Untaxed money fuels real estate growth

The real estate sector has almost bounced back from Covid-19 shocks, riding on a handsome investment of untaxed money.

When many sectors are still struggling to recover to pre-pandemic levels, many big players have registered a 5%-10% growth in real estate businesses during September-November with a rise in flat sales. Many companies are now planning to come up with new investment in this sector.

Some 3,520 persons have bought flats with at least Tk3,200 crore of undisclosed money, capitalising on the scope for investing black money in the sector, according to the National Board of Revenue (NBR).

According to businessmen in this sector, sales of flats have increased as untaxed money holders got the opportunity to invest their undisclosed money in real estate, paying a flat 10% tax, no questions asked about sources of their incomes.

The lowering of interest rates on bank loans and land registration fees has also been an incentive. As a result, about Tk5,000 crore has so far been invested in this sector in the current fiscal year.

Alamgir Shamsul Alamin, president of the Real Estate & Housing Association of Bangladesh (REHAB), said, "We are getting information about an increase in flat sales from members of our organisation. The opportunity of investing undisclosed money without facing any question has had a positive impact on the sector. All in all, the housing sector has started to turn around."

According to NBR sources, Tk302 crore has flowed into the exchequer from the investment of undisclosed money in purchasing flats or plots.

To whiten black money, one has to pay Tk4,000-6,000 in tax per square metre for buying a flat in commercial areas of Gulshan, Banani, Baridhara, Motijheel and Dilkusha, according to the budget announcement,

The amount of tax is Tk3,000-3,500 per square metre in Defence Officers Housing Society (DOHS), Dhanmondi, Mohakhali, Lalmatia Housing Society, Uttara Model Town, Bashundhara Residential Area, Dhaka Cantonment, Karwan Bazar, Bijoynagar, Nikunja, Wari, Segunbagicha areas in Dhaka, and Khulshi, Agrabad, Nasirabad areas in Chattogram.

The tax per square metre in any city corporation outside these areas is Tk700-1,300.

Concord Real Estate Limited, one of the leading companies in the country's housing sector, reports receiving good responses to its projects in Gulshan, Banani, Baridhara, Uttara, Dhanmondi and Khilkhet areas even at this pandemic time. The company's apartment sales grew by 8-10% in October-November.

Tareq Alam, managing director of Concord, told The Business Standard, "Our business has fairly been normal except for three months from March to May. But we had better business in the last two months. We have several new projects in the pipeline for 2021. We are hoping for good business in the new year."

Abed Holdings Ltd embarked on a project to build 20 luxury flats each worth Tk2 crore in Shantinagar in May this year. The company has sold more than half of their flats in the last seven months.

The company has 550 apartments in eight ongoing and upcoming projects. An official of the company said all of their housing projects are witnessing good sales.

AKM Barkatullah, managing director of Abed Holdings, said, "Everyone is in trouble because of Covid-19. We did not put pressure on our customers. The flats whose purchase orders were cancelled have also been sold again. We have also received great responses to our new projects. The investment of undisclosed money probably has some influence here."

BTI, which has gained a reputation by selling green and state-of-the-art flats, has been witnessing its sales to grow at 5% to 10% since September, overcoming the Covid-19 effects.

Mohammad Moniruzzaman, chief operating officer of BTI, told TBS, "Sales of flats increased by 5%-10% in September over the same period last year."

"The permission for injecting black money, to me, is not a major factor because the provision was there in previous years as well. This time, registration costs have gone down significantly, which might have encouraged people to buy flats," he added.

Besides, low bank interest rates have discouraged people from parking money in banks; investing in property is now more lucrative than before," he added.

Sheltech, One of the prominent real estate companies of the country, has 15 new projects underway in the capital's different areas, including Banani, Gulshan and Dhanmondi.

According to the company's sales department, they sell at least 30 flats every month, with a turnover of Tk70-80 crore. They did not sell a single flat in the four months from March to June this year. In July-August, sales restarted slowly. Their business has made a turnaround since September. In October and November, their sales increased compared to those in the same period of the previous year.

Tanvir Ahmed, managing director of Sheltech, said, "In March-April, 70%-75% of customers failed to pay their instalments. In the last few months, the total money has been recovered. However, it will take some more time for sales of flats to reach the previous level."

Navana Real Estate, another major real estate company, is building more than 20,000 apartments in 77 ongoing projects. Some 80% of these flats have been sold in the last two years before the pandemic. Almost all the flats have now been sold overcoming primary shocks of Covid-19. New projects are also coming.

However, fear of a second wave of Covid-19 has put a damper on sales again, said SM Masudur Rahman, senior executive (marketing) of Navana Real Estate Limited.

"Business was non-existent from March to June. Payments of instalments and sales of new flats have started again from July. However, there are both positive and negative trends in sales, depending on location and fittings."

Flat sales of Rupayan Real Estate Limited, another prominent company, have been increasing since September.

Omar Farooq, senior executive of Rupayan Housing Limited, told TBS, "People are not sending money abroad as the government has a scope to invest undisclosed money without facing any question. As a result, investment is coming in the housing sector."

He thinks it has a big impact on the increase in flat sales.

Almost all the big companies in the real estate sector said they see an increase in sales. There are an increasing number of inquiries from promising buyers as well.

However, small companies are not doing so well, they claim.

Delwar Hossain, managing director of Dream Palace Limited in Dhaka's Mirpur, said, "Some 90% of customers did not pay instalments on time during the Covid-19 caused shutdown. Some of them have restarted payment now. Customers are also inquiring about new flats. However, it will take at least one more year to return to the previous level."

Khandakar Golam Moazzem, research fellow at the Centre for Policy Dialogue thinks black money has mainly been channeled to the real estate sector. But there is a significant amount of untaxed money compared to the amount invested in the sector.

"It is not wise to offer the scope of whitening money for such a small amount of investment. We should look for another procedure to inject the undisclosed money into the economy," he also added.