Missed instalments leave many realtors in the soup
Realtors are also not getting bank loans due to low sales of flats and plots
Gloom over real estate sector -
- In Bogura, Tk500cr stuck in real estate sector due to adverse impacts of pandemic
- In Sylhet, the sector that had been in recession for almost half a decade has nearly collapsed amid pandemic
- In Rajshahi, the developers seek easy bank loans to stay afloat
- In Khulna, the housing sector saw its business going down to less than half the normal size during the general holidays
There appears to be no end to the realtors' problems.
Other than a slump in sales, they are now battling non-payment of instalments on flats sold -- their blood supply -- as the pandemic lopped the income of the middle-class people, a key demographic for the sector.
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As many as 80 percent of the buyers have not paid their instalments, according to Alamgir Shamsul Alamin, president of the Real Estate and Housing Association of Bangladesh, the sector's trade body. The association has 1,200 members.
Due to the high interest rate on bank loans, realtors fund their construction works and other operational expenses with the advances put forward by the buyers.
A missed instalment of even a month can put many smaller realtors in trouble. But thanks to the coronavirus outbreak in Bangladesh, many are having to do without any instalments since May.
While the big realtors can manage this unexpected cash flow choke-off, it is the smaller ones that are suffering, Alamin said.
Were the realtors able to avail funds from the Tk 30,000 crore stimulus package announced for the manufacturing and service sectors, it would have helped them to overcome the crisis.
But many could not get funds owing to various conditions, including bank-customer relationship, said a realtor upon condition of anonymity to speak candidly on the matter.
"Many banks are not interested in giving loans to small companies," he said.
At the same time, realtors are also not getting bank loans due to low sales of flats as the agreements they sign with buyers act as their collateral, according to Kamal Mahmud, vice-president of REHAB.
The Business Standard spoke with 15 real estate companies, most of which are mid-range ones. They complained of a raft of problems as a result of the skipped instalments by buyers.
A large number of workers in the sector have lost jobs due to the cash flow crisis. At the same time, most firms failed to pay a regular salary to their staff.
"Almost everyone is facing a financial crisis. Everyone had to cut back on their expenses to stay afloat," said Shahadat Hossain, managing director of Jams Group.
Save a for a few large companies, all had to cut back on their employees' salary by 40-50 percent, said Hossain, also a director of REHAB.
About 35 lakh people are employed directly and indirectly by the real estate.
And most of the day labourers have lost jobs as construction works in about 6,000 projects belonging to various REHAB members came to a screeching halt on March 26, when the government had announced a countrywide general shutdown the flatten the curve on coronavirus.
Soon after the shutdown was lifted on May 30, a few large realtors resumed construction on their projects in line with the health and safety guidelines to prevent further outbreaks.
As such, developers have been forced to recruit a smaller number of workers to maintain adequate social distancing at projects.
But the mid- to small-sized realtors though have failed to jumpstart the construction works for want of funds.
One such realtor is Dream Palace, which develops properties in the capital's Mirpur area.
As many as 90 percent of its customers did not furnish instalments during the pandemic, according to Delwar Hossain, its managing director.
Now, some have started paying instalments but at least five customers have informed the firm that they will not be able to continue it any longer.
Having been unable to pay instalments, buyers in at least six properties have revoked their purchase orders and withdrew the entire amount, including the down payment.
From March to June, about 70 percent of the buyers did not deposit their instalments for flats bought from Navana Real Estate, said SM Masudur Rahman, senior executive (marketing) at the firm.
"We started sending letters to customers in June. Now, many are paying their money instalments. Some are gradually paying the old ones too."
But 8-10 percent of the buyers have revoked their orders and took the money back.
Navana, which is currently working on more than 20,000 flats under 77 ongoing projects, is concerned as new flat sales are abysmal.
It is a similar scenario over at Runner Properties.
Between March and May, 90 percent of the buyers failed to pay the instalments, said Pavel Ahmed, manager (marketing) of Runner Properties, which had found takers for all 170 of the flats under its 14 ongoing projects.
"After issuing a letter in June, many started paying the money. However, at least 20 percent of the customers are still not able to pay the instalments," Ahmed added.
Abed Holdings, which has about 550 flats being constructed under eight projects, both ongoing and upcoming, is being realistic.
"Everyone has been in trouble because of the coronavirus. We did not put pressure on customers," said AKM Barkatullah, managing director of Abed Holdings.
Meanwhile, Mahmud is hopeful about the future because of a measure in this fiscal year's budget: investment of undisclosed money in properties.
"We already see some reflection of the move. Once the coronavirus subsides, it will help us more."
The move to allow government employees to buy houses at 5 percent interest and the capping of interest rate on lending at 9 percent would also help the sector, he added.
