Real estate development is a value-adding service concerning land and construction of residential, commercial, industrial and related infrastructure. It is one of the major drivers of a nation’s economic development and industrialization. In Bangladesh, the property market is no different although the concept of real estate is relatively new compared to neighboring countries. Within a short period, this sector has gone through some major ups and downs. Since it has a strong multiplier effect on economic activities, the growth of the country heavily depends on real estate development. However, what factors drive such an important industry? Let’s a take a look at some of the critical driver points of real estate in Bangladesh.
Availability of Raw Land
Raw land is one of the essential features of real estate development as it is a vital part of construction and the expansion of the business. Availability of large under-developed land helps developers to plan the business in a systematic manner. However, in Bangladesh, real estate companies cannot always get their hands on sufficient land as small investors are also a part of the market. As more land is partitioned and sold to small investors, the market becomes more segmented. For such practices, land prices become uncompetitive, which can turn out to be a huge constraint for the market.
Side by side, land record management is still ambiguous to many and people are apprehensive about the process. Such trust issues in a crucial part of Bangladesh real estate market hinders the growth potential of the industry.
Developers heavily rely on and spend a major portion of their investment on construction materials. A sudden fluctuation in the construction material market can push up the price of the property a notable amount. However, most prominent developers have strong relationships with suppliers, which can help minimize the effect on the apartment price. However, market volatility cannot be controlled all the times. That is because the prices of construction materials mostly depend on electricity, dollar value, oil and imported raw materials from the global market. In such situations, developers have no choice but to pass the added cost to apartment buyers.
Market Interest Rate
Most home buyers take home loans to purchase a property. Thus both consumer income and market interest rate heavily influence real estate construction and property demand. In recent years, Bangladesh has experienced a downturn in lending rate, which has allowed borrowers to source their investment at a lower cost. With higher accessibility and increased purchase parity, demand for properties has gone up and been followed by a surge in supply. This is one of the reasons why after experiencing recession for a few consecutive years, the property market finally bounced back and start
Real estate business is also dependent on its investors for capital. For investors, the property market is an excellent opportunity to earn a higher return within a particular investment horizon compared to other available instruments. However, the socio-economic condition of a country plays a big role in attracting funding.
During the early 1990s, Bangladesh experienced a sudden change in economic practices which led the industry into a recession. Later, gradual investments brought the industry back to life. A few cycles repeated after that until now. In most cases, direct investors were the core reason why the industry could bounce back. Looking at past scenarios, it is evident that during the growth period, Bangladesh real estate market attracted many inexperienced entrepreneurs lacking adequate infrastructure back up. Proper monitoring and informed decisions can prevent such occurrences in the future to protect the growth of the property market.
Globalization has increased the momentum of urbanization in many countries. In Bangladesh, the rate of urbanization is quite high due to an increase in population and rural-to-urban migration. As more people plan to settle in urban areas, demand for accomodation increases significantly. Similarly, it also attracts businesses and creates job opportunities which means broader prospects for the real estate industry. As infrastructure develops, more people migrate into urbanized areas and demand goes up a great extent. For instance, Uttara is a developing residential area of Dhaka city and a top priority for most new home buyers. Since it is the first planned residential project and has further development scope, people find purchasing apartments in Uttara highly profitable.
Bangladesh economy has a high growth potential in the future. Experts predict an approximate growth rate of around 7 percent for the next 10 years. If the entire economy grows at such a high rate, Bangladesh real estate market will also experience a robust development due to individual growth in the above-mentioned factors. What is your opinion on the drivers of Bangladesh real estate market? Share your insights with us in the comments below. We would be happy to know more!