In what seemed to be a never-ending saga of uncertainties for the global economy during the pandemic, Bangladesh’s real estate sector remained somewhat steady as opposed to some countries. With the enactment of the revised budget for FY 2020-2021, a couple of new regulations were put in place to save the real estate market from the impact of pandemic. And it worked. The real estate sector bounced back and the future was looking great at the beginning of 2021. But in the wake of an armed clash on Europe’s border, the situation has become very precarious once again with the world economy on the receiving end of a fatal blow. And this time the crisis could spell even more bad news for the real estate sector in Bangladesh. Here is what happened in the real estate market in Bangladesh in FY 2021-2022?
Raw material price
In the wake of the raw material price increase, the real estate market in Bangladesh in FY 2021-2022 experienced a surge in property prices. During the peak pandemic in 2020, the entire world went into a hibernation state.
As a result, it made it difficult to import scrap materials and similar necessary goods for producing steel, cement, and other construction materials making a serious dent in the construction industry and it negatively impacted all the related ancillaries in the process.
In November 2021, the price of per tonne steel went up to BDT 77,500 and the price per 50kg of cement stood at BDT 430 which was BDT 53,000, and BDT 360 before July 2020 respectively; a 46% price increase for steel and 19.4% for cement.
In that meantime, the price of stone had also gone up by BDT 3,000 a tonne, and the sand had ticked up by BDT 2,000 a truck with the prices of floor and wall tiles on the rise.
Besides, the price of locally produced bricks had gone up by BDT 1.5 for a piece, auto bricks by BDT 2.5, ceramic bricks by BDT 5, and concrete bricks by BDT 8.
The impact of the Russia-Ukraine war
But before the economy could recover fully from the impact of the pandemic, it was further aggravated by the Russia-Ukraine crisis. The undergoing conflict has already triggered turmoil in the financial market and is being permeated in every industry throughout the world. And now we are heading for stagflation, a phenomenon that occurs when the economy experiences inflationary pressure while the inventories remain stagnant.
Just after a week of Russia-Ukraine turmoil in February 2022, the price of the rod had risen by BDT 6,000 – BDT 7,000 per tonne, imported stone by BDT 4000 which was BDT 3000 before, and per 50kg cement by BDT 50.
This additional price hike in raw material has ultimately caused a 30% increase in flat prices and the construction stopped for almost 50% of flats sold in the years 2021 and 2022.
This, in turn, increases the overall price of the property. That is why, right now if you want to buy a newly constructed property, it can cost you more than a similar property constructed before the price hike, which creates an imbalance in the fabric of the real estate business in Bangladesh.
The secondary property market is on the rise
So coping with the sudden rise in prices seems to be a huge challenge for the housing sector in Bangladesh. The struggle seems to have become a little more difficult, especially for the people with middle-income status who have saved money or taken a loan from a bank to purchase a home in the heart of the city.
However, all hopes are not lost as more and more people are leaning toward second-hand property, even considering buying one. According to Bproperty’s database, the number of queries for used flats increased by about 14% in 2021 compared to 2020.
This is because, unlike the newly constructed properties, second-hand properties or used properties (constructed before the pandemic) are devoid of any such impact caused by the subsequent global turmoil. Also, currently, the number of old flats far outstrips the new ones and this leaves people with no choice but to buy a used one.
As a result, people are finding buying old properties more convenient and even profitable in some cases. Now, this is a great opportunity, especially for people with middle-income status.
Building construction rule – 2021
Another thing worth noting was the proposition of the Building Construction Rules – 2021 in DAP(Detailed Area Plan 2016-2035). Not only was it controversial but also destructive to the real estate sector according to experts. If it’s finalized, the new rules can significantly drive up the property price impacting buyers and the business alike.
Previously, you could build an 8-storey building with 13,500 sft. livable space on a 5 katha land by a 20 feet road, but now according to the proposed Building Construction Rules – 2021, you can only build 9,000 sft. in that similar building.
Also, according to the Dhaka Structure Plan 2016-2035, you can’t build past a fixed limit (depending on the area). This also means that developers wouldn’t be able to make much profit out of selling apartments as they used to.
Over the last few years, a series of initiatives were required to keep the sector afloat. The permission to invest untaxed income in real estate in Bangladesh, the implementation of a single-digit interest rate for loans (except credit cards), and the slashing of overall property registration cost from 14-15% to 10-11.5% of the total deed value are three of the most effective courses of action that our government took to keep the sector steady.
But even with them in place, the real estate market in Bangladesh in FY 2021-2022 experienced some issues regarding market growth due to increased raw material prices and regulatory policies. Now with the new budget for FY 2022-2023 in place, we can only be hopeful about the future prospects of the real estate sector.