Real estate and stock market are two vital parts of Bangladesh’s economy. Where real estate business only deals with properties, the stock market doesn’t have any particular products or services. Instead, it works as an intermediary and provides a platform to list companies for stock transactions. Real estate is one of the sectors listed in the exchange out of a total of 22 industries. Since both of them function as investment options, they can impact each other and benefit from one another as well. Let’s find out how real estate effects the stock market.
Purpose of Investment
Before getting into how real estate effects the stock market, let’s take a look at why companies and individuals go for stocks in the first place. Any share of a company in the market represents a right to equity of that particular organization. In exchange for the equity, the individuals or other entities pay a certain price per share. That’s how companies can generate funds for their projects. There are several types of shares in the market offering diversified benefits such as price and dividend returns. With a good understanding of the market, can receive a high return on investment within a short time.
Real estate, on the other hand, is one of such investments that requires a large amount of funds which companies look to generate from the stock market. Then again, investors can purchase apartments in Dhaka using personal savings and home loans as well. They can also benefit from price gains. But unlike the stock market, the investment horizon is mainly long-term and yield is usually much higher.
Listed Real Estate Companies
As real estate businesses often need a steady cash flow to finance their projects, companies rely on the stock market as another source of funds. In our country, there is only one core real estate company operating in the capital market. Others operate as private entities and utilize loans and different forms of debts to run the business.
The underlying concept is, when the real estate sector performs well, the share price of these companies will go up. When it does, investors can utilize this opportunity to generate returns. Since we have only one company in the stock market, the market doesn’t reflect the growing trend of real estate properly.
Ancillary Real Estate Industries
While the core real estate business is yet to create a substantial impact on the market, ancillary industries of the real estate sector have a large market capitalization. Meaning, a good number of shares of these companies constitute a huge portion of the capital market. For instance, there are several A-category shares like BBS cables and BSRM steel from ancillary real estate industries.
Since the core operation of these companies is related to construction, the property market becomes a significant part of their business too. As people start demanding more accomodation, developers will be looking for opportunities to increase supply. It will automatically boost sales and consumption of construction materials such as cement, steel rods, cables, glass, and ceramic-based products which will be reflected on their stock price.
The more profit a company can generate, the higher return an investor can enjoy. Since the real estate market in Bangladesh has been performing exceedingly well in recent years, such related industries utilized the opportunity for their individual growth. Aggregating their performance, these industries contributed to a great extent in the stock market till now. That’s how real estate effects the stock market via the ancillary industries.
Real estate companies are not the only ones transacting in the stock exchange; there are hundreds of business from various industries. Therefore, it is not uncommon for a particular sector to grow reversely to the market trend. Real estate is one of such industries that is currently outperforming the stock market. Drivers of real estate coupled with the bearish trend of the capital market attracted new investors to purchase properties instead because of the high returns. This recent shift will ultimately create an impact on the stocks, but it may take a while to actually make progress.
Since Bangladesh’s economy is experiencing steady growth and may continue to do so till 2030, it is safe to assume a positive trend for the two markets in the future. As listed industries develop with the economy, the stock market will automatically reflect their performance. Moreover, the real estate industry, in particular, should have a resilient future ahead considering massive infrastructure developments in Dhaka and the continual increase in demand for accomodation. Therefore, positive growth is impending for the stock market in the future.
Bangladesh’s capital market is yet to utilize its full potential since many investment instruments are not available in the market. Regulators are hopeful about bringing new products such as Convertibles, Bonds and other Shariah-based investment tools. If they are incorporated into the market, there will be more opportunities and the growth impact will be higher. What is your opinion on how real estate effects the stock market? Let us know in the comments section below.