The real estate and housing businesses are suffering from poor sales amid the rising cost of building materials, a high registration fee for land and flats, and new government regulations to reduce the height of the building. Another reason for negative growth in the sector is people’s declining purchasing power due to higher inflation, as per the speculation of industry insiders.
They mainly attributed the global crisis, like the Ukraine-Russia war, to almost doubling the construction materials like sand, cement, rods, stone, and tiles compared to pre-COVID time.
The industry did not feel the recent shock even after the Covid-19 pandemic. Let’s take the case of Pushpo Kanon Properties. This real estate company has been constructing three apartments on 31 kathas of land next to Munshi Market, adjacent to the railway line in the Uttara Dakshin Khan area.
There are 135 units in three apartments, mostly from 1019 to 1440 sq ft and some 1575 to 1650 sq ft.
When the company started construction in early 2019, it sold a flat for BDT3200–3500 per sq ft. Now, it is costing (construction cost) around BDT4000 per sq ft. As the cost has increased, they have sent notices to some old customers to see if the price can be revised.
Now, the company is trying to sell a 1019 sq ft flat at BDT 4200 per sq ft. All expenses, including utilities, will be close to BDT 4.5 million for each. The revised price is BDT 4700 for 1222 sq ft and 1240 sq ft flat. Accordingly, their price is around BDT 6 million.
“We are no longer finding buyers at the new prices we set. People are usually more interested in ready-made flats. Though we have 15 flats ready for the last eight months, we are not getting customers,” Kawsar Ahmad Sohail, managing director at Pushpo Kanon Properties, said.
“This year we have been able to sell only four flats, compared to eight last year. 30-40 flats were sold in the pre-Covid years,” he added.
Referring to the poor purchasing capacity of the people, Kawsar Ahmad said, “We feel that the customers don’t have money. Many people go to banks for a loan after booking a flat. But those customers are not getting a positive response, as banks are also in a fund crisis. Furthermore, non-bank financial institutions also do not have much liquid money. This is also one of the reasons for the low number of flat sales.”
“Normally, middle-class families find good flats at low prices. Being a small company, no big party takes from us. Because our customers are not that rich,” he added.
He said, “Big companies don’t seem to have much of a problem. Because they have increased the prices of their flats with the increase in the price of goods. Earlier flats in Uttara Sector 4 were selling for BDT 8,000–10,000 per sq ft; now they are selling at BDT 15,000-18,000 Per sq ft. Wealthy individuals are purchasing these flats.”
This is not a unique case. According to the Real Estate & Housing Association of Bangladesh (REHAB), overall flat sales decreased in the previous fiscal year. Around 15,000 flats were sold in 2021–22, but the number has dropped to 10,000 in 2022-2023. An average of around 15,000 flats were sold every year from 2010 to 2012. From 2013 to 2016, an average of 12,000 flats were sold yearly. 13–14 thousand flats were sold every year from 2017–2020.
“The price has increased because of the new DAP (Detailed Area Plan) regulations reducing the height of buildings, increasing the cost of construction materials, and the high registration cost. The housing sector also suffered a blow as the economy stalled due to the pandemic,” Alamgir Shamsul Alamin, President, REHAB, said.
However, he is hopeful about the new investment opportunities in the sector.
“More than two crore people live in this city. There is a huge demand for flats. Three-bed flats of 1300 to 1500 sq ft will see the greatest increase in demand,” he predicts.
“However, the supply will decrease even if there is a demand for flats. As a result, the price of flats will rise,” he added.
Meanwhile, the increase in group housing trends in recent years has also hit the traditional flat business, as per the observations of stakeholders.
Abdullahil Mamun Niloy, managing director of Orchestra Builders Ltd., said, “Many are now building apartments after buying a plot by making a group of people. The culture has been rising in recent years.”
“The floor-area ratio (FAR) as per the government’s new DAP squeezes scope to build adequate flats in Dhaka city, leading to higher prices,” he added.
How much do construction materials become more expensive?
The house builders said that the price of building materials is almost double now compared to 2018–19, a pre-pandemic time.
“When we were working in 2018, we bought stone at BDT 152 per sq ft; now it is BDT 240. We bought cement at taka 365 a bag, which is now taka 550,” said a housing company executive.
Similarly, they bought rods at BDT 57,000 per ton, now BDT 98,000. The price of the sand truck was BDT 13000, which is now taka 22000.
The price of tiles is also almost double. The cost of a coil of electric cable was BDT 2200 in 2019, which is now BDT 4500. Bricks per truck (three thousand) now sell for BDT 35,000 to BDT 40,000, higher than a year ago.
“Such has grown almost unbelievably. If this goes on, small establishments would not be able to survive in the business”, he said.
Bangladesh has to depend on other countries to source most of the raw materials. Even for brick manufacturing, operators have to rely on imported coal.
The cost of registering land and property doubles
The tax on property registration has been doubled under the Income Tax Act 2023 in all areas of the country, including Dhaka, Chattogram, Narayanganj, and Gazipur. Whether transferring immovable property or land and flats in any area of Bangladesh, acquisition of ownership requires double taxation, as per the new Income Tax Act.
Under the Income Tax Act 2023, the National Board of Revenue (NBR) has fixed the new tax in the source tax rules. After taking the final decision on June 26, the Act was published in the gazette on July 3.
The owners of immovable property in Gulshan, Banani, Motijheel, Dilkusha, North South Road, Motijheel and their extended areas, and the Mohakhali area of the capital have to pay the highest amount as registration tax.
For buying property in these areas, a buyer has to multiply 8% tax per Katha or BDT 20 lakh, whichever is the maximum, which will be considered in taxing for land registration, flats, or any other structures. This is considered the highest property tax ever.
According to Section 6 of the Income Tax Act 2023, entitled ‘Collection of Tax on Transfer of Property’, property registration tax has been increased from 4% to 8% in various areas of Dhaka, Chattogram, and Narayanganj.
Besides, the tax has been increased from 3% to 6% in Gazipur, Munshiganj, Manikganj, Narsingdi, Dhaka, and Chattogram areas outside the City Corporation and municipal areas. Apart from this, the property tax under the jurisdiction of any municipality in Bangladesh has been increased from 2 % to 4 % and in other areas from 1 % to 2 %.