Land prices in decline
Much to a boon for intended buyers, land prices have begun to decline after more than two decades of price hike.
But the situation has put banks in deep trouble as many of their borrowers used loans in land purchases that usually confirm higher and definite returns.
Top bankers fear the borrowers who diverted loans, even their working capital, to land purchases now run the risk of being defaulters due to the fall in land prices.
“Working capital has been diverted for buying lands. But the prices have fallen,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.
“In many cases, there are no buyers (of lands),” said Chowdhury.
Bankers said the situation may further raise the banking industry's non-performing loans from 10.03 percent recorded at the end of December 2012.
Land prices had been skyrocketing for the past two decades till 2010. In areas of Dhaka and on its outskirts, the prices soared by more than 300 percent between 2000 and 2007.
The prices rose further by about 50 percent between 2007 and 2010, according to Real Estate & Housing Association of Bangladesh (REHAB).
But land prices in Gulshan, Dhanmondi and Baridhara declined by around 30 percent in recent months and the situation is more or less the same in Chittagong and other parts of the country.
Bankers and realtors blamed the slide in prices on anti-business environment, a slow pace of economic growth, a dearth of gas connections and a bar on investment of untaxed money in the housing sector.
Thousands of unsold flats are also discouraging developers to buy new lands for new projects, which are also contributing to the fall in land prices, they said.
The REHAB at a recent meeting asked its members to remain cautious about buying new lands and starting new projects, and warned that land prices may fall further.
“Now landowners in posh areas are approaching us, but the situation was the opposite just a year ago when developers were in a competition to get a piece of land in those areas,” said Anisuzzaman Bhuiyan Rana, general secretary of the realtors' platform.
Businesspeople in Chittagong have been hit hard due to the fall in land prices.
Bangladesh Bank officials said the amount of outstanding loans in the port city is around Tk 83,000 crore. Of the amount, more than Tk 10,000 crore or 15 percent has turned into bad loans despite converting many of the short-term loans into long-term ones.
Bankers said many of their Chittagong-based clients, whose money has been stuck in lands, may become loan defaulters and face problems in getting further funds from banks.
Shafiqul Alam, managing director of Jamuna Bank, said many LATRs (loan against a trust receipt) become overdue as borrowers sell their goods, but do not pay the banks.
Latr is provided to a client when the documents covering an import shipment are given without payment. Under this system, the client will hold the goods of their sale proceeds in trust for the bank, until the LATR is fully paid.
“Borrowers sell their goods trusted with the bank and invest the money in lands,” said Alam. He said now the bank cannot sell some lands mortgaged to banks due to a lack of buyers.
He suggested banks should strengthen their monitoring over the proper utilisation of the working capital.
Asad Khan, managing director of Prime Finance, also admitted the diversion of loans for land purchases and a decline in land prices in recent months.
“Almost all the big business groups in Chittagong are under the threat of becoming defaulters as they have bought huge lands with bank loans. Many businessmen diverted their working capital in this regard,” Khan said.
He said putting a bar on investment of black money in land and apartment purchases in the current year's budget has contributed to a decline in land prices.
Realtors are also feeling the pinch.
“We have asked our members not to buy new lands,” said the general secretary of REHAB. Signing money, which is given to a seller on his/her land prices, has also declined by 40 percent.
“I'll neither buy any new land nor undertake any new project at the moment,” Rana, also the owner of Bashsthan Development Ltd, said.
He, however, said the prices of apartments did not decline though thousands of flats remain unsold for months in Dhaka.
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