Long road to recovery for real estate sector

With the resumption of economic activities from June, many sectors are slowly seeing their lost business return. But not the real estate sector.

"Property sales have plummeted because of anxiety over an uncertain future -- no one knows what to expect in the next few months or a year, and that entails a sense of vulnerability," said Tanvir Ahmed, managing director of Sheltech Group, one of the leading realtors in Bangladesh.

Those who earn enough to purchase an apartment or a piece of land were less likely to suffer a significant financial loss over the last five months.

In these present times, high-end projects are facing more cancellations, he told The Business Standard in an interview recently.

"People are conservative now when it comes to spending -- they have been shying away from expenditures that can wait."

Alongside the drop in sales of new apartments, the realtors are facing non-payment of monthly instalments by clients and cancellation of purchases already made.

About 70 percent of buyers of Sheltech's ongoing projects in the capital have not paid their instalments in the last four months.

"That is the biggest dent to recover from," said Ahmed, who took the helm of the 33-year-old company in August last year after its founder and then MD Toufiq M Seraj passed away two months earlier.

Moreover, 25-30 percent of clients have cancelled the contracts altogether.

Each cancellation order obliges the company to pay back the money that it has already spent on construction.

"There is this cumulative impact that we are dealing with. It is not only Sheltech, but almost all the 1,200 members of REHAB [Real Estate and Housing Association of Bangladesh] who are suffering from this -- more or less."

Developers cannot afford to offer discounts to lure new clients and to keep old ones, which will eventually lead to huge losses, said the 36-year-old, who became the country's youngest commercially important person in 2014 at the age of 29.

The coronavirus pandemic, which forced construction works to a halt, has also left realtors in another pickle: looming penalties for delayed handover of flats, both to landowners and buyers, as spelt out in the contracts.

Sheltech is the pioneer of the flat-sharing concept with landowners, which has become prevalent in Dhaka.

Under the model, the realtors take over the plot from the owner in exchange for a certain portion of the flats in the structure to be constructed and a lump sum amount.

The model works well for both parties: the realtors do not have to fork out a huge amount to acquire the plot, which is at a premium in a small city like Dhaka, and the landowners can pass over the hassle of construction to the developer.

If the realtors fail to hand over the flats to the landowners within the stipulated time, they have to pay a penalty.

So far, Sheltech has completed about 170 projects and handed over more than 4,200 flats to customers. It has 25 ongoing projects in different parts of the capital.

What Sheltech is now doing is negotiating with landowners for a time extension to complete the construction work and hand over their share of apartments.

Landowners have been accommodating, said Ahmed, who holds a Masters degree from Cardiff University, an undergraduate degree from Kingston University and a diploma from the London School of Economics, all based in the UK. 

Buyers can also leverage this opportunity: they will get more time to pay for apartments to become their own. 

Sheltech, though, is not dwelling too much on the pandemic and is preparing for the future.

The company has begun the process of signing more deals for building flats so that when the economy picks up, it will have a rich portfolio of products with varied sizes and prices. 

Ahmed is hopeful that the government and the private sector can collaborate to provide affordable homes to people of all strata.

"The perception of Dhaka being one of the most expensive cities in the world is always one-sided. It is the people who make the city expensive. As the population grows, people's income and properties become pricey."

In any other city where living expenses are high, people from all financial backgrounds live.

Properties might be expensive in the centre of Dhaka, but it has settlements around its periphery where flats can be available at affordable prices.

Besides, if the government lifts the cap on the maximum height of multi-storey buildings in the capital, depending on the type of land, vertical expansion is possible to accommodate more people.

"Dhaka can accommodate more people. High-rise buildings can provide a solution to housing problems."

The real estate sector has the scope of expansion outside Dhaka, particularly around the 100 export processing zones that the government has planned all over the country.

The other factors that can facilitate the growth of the sector are single-digit bank interest rate, low prices of raw materials, reduced registration cost and investment of undisclosed income.

"When all these are ensured, the sector will bounce back at a faster pace and thrive, mitigating the need for housing during and after the pandemic," said Ahmed, whose father Kutubuddin Ahmed founded Sheltech with Seraj.

He is hoping to take the company, whose reins he has been entrusted with, further ahead.

"The first generation struggled to build the company. Now I am striving to give it a corporate structure with skilled professionals."

This will ease the succession process and save the company from any major mishap.

"These steps are necessary for any company to become bigger than any one individual and to run for generations."