An enormous market in low- and middle-income housing finance remains untapped in the country due to the financial sector's focus on upper-middle class housing finance and lack of policy support.
According to a study report of World Bank Group (WBG), the market is to grow by 2020, as demand for low- and middle-income housing finance has increased from the total housing finance supply in 2015.
The report projects that demand for low- and middle-income housing finance could reach Tk 818.16 billion or US$ 10.4 billion at current exchange rate, as the financial sector's total outstanding housing loans was Tk 489.90 billion in 2015.
"Thus, the demand for low- and middle-income housing finance in 2020 will be 167 percent of the size of the total housing finance supply in 2015," the report predicts.
The study report - 'Barriers Constraining the Low and Middle Income Housing Finance Market in Bangladesh' - is going to be published tomorrow (Thursday).
It was conducted with the objectives to assess current and future demand for low- and middle-income housing finance (LMIHF) in Bangladesh, identify constraints impeding the development of LMIHF market with recommendations to address the barriers identified, and develop a roadmap of interventions that can be adopted by various development financial institutions (DFIs) to create an enabling environment for improving access to housing finance.
For the purpose of this study, low- and middle-income households have been defined as those whose monthly household income is within the upper ceiling of Tk 60,000 ($ 760).
In the mortgage refinance scheme of 2008-2009, Bangladesh Bank used a similar definition with monthly household income ceiling of Tk 50,000 ($ 633).
The WBG study shows, of the total demand for low- and middle-income housing finance, Tk 336.40 billion or $ 4.26 billion will be from rural areas by 2020.
"Thus, 41 per cent of the total demand for low- and middle-income housing finance will come from rural areas."
It also recommends some policy reforms in tapping the enormous market for financial sector.
In 2015, the total rural mortgage portfolio for the Bangladeshi banks stood at Tk 40.23 billion or $ 509 million, which can be increased through improving mortgage situation as well as capacity constraints and restrictive regulations of the banks, including the state-owned financial institutions and Bangladesh House Building Finance Corporation (BHBFC)
Other challenges the study identifies are lack of long-term financing for housing loans, leading to asset liability mismatches from long-term housing lending, lack of affordable land, and limited real estate developer interest in low- and middle-income segments.
The WBG report recommends improvement in legal environment for mortgages by clarifying regulations on the enforcement of mortgage rights on rural properties, improvement of the capacity of Artha Rin Adalat, and introduction of consumer protection and responsible lending regulations to prevent potential exploitative practices.
Besides, it also recommends reviewing prudential regulations for governing the scheduled banks, considering easing restrictions on mortgage portfolio size, provisioning and loan to value ratios, if banks are lending to low- and middle-income segments.