Apartment prices to go beyond reach of middle class

Housing costs will go beyond the reach of middle-income earners as the prices of construction raw materials have risen due to the ongoing coronavirus pandemic, realtors said yesterday.

During the prolonged nationwide shutdown that began on March 26 and ended on May 30, about 6,000 projects belonging to various members of the Real Estate and Housing Association of Bangladesh (REHAB) were left in limbo as development works were halted all across the country.

The sector began to rebound when the government allowed the use of untaxed income for purchase of an apartment or land and implemented a reduction in registration fees.

But apartment prices could eventually balloon due to the rising cost of raw materials and delays in project implementation, according to the realtors.

"The demand for apartments has declined amid the outbreak as customers are reluctant to make big investments in this time of panic and uncertainty," said Alamgir Shamsul Alamin, president of REHAB.

Alamin made these comments while addressing a webinar styled, 'Future of real estate industry: How it's reshaping for challenges in new normal', which was organised by The Daily Star in cooperation of Baizid Steel yesterday.

There's a tremendous need for investment in the real estate sector for it to survive as demand declines when people are in a state of panic, he added.

According to the REHAB president, the banking sector has done well to step forward and support the real estate sector by providing long-term home loans to their customers.

In the past, banks would only allow a five-year tenure for repayment but now, the instalment period can be up to 25 years, he said.

Meanwhile, Alamin urged Bangladesh Bank to allocate a fund for the housing sector from which customers can avail long-term loans at cheap rates.

"We cannot provide apartments at reasonable prices for the middle-income group in the Dhaka city due to the high price of land and bank interest," he said.

For this reason, the National Housing Finance and Investments Ltd should come together with REHAB to somehow provide apartments for the middle class within an affordable price.

The mid-income earners can only afford to spend up to Tk 60 lakh for a 1,000 square feet apartment, which is not financially feasible for developers, Alamin added.

The lion's share of the country's burgeoning middle-class, a key demographic for the real estate industry, cannot afford housing at existing rates.

"Therefore, the government should undertake topical policy measures that would help provide reasonably-priced housing for the middle-income people," he said.

Even government officials are unable to purchase such apartments as they have to take loans from state-run banks at 5 per cent interest.

Alamin also said the government's stimulus packages can be a relief for the sector, allowing developers to regain their confidence and continue operations.

In regards to some allegations brought against certain developers, the REHAB president said the land owners who are unable to develop their own property due to financial constraints end up giving the job to developers, who at times cannot fulfil their commitments.

However, things have changed over time as land owners are now more aware about how developers operate, he added.

FR Khan, managing director of Building Technologies and Ideas, said amid the 'new normal', the future remains uncertain and so companies will have to develop a form of immunity against such a crisis.

He too fears that apartment prices will shoot up due to the Covid-19 fallout.

Developers will not suspend their projects despite the spike in the cost of raw materials as the overall cost of the project will increase if there are prolonged delays, Khan said, adding that providing amnesty for untaxed income invested in real estate breathed life back into the sector.

In regards to used apartments, he said this secondary market is growing gradually and has shown good potential for the future.

Young buyers can take this opportunity to buy a second-hand apartment at a lower cost and eventually sell it to buy a bigger and newer apartment.

However, the registration cost for a used apartment and a new one is the same even though it should be reduced, Khan said.

According to the managing director, a 25-year-old apartment can be as good as new with some renovations.

In regards to backward linkage industries, he said around 12 major sectors, such as cement and steel, were directly affected alongside the real estate sector due to the ongoing pandemic.

Tanvir Ahmed, managing director of Sheltech, said real estate directly contributes 7 per cent, or $21 to $25 billion, to the country's gross domestic product each year.

But the sector is in quite a fragile state as nobody knows when the economic uncertainty will end, he said.

A number of developers take land from private owners by pledging a number of commitments that cannot be fulfilled.

For this reason, land owners become losers, he added.

On the other hand, the bigger companies try to maintain their reputation and therefore duly fulfil their commitments but this makes it impossible for them to provide cheap apartments for their customers.

"We want the land owner to be a gainer alongside the developers and customers," Ahmed said.

Mashid Rahman, managing director of Rangs Properties, said there are 250 backward linkage industries that are directly involved with real estate and so they will also be benefitted when the sector rebounds in the future.

The real-estate sector is the largest employer of manpower and has huge investment. So, the coronavirus impact on the sector falls on the country's overall economy, he said.

However, the managing director added that the sector has the chance to think of different solutions to the problem.

The webinar was conducted by Tanjim Ferdous, a national consultant of United Nations in Bangladesh.