Real estate sector could do with some help too

The coronavirus outbreak is causing a widespread economic disaster across the globe, rousing almost every country's government to come up with rescue packages.

Our Prime Minister has announced a courageous stimulus package, which I found very far-sighted as it addresses the economy along with the social security programme.

Unfortunately, the housing industry -- the proverbial "black sheep" of our society -- has been completely overlooked in the package.

The sector has been a pillar for the development and growth of our economy, contributing to 5 per cent of the GDP.

It is a highly labour-intensive sector engaging about 500,000 labourers. Thousands of engineers, architects, accountants and marketing professionals are engaged here.

So many linkage industries like tile manufacturing, steel re-rolling mills, cement factories, brick and concrete block factories to name a few are supported by this sector.

Yet sadly not a word was mentioned in the package to address the woes of this industry, which has built and handed over more than 200,000 homes in the past 25 years.

While wiping away a tear I shall not propose any benefits for the developers such as working capital financing, interest waiver on loans or wages for the millions of people involved in the industry who have been sent on leave by government order.

No. We will bear all those costs.

But I do worry about the fallout of this pandemic, which may affect thousands of ordinary people who have paid their life's savings to small and medium-sized developers with a dream of owning an apartment or handed over their land, arguably their biggest asset.

The real estate market worldwide has a very peculiar character: it is sentiment-driven. If there is any apprehension, the buyers just go into hibernation and then it takes a very long time to bring them out of this shell.

In 2008, when the sub-prime mortgage fiasco hit the American housing market, it reverberated throughout the world.

The US housing market remained in the decline for about four years, and the ripple effect of that debacle also affected our housing industry. For a good five years, our market was in the doldrums.

We, at bti, lost crores of taka during this time. Projects that we had taken with the assumption to sell for, say, Tk 15,000 per square feet had to be sold for Tk 12,000 or sometimes even less.

Being in this business for 37 years, we have seen many ups and downs and we have learned to never get euphoric when we see the good days -- and just be conservative.

This may be one of the reasons why we have been able to weather so many storms over the years.

But during our market crash following the US sub-prime crisis, many small companies had to shutter and so many projects got stuck for years.

People who had given their land to be developed found their life's biggest asset litigated on account of non-performance by the builder.

And now, I am apprehending another crisis coming to our way post the coronavirus era unless some proactive measures are taken.

Mortgage interest rates in the US have been reduced to a record low and are primed to fall again -- an extreme measure to ensure that the housing market does not collapse.

I had proposed to our association REHAB two simple actions to be taken by the government, and neither of them would yield any direct benefit to the developers or put an immediate strain on the state coffer.

1.         Home finance at 5 per cent for those who buy apartments in the next one year.

2.         50 per cent reduction in the registration cost of the apartments purchased in the next year. The current cost of registration in Bangladesh is one of the highest in the world. This measure will motivate prospective buyers to take advantage of the opportunity because many people procrastinate registering their apartments due to the high cost.

A flourishing housing market is a great revenue-earner.

Apart from the income tax paid by the developers, the government collects gains tax of the land being developed, VAT and registration fees, while Rajuk collects large sums for plan approval of every project and the list goes on.

The point being that any cost that may be incurred by the above measures would be more than offset by the subsequent revenue earned by the government.

The writer is the chairman of bti Holdings