Real estate hit by high interest rates

Real estate has been hit by high interest rates that have caused a severe drop in sales, industry people said.
Real estate developers now pay 18 percent or more in interest rates for bank loans, up from 14-15 percent a year ago, M Wahiduzzaman, general secretary of Real Estate and Housing Association of Bangladesh (REHAB), said.
At the same time, the interest rates on loans to buy properties have also increased significantly, to upwards of 18 percent, he added.
Together with the realtors' capacity to repay loans, the demand for properties has fallen as a result, the REHAB general secretary said.
The increase in costs for bank borrowings, however, was necessary, bankers said, after a spike in default loans related to the sector.
“Banks are cautious about financing the real estate developers,” said Helal Ahmed Chowdhury, managing director of Pubali Bank, which charges 15 percent for realtors and more for buyers.
There is also a ceiling for equity and loan (65:35) ratio for buyers, meaning that a buyer has to pay Tk 65 lakh against a loan of Tk 35 lakh to purchase a flat worth Tk 1 crore, he added.
There are around 20,000 unsold flats in the country, mainly in Dhaka and Chittagong, according to REHAB.
“From an investment perspective, return expectations are much lower now as prices have gone down as demand slows,” said Toufiq M Seraj, managing director of Sheltech, a pioneer in the sector.
He said the situation is so dire that a price correction is not sufficient to raise demand.
“There used to be a time when we sold flats at the under-construction level. Now, we are facing cancellation of booked flats.”
On bank interest rates, he said it depends on the clients and banks. “Bank interest rates for us are between 13.5 percent and 15.5 percent,” the Sheltech MD said.