Real estate comes back on low interest rates

Real estate companies in Bangladesh have now almost run out of ready apartments – an opposite picture of what they were going through a few years back.

Undisclosed money whitening opportunities since July 2020 along with a moderate reduction of registration costs have been helping the companies sell more apartments since the second half of 2020, according to industry people.

And the sustained historic low interest against bank deposits and home loans has further fuelled the demand for housing, with more people opting for owning rather than renting apartments.

Ready flats sold out

Alamgir Shamsul Alamin, president of the Real Estate and Housing Association of Bangladesh (REHAB) told The Business Standard, "The real estate sector has almost sold out ready flats and booking for under-construction flats has also increased."

He leads the association of 1,073 developer companies who had a total annual market of Tk58,000 crore in 2019 and the market grew at an average annual rate of 10% over the 2019-20 period. 

Even though recent compiled sales data are scant, the REHAB president said the growth should be higher this year.

Good investment 

People now find buying apartments as a good investment because they are not getting much from bank deposits and they cannot park a lot in subsidised national savings certificates, which still offer a double-digit return, said Khurshed Alam, head of retail financial services at LankaBangla Finance, one of the leading non-bank financial institutions.

"As lending rates have fallen significantly, lots of people have seen home purchases become affordable as their monthly instalments have come down to reasonable levels," said Asif Khan, co-founder at the EDGE AMC Limited and EDGE Research and Consulting Limited.

Since the end of 2019, both deposit and lending rates in the banking industry dropped by 400-500 basis points and savers now even get less than 4% a year from their bank deposits, while they can avail housing loans at a 7-9% interest rate.

"I am yet to have aggregated data on the market growth, but the demand is apparent," Alamgir said.

Growing demand

Building Technology and Ideas Ltd, a leading real estate developer of Bangladesh, has been steadily maintaining their reputation of handing over on time and quality of construction for decades.

They successfully handed over 23 projects ahead of schedule and on time last year. As of June 2021, they have handed over 12 projects, of which 9 were ahead of schedule and 3 were on time. Besides, this year they have also launched 25 brand new projects which include more than 850 apartments in different locations.

Concord Limited, a top real estate company, has already sold out all their ready flats and are now focusing on new projects. Its Managing Director Tarek Alam said except the lockdown days, their flat sales have been above average even amid the second wave of the pandemic.

Hasibur Rahman, deputy manager of brand at Navana Real Estate, said they were selling more flats this year and the growth in Aftabnagar, Rampura and Baridhara area of the capital is 20% higher than the average in pre-pandemic times.

All the realtors are happy with the pace and increasing interest from buyers after a long slump.

A larger number of customers are showing interest in flats, they noticed.  

The increasing demand is also reflected in the number of applications for housing loans and also in disbursements by the focused lenders.

LankaBangla Finance, maintaining a consistent exposure in housing loans over the years, is now receiving at least 20% more applications for housing loans over the same period in the pre-pandemic year of 2019, said Khurshed.

The number of applications could have grown much higher at LankaBangla, had there not been a sharp increase in the number of lenders competing in the housing loan business nowadays, he added.  

Competition, mainly to take over housing loans, have intensified and made the mortgage loans cheaper, he echoed other bankers.

Md Arup Haider, head of retail banking at the City Bank, said scheduled banks' disbursement growth in housing loans might not be that high as customers have to ensure a 30% down payment against a flat, while it is only 10% in the case of non-bank financial institutions. 

The City Bank, a leading private sector commercial bank, saw nearly four times housing loans growth in June after a two-month standstill amid lockdowns ending the bank's flat first half in housing loans. 

The bank has decided to increase housing loans nearly four times every month onwards and five times in 2022, compared to their pre-pandemic average, according to Arup Haider. 

He urged the central bank to lower down payment of apartment loans to 20% for banks so that people with limited income can afford loans from banks. 

Delta Brac Housing Finance Corporation (DBH), the largest housing financer in the private sector, disbursed 14% more loans during the January-June period this year over the corresponding period in 2019, while the year-on-year growth rocketed to 141% mainly owing to the one-off dent amid the prolonged general holidays in 2020.

DBH managing director Nasimul Baten said around 80% of DHB loans go to apartment buyers, while private homebuilders, prevalent outside the capital, are taking the remaining 20%.

The market trend

The real estate sector was suffering with their unsold apartments until even 2016-17, as the prices had corrected up to 35%-40% since the 2010 peak.

Over the 2007-2010 period, Bangladesh observed asset bubbles in stocks and real estate as many term loans and savings were believed to have been diverted into speculative investments.

However, real estate prices began to recover slightly in the pre-pandemic years, and moderately since the end of 2019, according to industry people.  

Apartment prices now recovered around 20% on an average from the trough, said the REHAB president.  

The price at this level has been stable enough, but may go up in the coming days as material price is rising and construction was disrupted amid the pandemic, he added.

Companies may have to increase apartment prices for their new projects if they cannot arrest costs, he said.

Many are looking for second apartment, capital gains

At this point, some savers are counting on capital gain potentials in apartments, and around 5% of the applications for apartment loans are for second apartments, said LankaBangla's Khurshed.

A few years back, not even 1% applications were in the market for a second apartment, he added.

More families now prefer buying a flat that would help save their rental expenses, or give them rental income, even if rental return from real estate is still much lower than the opportunity cost of their capital. 

"Because they now have begun to believe in capital gains from apartments. And, income in conjunction with asset growth has made real estate attractive to many," said Khurshed.

There is an emerging secondary market for real estate, be it for a temporary shortage of new ready flats or people's preference to treat apartments as an investable asset class, said Rehab president, "the government should facilitate it."

The DBH managing director observed that three-four years ago, around 95% applications used to be for buying new flats and 20-25% of the applications now are for used apartments.

Boon for the supporting industries

Cement industry was growing at a double digit rate over the last decade until the pandemic flattened sales in 2020.

Masud Khan, a cement industry veteran who is now advising Crown Cement, said after a 12% year-on-year volume degrowth over the first six months of 2020, the local cement market grew 36% over the same period this year and the half yearly volume is much higher than the pre-pandemic days.

Steelmakers too enjoyed a great recovery and even a bigger growth, which was reflected in the financial updates of the steel mills listed on the bourses.

Masud said over the second half of 2020 of their three market segments, individual homebuilders, corporate builders and megaprojects, recovered very well from the first wave lockdown dents. 

The individual home builders, consuming nearly 40% of the industry supply, outgrew the other segments, he said. 

Rural and small town housing construction demand was the major source of cement industry growth, except the lockdown days when retail outlets remained closed and government projects and corporate construction kept consuming construction materials, Masud added. 

RAK Ceramics Bangladesh, the market leader in tiles and sanitaryware, is enjoying higher sales and profits over its five-year average. 

Sadhan Kumar Dey, chief operating officer and also the chief financial officer of the listed multinational firm, said ceramic tiles, kitchen and sanitaryware items are needed at the finishing stage of housing construction. The increased demand for their products nowadays reflects much better sales of apartments and homebuilding. 

His company is counting on a demand continuation, he added.