Affordable homes for all
How? One right policy
A comprehensive policy taking into account the interests of landowners, builders, financiers and prospective homeowners can give a boost to the housing sector and enable more people to own homes, said industry players and financiers yesterday.
There are several policies and initiatives taken by the government for housing but they are framed in a piecemeal basis and not enough to ensure housing for all, said speakers at a roundtable discussion on affordable housing and the role of stakeholders.
The discussion was organised by The Daily Star at its office in Dhaka.
Owing to the high prices of properties owning homes become tough for many.
For instance, in Dhaka city, the prices of apartments are more than 100 times the monthly rental or housing cost of a family because of high demand against very low supply.
Every year, 25,000 units of apartments are registered against the requirement of more than 100,000 units a year.
“Housing is our constitutional right, but having homes of own remains far away from the reach of a large number of population,” said Mohammad Abu Sadeque, executive director of the Centre for Housing and Building Research (HBRC).
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Highlights
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In Bangladesh, as much as 84 percent of the population live in houses with tin-roof.
There is no definition of affordable housing although it becomes a key issue, especially in developing nations, where the majority of the population are not able to buy houses at market price.
Owning homes become affordable only when the monthly instalments are 30-35 percent of their incomes.
Subsequently, the government, researchers, builders and financial institutions have roles to play to make housing affordable for the middle-income people, which form the majority of Bangladesh’s population, Sadeque added.
“The housing situation is dire,” said Ishrat Islam, professor of Bangladesh University of Engineering and Technology’s department of urban and regional planning.
In Bangladesh, the price of flat is very high, which is almost 120 times the disposable income, said Mominul Islam, MD and CEO of IPDC Finance. But the global standard is 48-60 times of a person’s disposable income.
In Mumbai, the flat price has been brought down from 120 times to 54 times through decentralisation and development of small unit private community housing projects.
“If we can do the same in Mymensingh, Cumilla, Manikganj and Tangail, we will be able to provide a flat within Tk 25-40 lakh.”
In Bangladesh affordable housing finance is almost non-existent, he said.
In India, the government provides tax break to boost affordable housing, which brings down the actual interest rate on home loans to 5-6 percent.
“Therefore, even a driver or a small shopkeeper in India can afford a flat. We need to learn from these good examples,” Islam said, while calling for digitisation of land records at the earliest.
The main reason for the high prices of apartments is the high land prices, said Akter Mahmud, professor of Jahangirnagar University’s department of urban and regional planning.
“The government has no control on the land market. It should be regulated,” he added.
FR Khan, managing director of building technology & ideas (bti), said the government should take measures to regulate the cost of basic construction materials.
Rod and cement account for 20 percent of the total project cost and both the construction materials’ costs have shot up Tk 200-500 per square foot this fiscal year for budgetary measures.
The secondary market for homes should be developed and the high registration cost be reduced.
At present, the registration cost accounts for 15 percent of the property price, Khan said.
“The high registration costs make flat purchase expensive for the middle-income group,” said Rejbeen Ahsan, general manager of bproperty.com.
The interest rate on home loans should also be brought down to single digits, the bti MD also said.
It would be tough for banks to lend at single digit interest in the absence of long-term financing facilities, said Syed Mahbubur Rahman, MD and chief executive officer of Dhaka Bank.
“Ideally, the tenure of home loans should be as high as 30 years,” said Khwaja Shahriar, MD and CEO of LankaBangla Finance.
But, it is tough for financial institutions to offer such loans in the absence of long–term financing facilities.
Subsequently, he called for reintroduction of refinancing scheme for housing finance.
To address the absence of long-term funding in the country, the bond market needs to be developed, said Arif Khan, CEO and MD of IDLC Finance.
He also demanded the government slashes the value-added tax on materials used for construction.
“Its effect would be positive in the economy,” Khan said, while calling for an integrated policy from the government, involving all stakeholders, for ensuring housing for all.
The Bangladesh House Building Finance Corporation should play a more proactive role in ensuring affordable housing, said Rahel Ahmed, MD & CEO of Prime Bank.
A specialised home financing company needs to be established, which can support mortgage and house financing, said Selim RF Hussain, CEO and MD of BRAC Bank.
“We need to roll out long-term bonds. Today, people do not invest in the bond market because they do not get any tax benefit. The National Board of Revenue should look into this issue seriously,” he added.
The government should provide tax and other benefits to tempt the young professionals to become first-time home buyers, said Tanveerul Haque, MD of Building for Future and the former president of Real Estate and Housing Association of Bangladesh.
“Housing a very integral part of prosperity. Everyone wants a home,” said Mahfuz Anam, editor and publisher of The Daily Star.
Ahsan of bproperty: “For reasonable and affordable housing, we must go out of Dhaka city, where the land price is still comparatively low.”
But the Dhaka Bank chief Rahman, also the chairman of the Association of Bankers, Bangladesh, the platform of private banks’ chief executives, said people would only buy into the idea of decentralisation if a good communication system with the Dhaka city is in place.
Mahfuz Anam
Editor and Publisher, The Daily Star
In Bengali psyche, the concept of owning a house is very important. It is everyone’s dream. But, due to various factors, such as land scarcity, high interest rates on home loans, high registration costs and a lack of government initiative, affordable housing remains a big challenge for the common people. The Daily Star would like to raise the issue of affordable housing. In today’s roundtable, we would like to learn from you what needs to be done to realise the goal.
Almost 60 percent of our population is in the middle-income group. They can be the target group for affordable home schemes. The expenditure for housing should not be more than one-third a person’s income.
The stakeholders are the government, researchers, manufacturers and builders.
The government needs to work on pro-housing policies. Researchers can help reduce construction costs.
If we can use research to add durability and sustainability to the building process, then the cost of building construction will decrease. Builders need to have good management and commitment.
Our main motto in providing housing facilities should be that it is firstly a service and secondly a business.
If we can ensure good governance in the financial sector the buyers’ buying capacity will increase and they can afford quality housing.
Our construction technology must be agriculture friendly, environment friendly, disaster resilient, sustainable and affordable to the low-income people.
We should promote the use of alternative building technologies, which will reduce the use of building materials and thus cause less carbon emission and make our buildings sustainable.
We have to bring down the interest rate on home loans to single digits, preferably to 8-9 percent.
Recently, there has been a price hike in construction materials -- it now comprises 20 percent of the total cost. The government should take measures to stabilise the prices of raw materials.
Using concrete blocks instead of clay bricks the total costs comes down by 10 percent. We have to use concrete blocks for sustainability.
In the secondary housing market, the registration cost is still 15 percent, which makes the secondary housing market unaffordable.
We need to control urban migration. Otherwise, housing will never be affordable. We need to develop the communication system and establish basic facilities outside of urban areas.
We are failing to do maximum utilisation of our land in urban areas. Slums, for example, take up 40 percent of the total land in the capital city, and the living condition in these areas is very poor.
If we can develop these areas in an efficient manner, we can accommodate more people and provide the existing slum-dwellers a healthy living facility.
Rajdhani Unnayan Kartripakkha (Rajuk) is doing housing projects in Purbachal. But they do not have any particular project for poor people’s housing in that area.
Again, the detailed area plan does not have any particular plan for providing housing facilities for low-income people.
We also need to rethink the concept of owning a home. In Germany, there are more housing units under rentals than under ownership. We can think about developing rental housing in a planned way.
Every year 6 lakh people add to the population of Dhaka. So, there is a need for 125,000 housing units. But our developers, on average, provide 25,000 units per year. How can we meet this huge gap in housing demand?
We need to develop a business model so that the investors can get some profit from their investment. It cannot be made effective with the philanthropic model.
The recent structure plan of Rajuk recommends block-based housing development. This can be a good initiative as it includes diverse communities and housing facilities in reduced prices.
We need to regulate the price of land to bring down the rates. The government should set a bar regarding the price of lands based on location.
The middle and affluent consumer group (MAC) is around 12 million in Bangladesh. The disposable income for the MAC group is more than $400 per month.
By 2025, the number of MAC population will be close to 25 million. But this huge population does not have good housing facilities. They can be the potential target group for affordable housing schemes.
In Bangladesh, the mortgage-GDP ratio is very low, which is less than 2.5 percent.
Unfortunately, it is not increasing. It shows weaker growth in our home financing market. Even in India it is 10 percent.
In Bangladesh the price of flat is very high, which is almost 120 times the disposable income. But the global standard is 48-60 times of a person’s disposable income.
In Mumbai, the flat price has been brought down from 120 times to 54 times through decentralisation and development of small unit private community housing projects.
If we can do the same in Mymensingh, Cumilla, Manikganj and Tangail, we will be able to provide a flat within Tk 25-40 lakh.
In Bangladesh affordable housing finance is almost non-existent. In India, the government provides tax break to boost affordable housing, which brings down the actual interest rate on home loans to 5-6 percent.
Therefore, even a driver or a small shopkeeper in India can afford a flat. We need to learn from these good examples.
We also need to formulate foreclosure law to develop our mortgage industry.
In Bangladesh, home financiers get money from depositors. But people deposit money for a very limited period. There is also no good source for long-term financing in Bangladesh.
Our bond market also has not developed strongly. Therefore, it is really difficult for the home financiers to provide long-term loan.
If a large area can be developed for a housing project, basic facilities like school, hospital, shopping mall can be accommodated there, which will significantly reduce the living cost as well as the cost of housing.
But it is really difficult in Bangladesh to get that because there is a huge mess in our land recording system.
The World Bank took an initiative to digitise land records but somehow, those did not see the light.
If we can digitise land records it will significantly ease the land-related problems and home financers will be able to provide loans in an efficient manner.
It has been projected that by 2021 we will need almost 8.5 million housing units in Dhaka city. Dhaka does not have that capacity to accommodate this growing population. Therefore, we have to go up vertically now.
We need to decentralise. If the commuting time between Dhaka and other cities can be reduced, people will be more convinced about decentralisation.
We need to think if we can compromise on floor area ratio (FAR) regarding small and affordable housing. For instance, we can exclude dedicated car parking.
Also, the plans for affordable housing and normal housing should not be similar.
Institutions such as the World Bank and the International Finance Corporation are interested to give us loans. We should take those accordingly to help solve our financing crisis.
We need to focus more on first-time buyers because for them buying a house is kind of an investment.
If a person avail home financing at the age of 25 and the loan tenure is of 30 years by the age of 55 he/she will be able to repay the money and enjoy the housing facility for a considerable period of time.
Long-term loans will encourage people to own homes at a young age. There is also a trade-off between the tenure of loans and instalment rate.
In rural areas housing-related regulations are not very clear. Therefore, it becomes quite risky for financial institutions to finance any housing projects in rural areas.
Our communication structure is developing but it needs to be developed rapidly.
Unfortunately, commercial banks are accused of everything in Bangladesh, but we also need to scrutinise why the Bangladesh House Building Finance Corporation has been defunct in playing a critical role in the housing ecosystem.
As a financial institution, we need long-term refinancing and liquidity support.
We also need to digitise our banking system to disburse loans in an efficient manner.
We also need to identify a niche market. No policy has been made from the government or regulatory board on such issues.
There is no integrated approach from the government to address the issue of affordable housing. Without any such integrated policy, we cannot create coordination among the stakeholders.
The National Housing Authority should also formulate a long-term strategy in this regard. If government take an initiative to establish 100 affordable housing zones like economic zones it will definitely boost affordable housing in Bangladesh.
We need to develop a commercially viable model for making housing affordable.
A specialised home financing company needs to be established, which can support mortgage and house financing.
We need to roll out long-term bonds. Today, people do not invest in the bond market because they do not get any tax benefit. NBR should look into this issue seriously.
During fiscal 2006-07, the Bangladesh Bank allocated Tk 300 crore for home financing. In the next years, it increased to Tk 500 crore. Suddenly in 2009 the Bangladesh Bank declared housing an unproductive sector and stopped the home financing scheme.
I do not understand their logic behind such abrupt decision. The housing sector is directly related with more than a hundred other sectors such as steel, cement, paint and so on.
Any incentive in housing sector will have multiplier effect on the whole economy. I think the Bangladesh Bank should reconsider their decision and relaunch the home financing scheme.
The government should go for public-private partnership with private developers to make housing affordable. In such venture, the government will provide land and the private will do the rest.
A specialised bank, that is a real estate bank, should be set up to provide long-term house loan with low interest rate. An especially reduced interest (3-5 percent) can be introduced for the first-time buyer only.
The private sector stakeholders related to the whole housing issue should come to a platform and share their resources to make housing affordable in Bangladesh. We also need to emphasise on decentralisation and development of satellite cities.