Population Growth and Increasing Urbanization: Bangladesh had one of the highest rates of population growth in the world. And Urbanization has been rapid and largely imbalanced. A Problems and Prospects of Real Estate Sector in Bangladesh 21

quarter of the population now lives in urban areas, while in 1960 the number was just 5%. 50% of GDP is spent on urban activities. Urbanization has been skewed toward Dhaka, making it among the fastest growing metropolises in the world. This is adding to growing concerns about congestion, lagging urban planning and management, and skyrocketing real estate prices. Migrants to Dhaka City: Though Dhaka stretches over a very small area and through inmigration alone its population is growing by 2.5 to 3 lakh every year and currently totals 30 lakh slum dwellers, an appropriate land policy is still missing. Those migrants may create opportunity for real estate companies but unfortunately they are hindering the growth. And it is not possible to accommodate such large number of people in a small arena.

Litigation Problem: In many instances, while selling apartments, the developers do not properly mention in their prospectus that the apartment is mortgaged against some borrowing. When litigation arises the apartment buyers claim that during purchase they were ignorant about the mortgage and bought the property in good faith. In many cases, adverse judgments were given which seem to be reasonably correct. Lack of Regulatory Agency: No private sector initiative can succeed without government support. Lack of proper institutions and legislation is restricting a healthy growth in the urban housing sector, and discouraging the NonGovernment Organization (NGO) involvement. Therefore, implementation of programs aimed at encouraging private sector participation or including the poor or squatters is not easy. Sometimes existing legislation contradicted the declared policy, and both failed to give adequate protection. Bureaucratic Complexities: A recent report of the United Nations Development Program (UNDP) titled Corruption and Good Governance found that bureaucratic corruption and inefficiency are taking a heavy toll on the Bangladesh economy, causing hundreds of millions of dollars worth of loss in terms of unrealized investment and income. Almost all political regimes in Bangladesh have been corrupt. Only the nature and extent of corruption varied depending on the nature of the regime, its key leader and his popular power base. Problems and Prospects of Real Estate Sector in Bangladesh 22

Inadequate Rules Violation: It is conversed about the inadequacies and implementation related issues of the legal framework. Developers are violating the stipulated set back rules of RAJUK by not leaving undeveloped spaces as stated. The problems stemming from private real estate development occurred due to inadequacy in the legal and regulatory framework and the absence of overseeing organization. RAJUK officials in many cases illegally give permission for building of houses in exchange of bribes. Disturbance by Toll Collectors and Hooligans: Due to the disturbances and oppression created by the terrorists and also their illegal demand of subscriptions from real estate companies, every now and then, real estate business face inconveniences in their activities. It is understood that these illegal works are being patronized by some so called politicians, no doubt under this circumstances; the real estate companies are much helpless.

Lack of Research: Through our observation that research on the housing sector is quite inadequate, we have pointed out that studies by academics are mostly theoretical with an academic bias; when they are conducted by developers, business gets the highest emphasis; when the government themselves perform the study only then thoughts of the government are reflected. Lack of Housing Act: The legal and regulatory framework concerning the housing and real estate development includes laws such as Building Construction Act (1952), Town Improvement Act (1953), Dacca Master Plan (1959) and Building Construction Rules (1984). These laws are not adequate to facilitate resolving habitation problems. Other limitations of these rules included a lack of appreciation about the differences between planning and building rules, the outdated nature of such rules and the inability of the rules to address the demands of an expanding city and targeting only the middle and high-income groups.

Prospects of Real Estate Sector in Bangladesh

Demand Analysis: Problems and Prospects of Real Estate Sector in Bangladesh 23

Now in Bangladesh the demand for residential real estate unit is rapidly increasing. The current urbanization rate is 5-6% and 50% people will be living in cities by 2025 according to experts. In the Dhaka city, the urban population density has increased by about 79% from 1991 to 2004. It was 4795 persons/sq.km in 1991 and 8573 persons/sq.km in 2004. Population is increasing rapidly in Bangladesh. Dhaka the mega city is in very faster rate in population increase. This rapidly increasing people need more housing facilities. More and more increase in house rent implies that people would become less interested to stay in rented house and would try or tend to buy own home. This is also increasing the demand of apartments in Bangladesh especially for the middle or upper middle class group of the society. This huge lift up in the urban density & rush of the people to Dhaka city has created great demand of accommodation and housing services. Moreover the real estate developers have started targeting the middle-income groups in the last few years to sell apartments. As the major portion of the society is in this group, the demand is essentially high. According to REHAB there is demand of about 60,000 residential units plus 200,000 units of backlogs and replacements every year. But REHAB members can supply only 8,000 to 10,000 units each year. Now in this intense situation of rapidly growing demand the existing no. of developers cannot satisfy the current demand. This scenario ensures us a higher demand in future as the gap between demand and supply is increasing. Basic Need of Housing: Shelter is one of the basic needs of human being. In Bangladesh population is growing at 1.6% rate. Statistics show that Bangladesh will need to construct approximately 4 million new houses annually to meet the future demand of the next twenty years. Estimates for annual requirements for housing in urban areas vary from 3 lakh to 5.5 lakh units (Bhattacharya, 2003). Now people are using agricultural land for new houses which is affecting our 1st basic need food. Housing is the solution for this problem. Now the government permit the developers to build fifteen storied building (except flying zone), instead of six storied. So the opportunity is increasing day by day in Housing sector. Huge Market Demand: A huge market demand of houses exists in Bangladesh. Now housing sector can meet up only (3-4) % demand. If they can provide their houses pricing within the range of middle class family then they can make a good business in this sector and also their GDP contribution

Problems and Prospects of Real Estate Sector in Bangladesh

24

will increase. The main reasons for the development of real estate business in Dhaka city are: Scarcity of open spaces in important parts of the city Hazards of purchasing land Rapid increase in the population of Dhaka Fiscal-Financial incentives such as the decrease in the rate of bank interest De-restriction of remittance flows which financed the sector Increasing Demand for community facility: The definition of housing should not be limited to shelter or living space. Though in general terms housing is meant for shelter, in an academic sense housing entails houses of many kinds comprising of educational institutions, recreational centers, shopping centers, and many others. New Opportunity Outside Dhaka City: Developers can expand their business outside Dhaka city. There is huge demand of developer houses in different district town. If the developers enhance their business outside Dhaka they will get new customer and government will support the developers by tax incentives and providing utility facility and will help to reduce the migration to Dhaka city. Increasing Demand to Non-Residents: Non residents Bangladeshi want to have a resident in their home country Bangladesh especially in Dhaka. If the developers can provide them special facilities like security then the sales growth rate will increase from the foreign buyers. When REHAB arranges any housing fair outside Bangladesh they get enormous responses from non residents Bangladeshi. Those people can easily buy houses in their home land without any stress. Contribution to National Economy: A huge numbers of families are willing to purchase an apartment for their safe residence. In order to realize this opportunities, the effort of housing industry must integrate with development policy of the government. This assimilation will create synergy effects which contribute to the national GDP. Support to the other Industry: About 21 industrial sub sectors are directly involved in the housing industries. The major enterprises are in SME categories. Among 21 Problems and Prospects of Real Estate Sector in Bangladesh 25

sub-industrial and services sectors, highest contribution is coming from Steel (29%) industry followed by work force (20%) and cement industry (11%). Doorwindow (5.5%), ceramic (6%) and electrical component (6%) also have significant contribution for building this industrial sector. Despite the fact, the demand of apartment is high people are not buying. Supply Analysis: Certainly the supply of apartments in the residential sector is increasing everyday with high pace. REHAB at the time of its inception had only 11 members who were developers & builders. In 1988 the number grew to 42 and in 2004 it was 200. Currently there are about 450 REHAB members and more than 350 non-members in the market. The huge demand gap has lured a steady growth in the number of real estate developers in the market. Therefore supply also increased at a good rate though it is far below the demand level. In the last 18 years apartments supplied by REHAB members shows a steady growth in supply. In 2006 REHAB members supplied 5,000-6,000 units of apartments and 4,000-5,000 units of plots on an average per year against huge demand of housing. In the last 20 years REHAB members have supplied 50,000 apartments approximately which is much less than the demand in the market. The large unsatisfied demand is partially satisfied by real estate developers who are not the members of REHAB. REHAB could supply only 8,000 against demand of 600,000800,000 in 2008. Thus the major portion of the demand is supplied by independent developers and the consumers themselves or remains unfulfilled. Thats why it is expected that there is a vast opportunity to sell apartments & plots in market. It presents an attractively growing scenario for the market players. REHAB is expecting to supply 20,000 to 25,000 additional units of apartment from the next year if all environments are favorable. Currently, according to REHAB statistics, in Dhaka city there are 2,240 dwelling units under construction, which includes 49,703 apartments. Outside Dhaka city around 80 projects only are currently under construction, which can supply merely 2,663 apartment units.

Company Profile
Concord is one of the oldest business houses in Bangladesh (founded in 1972) and one of the biggest players in the construction and real estate industry. Concord has successfully handed over more projects to satisfied clients than any other company, over 600 in number and ranging widely in size and cost.

Problems and Prospects of Real Estate Sector in Bangladesh

26

Concord are the market leader in luxury apartments and the first to produce and use environmentally safe and earthquake proof building materials in Bangladesh, materials previously only seen in healthy nations. Many make claims to having the best safety and structural integrity; concords is proven by independent tests carried out by local as well as foreign experts.

From concords vast experience in construction - building bridges, airports, theme parks etc. concord employ the best engineers and most up-to-date construction techniques in Bangladesh today. Concord has a unique insight into structural engineering and can handle any project of any size or difficulty. Apart from concords real estate ventures, concord has been entrusted to build many landmark projects in the country, such as:

The National Monument at Savar The Prime Minister's Secretariat Zia International Airport (Renamed: Hazrat Shahjalal International Airport) The low-rise block of the Sonargaon Pan Pacific Hotel CIBA -GEIGY Pharmaceutical Plant at Tongi The 200 bed hospital in Narayanganj The VVIP Residence at Hare Road The VVIP Rest House at Testa Barrage Complex

Problems and Prospects of Real Estate Sector in Bangladesh

27

The 24 storey Janata Bank Head Office Building The administrative building of Bangladesh T&T Board The head offices of Titas Gas Transmission & Distribution Co. Ltd. Bangladesh Oil, Gas & Mineral Corporation Bangladesh Steel and Engineering Corporation The 22 storey Jiban Bima Tower The 20 storey Bangladesh Shilpa Bank Building(BSB) The 20 storey Islamic Development Bank Building in Agargaon The 750 ft Telecom Tower in Singapore

In keeping pace with ongoing demands for both up market high quality apartments and for mid market different range of moderate apartments Concord Group has decided to introduce a new company with a new vision in the beginning of 1997 by the name Concord Real Estate and Building Products Ltd (CRPL). Concord started its journey 37 years ago with a commitment to quality which established them by some of the most prestigious and challenging projects in Bangladesh. Concord now feels convinced that quality eventually pays. Concord was adjusted by a panel of eminent juries in the category of "Enterprise of the year 2000" of `Bangladesh Business Awards" jointly Problems and Prospects of Real Estate Sector in Bangladesh 28

rewarded by DHL-The Daily Star, in recognition of outstanding leadership quality and as a role model in corporate business.

Concord Group Strength Developer Concord Concord Builder Concord Consultant Concord Construction Concord Quality Control Concord Concrete & Concord Block Supply Concord Real Estate & Building Products Ltd. Real Estate & Development Ltd. Engineers & Construction Ltd. Architect & Engineers Ltd. Engineers & Construction Ltd. Architects & Interior Dcor Ltd. Ready Mix & Concrete Products Ltd. Pre-Stressed Concrete & Block Plant Ltd.

Mission, Goals & Objective of Concord Group

Mission Continuous improvement in the field of Civil Construction, Real Estate and Entertainment sectors in Bangladesh. Goals Contribute to established structure & strong infrastructures in Real Estate business as well as to play an important role in development of tourism industry in Bangladesh more structure. Objectives

To create an environment for excellent residential housing with close proximity to the commercial centers. 29

Problems and Prospects of Real Estate Sector in Bangladesh

To reduce the human pressure on the inner city of Dhaka and all over the country. To meet up the lake of refreshment & amusement environment in our country. Significant contribution in our tourism industry. Quality & efficiency-enhancing mechanization. Building a better world with Relentless purest of quality.

Projects Overview Completed Projects: Concord has already completed over seven hundred projects consisting of 10000 apartments. Ongoing Projects: Type Location Gulshan No. of proje ct 3

Name Acme Concord Concord Nirjon(Duplex) Belvedere Concord Jahanara Palace Concord Concord Bosphorous Concord A. Taj Surma Concord Concord Sir Salimullah Legacy Anamika Concord Concord Hasna Hena Paramount Concord Segunbagicha Concord Concord Grand The Resorts by Concord Nirepol Concord Amin Concord Lake Shore Concord Troyee Concord Maharlika Concord Sharif Concord Concord Rose Heaven

Size (Sft) 3000 4500 3600 4500 2000 2450 1470 7600 4500 1500 2700 1043 1650 1423 1627 982 - 1424 1500 1760 1375, 1390 1450 3300 1375 2200 1430 2150 1430 1430 1430 30

Banani

Baridhara Residentia l Azimpur Mirpur Motijheel Segunbagic ha Shantinagar Ashulia Uttara

1 1 1 2 1 1 1 12

Problems and Prospects of Real Estate Sector in Bangladesh

Chittagong

Hussain Concord Concord Cradle The Ambassador Concord Rahima Concord Prince Concord Concord Aftab Concord Khulshi Town Centre Concord Showdagar Concord I.K. Tower Concord Richmond Police Plaza Concord

1430 1600 1355 2110 1375 888 - 1890 888 - 1890 888 1890 2000 760-7600 1270 3500 1466 1613

Commerci al

Gulshan

Farmgate

Centerpoint Concord

Featured Project: Police Plaza Concord is intended for the customer that demands the highest quality. One complex, two towers with lake views and a grand shopping mall, it is set to be the newest landmark of Gulshan. Major Customers: The Company caters for all customer segments from businessmen to government and private employees, from teachers, doctors and engineers to lower income groups. For the fixed income group it has a project called Lake City and an upcoming project at Mirpur. However, in terms of project location, Concord prefers Gulshan, Banani and Dhanmondi.

Problems and Prospects of Real Estate Sector in Bangladesh

31

Regional Pricing: Location Gulshan, Size Price Sq.Ft Tk 10500 Tk 13000 Tk 12500 Tk 30000 Tk 8500 Tk 9000 Tk 8000 Tk 9250 Tk 9500 Tk 12000 Tk 3500 Tk 4000 Tk 4500 per

3000 Sq.Ft 3600 Sq.Ft 4500 Sq.Ft 7500 Sq.Ft Banani 1200 Sq.Ft 1800 Sq.Ft 2450 Sq.Ft Dhanmond 2000 Sq.Ft i 2400, 2500 Sq.Ft Baridhara 4500 Sq.Ft Uttara 1375 Sq.Ft 1430 Sq.Ft 2150 Sq.Ft

Problems and Prospects of Real Estate Sector in Bangladesh

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About on-going projects of Concord Group

Lake City Concord Lake City Concord represents an affirmation of Concord's commitment of bringing new standards of living to the people of Bangladesh. It is only 10 minutes from Baridhara and from Zia International Airport by car. The apartments and building layouts have been carefully designed to cater to your modern lifestyle. Lake City caters to all your family's needs with an elegant shopping center, school, mosque, children's playgrounds, sports area, community center, ample parking, all within the compound. Most importantly, Lake City is serviced by its own bus service. Elegant landscaping, large open areas, wide roads, a great view of the lake and pollution free, it is the ideal choice for you and your family Commercial and shopping spaces Designed to accommodate todays sophisticated urban lifestyles, these projects have three to four levels of spacious air-conditioned shopping traversed by capsule lifts and escalators. This reflects the growing trend in Bangladesh of shoppers who prefer to shop in large departmental stores where many different items can be found under one roof. Most important is the growing preference among shoppers to shop in a comfortable air-conditioned environment with a restaurant, icecream parlor, beauty salon, etc. in the same complex. In a world where a better quality of life is becoming increasingly unavailable to growing number of people, Concord Real Estate & Building Products Ltd. has been striving to bring these new standards of living to the people of Bangladesh. Upscale Apartments: This 6-story luxury low-rise residential condominium complex with ground level parking and support facilities has been designed to complement the surrounding architecture in this prime residential area of Dhaka. Emulating a Wrightian/organic architectural style, and set among an abundance of existing lush tropical landscaping, this condominium fits comfortably within its surroundings, while adding a touch of elegance to the neighborhood. Midrange Apartments It has been considered as a unique development. Its imposing structure, designed by a firm of internationally reputed Architects, will be a landmark development in the Chamelibagh area. Its expertly landscaped grounds are certain to impress your guests as will the architecture and the elegant interiors. The development will be Problems and Prospects of Real Estate Sector in Bangladesh 33

formed by two inter-linked towers, each tower being serviced by two lifts. Its location couldn't be better, positioned as it is right in the heart of Dhaka city on Kakrail Road. It benefits from its proximity to Ramna Park, various schools, hospitals and markets.The development is approached by an elegantly wide plaza there is even a specially designed drop off point for Rickshaws at the residential lift lobby.

On-going Apertments
Asha Concord

Plot# 7 Block- NW(J) Road: 51/53 Size: 3340-5370 Sft

Gulshan

Concord Bari Monjil

Plot# 30 Road: 100 Size: 2400-2450 Sft

Gulshan

Problems and Prospects of Real Estate Sector in Bangladesh

34

Nirjan Concord

Plot# 27/A Road: 55 Size: 4500 Sft ( Duplex)

Gulshan

Bosphorous Concord
Plot# 14 Road: 23/A Block- B Size: 2575-2600 Sft

Banani

Problems and Prospects of Real Estate Sector in Bangladesh

35

Concord Jahanara Palace

Plot# 76 Road: 15 Block- C Size: 1913-1932 Sft

Banani

Concord Rani's Samaj Bhaban

Plot# 10 Road: 10 Block- H Size: 1440-2120 Sft

Banani

Concord Kajla
Plot# 27 Road: 1A Block- I Size: 2120 Sft

Banani

Problems and Prospects of Real Estate Sector in Bangladesh

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Badal Heights Concord

Plot# 3/A Road: 58 Block- B Size: 3440 Sft

Gulshan (North)

Corporate Social Responsibility & the Environment

Concord does not use environment polluting brick kiln products as they believe in social responsibility and the conservation of environment. The quality of their construction is considered as best asset; they build to the highest international standards. In fact, they build to safety standards beyond the requirements of the building codes of Bangladesh. Concord is the only real estate company to build using own independently quality tested tiles, construction blocks and concrete to ensure that quality is never compromised

Problems and Prospects of Real Estate Sector in Bangladesh

37

Reputation, goodwill and past history Concord is one of the largest and oldest construction and real estate conglomerates in Bangladesh. It has completed more than 600 projects in Dhaka and abroad. Concord is the market leader when it comes to luxury apartments in the GulshanBaridhara area. Back-up Support Concords main strength is that Concord is the only developer in Bangladesh that has five concrete batching plants with a fleet of truck-mixers, four concrete block plants and a terrazzo tiles manufacturing plant. It is impossible to control the quality of construction unless the quality of the raw materials can be controlled. Getting the maximum return Concords luxury apartments always sell or rent out at 15% to 20% higher than that of other developers. So one can sell each of your apartments at a much higher price

Rental Even when there are so many apartments for rent in the market, Concords apartments never stay empty. Moreover, they can easily charge 20% to 25% higher rent and are still always full. Quality of work - Concord prides on the fact that it never compromise on quality. Its finishing is one of the best. All concreting comes from computerized batching plants. Its engineering, design and construction teams are some of the most experienced in the country. It incorporates earthquake safety factors in our design unlike many other developers. It only uses cement, reinforcement, GI pipes, electrical cables etc. only from a few enlisted suppliers even if they are more expensive. Concord never compromises on quality and safety and that is why its apartments are so sought after. Appearance and Design Concords buildings are always outstanding to look at. Take a look at our project gallery, projects are some of the most talked about and noticeable structures in the city. First impressions

Problems and Prospects of Real Estate Sector in Bangladesh

38

are very important. 15 feet ground floor height, all marble lift lobby and reception, video entry phone, frameless glass doors, etc. give visitors the feel of walking into a 5 star hotel Reliability Concord is one of the largest developers in Bangladesh. It is known for handing over projects in record-breaking time. A delay in handover means a loss of income for the landowner.

Experience Concord have over 35 years of experience in the construction and real estate sector that cannot be matched by any other developer. Concord is the only developer that has received the Daily Star & DHL Enterprise of the Year 2000 Award In recognition of outstanding leadership quality and as a role model in corporate business in Bangladesh.

Completed Projects hundreds of completed projects speak for Concord. They would be happy to arrange visits to projects where customers can see what sets us apart from other developers.

Maintenance Period Concord is the only developer that offers guaranteed maintenance for a period of 3 years after completion of a project. As standard practice Concord buildings incorporate: Emergency Escapes and full Fire Safety measures Earthquake proof and environmentally friendly construction materials Quality control measures Problems and Prospects of Real Estate Sector in Bangladesh 39

 Electrical safety measures Backup generators Foreign fixtures and fittings for luxury buildings Optimal design adhering to all building codes and regulations Residents committee and building maintenance services

Other Services:

Interior Design

Versatility is an important element in any company's growth. Within the Concord Group this is visible in numerous subsidiary companies that provide a wide variety of products and services that complement core business Concord Engineers and Construction Ltd. provide an extremely strong engineering foundation. Other companies within the group provide an extension to this and make it possible to provide clients with an allinclusive real estate development package. Here is a short view of major clients and projects Bank & Financial Institutions: Exim Bank, Motijheel, Dhaka Bank of Novascotia, Bijoy Sarani, Dhaka Eastern Bank Ltd., Agrabad, Chittagong One Bank, Gulshan, Dhaka Islami Bank Ltd, Kakrail, Dhaka Brac Bank, Gulshan, Dhaka Dutch Bangla Bank, Banani, Dhaka Standard Bank, Motijheel, Dhaka Trust Bank, Ltd, Agrabad, Chittagong IDB Bhaban Asian Development Bank, Agargaon Banque Indosuze, Motijheel, Dhaka Basic Bank, Dilkusha Citibank, Motijheel, Dhaka National Bank Ltd., Dilkusha Government Organisations: Problems and Prospects of Real Estate Sector in Bangladesh 40

Army Headquarters, Banga Bhaban Gono Bhaban Prime Ministers Residence International Conference Centre Navy Headquarters Rajuk Bhaban (Chairmans office) Prime Ministers Secretariate State Guest House VVIP Terminal Building Navy Bhaban Private Organisations: Care Bangladesh, Karwan Bazaar, Dhaka Gulf Air, Karwan Bazaar, Dhaka Tata Nitol Showroom, Mohakhali, Dhaka Comtextile (H.K. Ltd), Agrabad, Chittagong & Banani, Dhaka DHS Motors Equity Resources Wintime Trading Fantasy Kingdom Theme Park, Ashulia Paxar BD Akiz Group CIDA (Canadian Legal Reform Project) Johnny Group of Textiles, Dhanmandi Nicole Bangladesh Nitol Bangladesh North South University (NSU) Orient Shopping offices Pacific Centre, Mohakhali Renata Office PBL Tower, Gulshan The Concord brand is synonymous with quality. It strives to be the very best, using the best quality construction materials, the latest and most innovative designs and hand picking supplies and materials from abroad, paying attention to every detail. Concord has gained a tremendous amount of goodwill over the last 35 years as a result of our commitment to quality. Concord projects are the safest and some of the most beautiful buildings in the country thanks to team of engineers, foreign and local architects and designers. They are an award winning company with some of the most eye-catching and distinctive projects in Bangladesh, people cannot take a drive through Problems and Prospects of Real Estate Sector in Bangladesh 41

Dhaka city without noticing Concord buildings. Concord has its own testing laboratory for testing materials and structure. Since Concord produces and supplies concrete and materials to other companies, it is regularly tested by independent bodies and has never failed a quality test thus far.

Recommendations
National Policy Guidelines In Bangladesh, there is no policy guideline for the real estate sector. However, Real Estate and Housing Association of Bangladesh (REHAB), the national coordinator of the private real estate developers has proposed a policy guideline for the sustainable development of this sector. Legal and Regulatory Framework Government should enforce Bangladesh National Building Code (BNBC) and upgrade the previous law properly to maintain the construction to reduce accidents occurring at the construction sites and reducing flaws in building construction and demolition. There is also hassle to get different kinds of document from different authorities. If the government makes law to minimize the hassle it will help the real estate firms effectively do their business. Need for Dialogue and Discussion A parliamentary committee should be constituted for the housing sector through the discussion and dialogue in between the government, developers and also with the buyer or community people can be done to ensure better future regarding housing and relevant issue. It is time to discuss how environmentally sustainable housing with reasonable facilities can be developed. Partnership and Participation Required Real estate developers can raise funds internally which they can use to mitigate environmental problems. It is not possible for the government alone to provide for all of these. The real estate developers should come forward to build gymnasium, playgrounds and similar facilities for the welfare of the people. Problems and Prospects of Real Estate Sector in Bangladesh 42

Ensuring Sustainable Environment The present process of development ignores environmental consequences. As a result low lands and drainage routes are being blocked. Though RAJUK has formulated DMDP it has very little application. We emplacing that whatever developments are taking place, have to ensure sustainability and environmental assessment. More Customized Architecture The developers can develop on the design prepared through inputs from both the architects and dwellers and as a result, every flat becomes to some extent different from the others. Since the sizes of families and households are different, there is no justification in the size and facilities of the flats being the same. Expansion Outside Dhaka City While dealing with urban problems, rather than being limited to Dhaka City, developer can concentrate on the other urban centers such as divisional centers, district centers, upazila centers, union centers and bazaar canters as well. Proper Urban Planning Land should be made available for developers through RAJUK rather than the prevailing practice of allocating land to individuals. Procedural delays in getting permission from authorities such as RAJUK, police, fire service, environment directorate and utility authorities should be removed. Need to make a detailed plan for urban areas, and articulating the demands in the area of utility and infrastructure services from a futuristic perspective and would evaluate the role of low-lying areas and the ways to utilize them by taking into cognizance both the pressure of housing and flood management needs. Reducing Duty and VAT Duty and VAT need to reduce as early as possible. In India all duty and VAT is less than 12% where Bangladesh minimum point is 12.5% (REHAB, 2008). For the large amount of VAT and duty it increases the price of the flat and goes beyond the purchasing power of middle class people and fixed income people. If duty is minimized, the middle class people will be more attracted to the real estate and that will help the real estate to increase its market. More Research Work Needed

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Research on housing needs to increase in different level. The research papers can be based on how the real estate current barriers can be reduced, how real estate firm cost can be minimized, how government can help the real estate to develop its position and competitive analysis of real estate with other countries. If the proper research can be done it will help the real estate firm to reduce its cost and minimize its different barriers. Rehabilitating Slums In Dhaka 30% people live in different kinds of slum which are located in prime location of Dhaka and those slums take huge proportion of land. Most of the crime occurs because of those slums. Government should take initiative to build houses for slum dwellers in different location by the real estate developer. If the government does that, the environment of the city will be beautiful, crime would be reduced and the prime location would be important place for business or large housing area. Ensuring Sewerage and Other Utility System In Dhaka sewerage and other utility system is not enough for giving service 1.5 core people16. During construction work it needs large amount of water and others utility services, so for construction purpose government agencies should provide utility services. If the sewerage and other services enrich in the city it would be helpful for the developers as well as for the city dwellers. Reducing One Storied and Duplex In Dhaka rich people build one storied & duplex in different prime location in city which is actually waste of land. If the government takes initiative that, those places would be living place of large number of people by construction of multistoried building to reduce social inequality and giving place large number of people.

Conclusion
Problems and Prospects of Real Estate Sector in Bangladesh 44

Real estate sector is growing and has tendency of future growth. The GDP share and growth of Real estate and construction is growing. This indicates a hopeful future for this sector. Rise in house rent, increasing demand for housing and population, getting easy financing facility, rapid urbanization, inadequacy of land and many other factors are creating huge scope for this sector to grow. As a result aggregate demand for housing and apartments has shown increasing trend and expected to increase. Though inadequate, supply of apartments with the number of real estate developers also have shown rising trend and showing future growth. Housing sector is considered as a leading indicator of the economy of a country. But in Bangladesh, due to structural rigidity along with other infrastructural constraints this sector is lagging behind. This fact is true when we reviewed the overall industry along with few payers of the same. Our study further reveals along with physical constraints, legislative constraints also exert immense impact on the real-estate sector of Bangladesh. The firms we physically reviewed encountered by severe challenge regarding operational and factor side constraints. The role of government appears to be dubious rather than supportive. As a result, market is still ruled only by few dominant players. Under these circumstances, appropriate benchmarking of the concerned industry in order to access the true performance of the same had put us immense dilemma while preparing this report. But the fact is true that, the demand for real-estate housing has been expanding along with the operation of developers. Moreover, new and new projects have been undertaken in diversified locations of the country. Real-estate industry often uncovering fresh unnerved business segment indicates market is not saturated rather highly un-served except some blue cheap consumer segment. For this reason realestate business is coming closer to mass people to sustain and expand. Housing for all is not an empty slogan today rather a valid claim & demand, which people of Bangladesh want to achieve.

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Appendices

Questionnaire Questions were asked to

Md. Shujaat Hussain: Assistant General Manager (Marketing)

Concord Group
1. What type of effect do the developers like Concord Group have on the overall real estate business in Bangladesh? What is their main role or contribution to build up a well-organized real estate market? Md. Shujaat Hussain: There is substantial effect of real estate Company like Concord Group on the overall real estate business in Bangladesh. Concord is one of the largest and oldest construction and real estate conglomerates in Bangladesh. We have completed more than 600 projects in Dhaka and abroad. Concord is the market leader when it comes to luxury apartments in the Gulshan-Baridhara area. It generates huge employment opportunity and reducing high unemployment of our country. Besides, real estate sector producing huge materials and services which directly contributes to enhance GDP of our country. Besides, real estate sector directly solving our accommodation problem which is a crucial problem of a over populated density country like Banladesh. After all it may conclude that real estate sector directly and significantly contributing to enhance our standard of living continuously by solving our accommodation problem and improving overall health of economy.

2. To complete a project what steps Concord follow generally?

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Md. Shujaat Hussain: To complete a project Concord generally follows a systematic procedure. The procedure involves following steps.. Step-1: Identify potential lands to purchase or lease or make contract in order to build a commercial building or a residential building. Step-2: Analyze available alternatives and operate a feasibility test. Step-3: Identify and select best suitable alternatives. Step-4: Make a formal offer to purchase or lease or a contract. Step-5: Make a particular contract with necessary condition and requirement. Step-6: Arrange required fund from both internal and external sources. Step-7: Start to implement the project. Step-8: Start to develop sales promotion in order to sale the prepared residential building or commercial building or shopping mall. Step-9: Transfer the prepared residential building or commercial building or shopping mall to the legal owner throughout an equilibrium financial transaction.

3. At what basis Concord differentiates the charges of residential and commercial construction? Md. Shujaat Hussain: Concord differentiates the charges of residential and commercial construction on the basis of some key factors. The key factors are place of the saleable residential building or commercial building or shopping mall, interior and exterior design of saleable residential building or commercial building or shopping mall, and

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cost, significant, benefits, safety, any other relevant facilities of salable residential building or commercial building or shopping mall.

4. What are the sources of financing of the concord group? Md. Shujaat Hussain: Though Concord Group arranges its required fund from both internal and external sources but it mainly arranges its required fund internally, it is about 80% -85% of total required fund.

5. What type of facilities Concord offers to its customer? Is there any extra benefit from the other competitors? Md. Shuzaat Hussain: Answer: Emergency Escapes and full Fire Safety measures Earthquake proof and environmentally friendly construction materials Quality control measures Electrical safety measures Backup generators Foreign fixtures and fittings for luxury buildings Optimal design adhering to all building codes and regulations Residents committee and building maintenance services Versatility is an important element in any company's growth. Within the Concord Group this is visible in numerous subsidiary companies that provide a wide variety of products and services that complement core business Problems and Prospects of Real Estate Sector in Bangladesh 48

Concord Engineers and Construction Ltd. provide an extremely strong engineering foundation. Other companies within the group provide an extension to this and make it possible to provide clients with an allinclusive real estate development package.

6. Do Concord differentiate its customer according to their taste and demand, and if yes, how Concord does that? Md. Shujaat Hussain: Yes, Concord follows some common and relevant criteria to select its customer group like taste, demand, income level, of customers. The Company caters for all customer segments from businessmen to government and private employees, from teachers, doctors and engineers to lower income groups. For the fixed income group it has a project called Lake City and an upcoming project at Mirpur. However, in terms of project location, Concord prefers Gulshan, Banani and Dhanmondi.

7. To sell apartments does concord group allow seller financing?

Md. Shujaat Hussain: Concord Group allows seller financing very narrowly in case of very few cases. Though Concord Group allows seller financing very narrowly in case of very few cases but this service is provided partially only in case of highly credit worthy customers and not more than 50% of total value of the trasaction.

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8. Does Concord Group feels that it can not still meet up the demands of the customers due to supply side constraints or other bureaucratic problem? Md. Shujaat Hussain: Yes, Concord Group strongly feels that it can not still meet up the demands of the customers due to both supply side constraints and bureaucratic problem. As demand is excessive in comparison with supply and there are few reliable real estate companies like Concord Group I n the real estate sector of Bangladesh. As a result, there is highly excessive demand of our flats and services. Actually, we are trying our best to fulfill demand of customers and we have a defined plan to expand volume of supply to fulfill gradually increasing demand of customer needs in the nearest future.

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Bibliography
The Monthly Economic Trend, June, 2010, Bangladesh bank. Major Economic Trend May, 2010, Bangladesh bank. The Budget for FY-2010-11, Ministry of Finance. The Economic Review of Bangladesh, Ministry of Finance, Bangladesh. A review of Housing sector of Bangladesh, REHAB Website of Concord Group. www.bangladesh-bank.org. ww.mof.bd.org Real Estate Financing in Bangladesh Problems, Programs, and Prospects, by Md. Maksudur Rahman Sarker, Mohammad Moniruzzaman Siddiquee ,Sheikh Feroze Rehan. Some aspects of real Estate business in Dhaka city, by Md Belsyet Hossain, Dr. Md. Anwaral Islam and Ahmed Fakhrul Alam, Dhaka University Journal of Business Studies, Vol . 19(1),1998 Real Estate and Housing Association of Bangladesh (REHAB), 2008, Quarterly Swapnil Abasan, Year-2, Issue: 8, REHAB, Dhaka. Bhattacharya D., 2003, Strengthening the Role of Private Sector Housing in Bangladesh Economy: The Policy Challenges, Center for Policy Dialogue (CPD), November 2003. The Dynamics of Residential Real Estate Sector in Bangladesh: Challenges Faced and Policies Sought, by M. S. Khan and S. Barua, Dhaka University Journal of Management Studies, 2009.

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