Falling interest rates leave no bearing on apartment sales

Dhaka,  Tue,  26 September 2017
Published : 19 Aug 2017, 00:15:58
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Falling interest rates leave no bearing on apartment sales

Experts predict turnaround soon
Falling interest rates leave no bearing on apartment sales
Ismail Hossain


The reduced rates of interest on housing loans have hardly made any impact on sales of flats as around 10,000 apartments still remain unsold, according to realtors.

Many members of the apex body Real Estate and Housing Association of Bangladesh (REHAB) have not renewed their memberships this year.

Not a single realtor has joined the REHAB as a new member despite the commerce ministry's directive for its mandatory membership for running housing business.

But realtors and experts are optimistic. They think declining interest rates will certainly have a positive impact in business but it will take time.

First vice president of REHAB Liakat Ali Bhuiyan is optimistic about a turn-around in the sector.  

He said it has not been a long time that the interest rates started declining. It will take time to see its impact.

He said their members had some unsold 20,000 flats in fiscal year (FY) 2012-13, but the number has come down to 10,000 now.

Mr Bhuiyan said very few companies are coming up with new projects as the sector is still recovering from sluggish trend since 2011.

According to REHAB, the number of realtors in the association is now 998 which were 1,074 last year and 1,300 in 2012.

The Ministry of Commerce issued a circular in May last saying membership of REHAB was mandatory to run housing sector business in the country.

But no new member entered the association since then.

According to REHAB, there are around 1,500 real estate companies which did not take its membership.

About the mandatory membership, he said the new members will have to join the REHAB if they want to run their businesses.

But non-members are saying otherwise.

Farhad Builders, a small housing company, started its business in 2011. It has two projects -- one in Mirpur and another in Bashabo.

Managing Director Farhad Hossain said he saw the circular. But his business is so bad now that he cannot even pay the membership entry fee of REHAB.

He could sell only 15 flats out of total 40 in last four years. 

Mr Farhad Hossain said he will apply for membership if there is a positive change in the sector.

Former Vice-President (Admin) of REHAB Sardar Md. Amin said though interest rates on loans have come down to single-digit in most of the private commercial banks, there is no visible improvement in the sector owing to rise in cost of living, high inflation, uncertainty etc.

According to a new study by the Bangladesh Institute of Bank Management (BIBM), the disbursement of loans to housing sector soared in last eight years from 2009 to 2016, but sales of flats or apartments declined sharply.

The home loan disbursement increased by over 41 per cent to around 66 per cent in 2016 from 25 per cent in 2009. It was around 30 per cent in 2006.

On the other hand, the loans to purchase flats and apartments declined by 33.81 per cent in last eight years to 20.81 per cent in 2016 from 54.62 per cent in 2009. It was 35 per cent in 2006.

Professor of BIBM Md Mohiuddin Siddique, who led the study team, told the FE the study did not find the reasons why flat sales dropped sharply.

He said loans for buying flats were less than the home construction loans, but the latter saw a sharp rise during the period under study.

According to the study, total outstanding home loans were Tk 86 billion in 2004-05 while it stood at Tk 562 billion in 2015-16.

Executive Director of Policy Research Institute (PRI) Dr Ahsan H Mansur told the FE the situation is improving gradually but the sluggish trend will last one to two years more.

"The flat price was too much inflated during the last few years and a large number of realtors contributed to the bubble," he said.

He thinks 600 to 700 companies are enough for the market.

He said realtors will not be able to reduce apartment prices much as prices of construction materials and labour costs soared during recent years.

"The purchasing capacity of the people has also increased. So the market certainly will see positive turn-around in one or two years," he said.

According to REHAB sources, an apartment in Mirpur, which was selling at Tk 5,000-Tk 6,000 per square feet about five years ago is now available at Tk 3,500-Tk 4,500,

Similarly, the price of a flat in Dhanmondi has dropped as low as Tk 10,000 per square feet from the peak of Tk 22,000 four years ago. The prices have also dropped in other areas.

The apartment prices fell by 20 to 30 per cent over the last couple of years from its peak in 2011-12.

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