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What to expect in real estate in 2020?

  • Published at 04:09 pm December 31st, 2019
bproperty issue 11
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This fiscal year singled a new era in the construction industry, the era of the eco-friendly bricks and blocks

https://www.bproperty.com/en/property/details-1956875.html Everyone knows that land is a non-depreciable commodity. Its value, for all intents and purposes, mostly moves in a single direction. But that does not mean that the real estate sector remains the same all the time. In fact, the market can shift quite a bit, though rare, from year to year. Introductions of certain regulations or discontinuation of one may have a profound impact that an average person might not consider much, but may change numerous decision-making factors in the future.

The decade began with a downturn for the real estate market in the country – an effect of the global housing crisis. However, the fortune began to change in the last stretch of the decade as the authorities introduced new, more real estate-friendly regulations to the market. And as the final day of decade starts to end, a look forward is a must – not to predict “what might happen,” but to understand which direction the overall sector is moving towards and what to expect in the new year.

A lower interest rate?

As land prices continue to soar throughout the country, people are finding it difficult to finance their real estate desires. And this price increase is not limited to land either – apartment prices, both new and secondary, have increased quite a bit. As a result, the most practical route to real estate fulfilment lies in home financing – but that too is out of reach for many. High home loan interest rate dissuades many would-be home buyers from moving forward.

Apart from the Bangladesh House Building Finance Corporate, most of the primary home loan providers offer interest rates in the double digits, which may be as high as 14%. While the interest rate has gone down a bit in the last two years, it is not enough to encourage potential home buyers. The consumers and the realtors have been demanding a lower interest rate for some time now – preferably down to a single digit figure.

If the just finished REHAB Winter Fair 2019 is any indication, there are positive signs on the wall. Banks and NBFIs have gone to considerable lengths to attract property buyers during the fair. Some banks offered a lower home loan interest rate – some in single digits – as well as financing homes up to 85%. This move has shown a positive response from the consumers and the result may even have a lasting effect on the home financing sector.

Reduced registration taxes?

Another request from both consumers and real estate developers has been a reduction of registration taxes. The staggering registration and additional tax cost is seen as unnecessary and dispiriting. Consumers do not want to take the load of an additional 16% cost on top of paying an already high amount for property purchase. The request is not to eliminate it altogether, rather, to reduce to number to a more “fair” level.

The government, for their part, has shown agreement with the notion. They have shown interest in conforming to the consumers’ request and advised the Bangladesh Bank to lower the interest rate. However, the order has not been followed through yet, and it might take the start of the next fiscal year to go into effect.

Increase in cost of construction materials

Not everything is looking optimistic for the real estate sector in the upcoming year. The prices of construction materials have been increasing for the last few years and there is no sign of that trend stopping.

The prices of steel bar per ton went from Tk48,000 in 2017 to Tk55,000 in 2018 to Tk72,000 in 2019 – a 50% increase in two years. Cement prices have similarly increased in recent years, even with the material being produced locally. The price of a 50-kg cement bag rose by Tk50 after the national budget was announced in June this year –Tk42 of which was due to newly imposed tax and VAT.

This, in return, has made construction more costly and is making it difficult for home buyers.

Eco-friendly blocks

This fiscal year singled a new era in the construction industry, the era of the eco-friendly bricks and blocks. The country, especially the urban locales, has been experiencing an increase in air pollution from brick factories. As a measure of reducing the overall impact, the government has taken the initiative of going green by using eco-friendly bricks in all its government projects. This type of brick uses sand, cement fly ash and other sorts of materials that are less environmentally damaging than burning clay.

The goal for this fiscal year is 10% usage of eco-friendly bricks, with increasing the usage to 20% in the next fiscal year, and reaching total usage by the fiscal year 2024-25. This is a bold step that will have both environmental effect as well as effects on the real estate market.

Further digitization of real estate

Construction planning, property search, advertising and marketing are just some of the aspects of the real estate scene that are being taken over by the digitization movement. And how could they not, considering all the virtual world has to offer physical real estate. For entire buildings, 3D construction may not be in practice yet, but it is strongly aiding model and scenario designs in the hunt for more efficient, safe and aesthetic constructions.

When it comes to finding a dream home or the perfect office, online services like Bproperty have created many waves. Bangladesh is starting to see more trust in transacting through an online real estate portal. This has in turn led to more businesses arising offering property search facilities, though none offer a service comparable to the complete solution Bproperty offers. However, this is a good sign for the field of real estate as once accepted wholeheartedly, such ease of property discovery and acquisition will only add to the demand for more real estate.

A hopeful future

There is no doubt that the coming year will have its ups and downs – every year does. But there is no need to expect drastic change unless digitization can take a quick foothold – though as fast as its effects can be seen, we doubt a year is enough time to see that kind of change.

The government has the right concept in mind – to balance as much of the industry as possible for all parties involved. Sometimes consumers do not see it that way and motives might get lost in the commotion that follows new announcements. Yet, it is important for people to remember these implementations took place after much deliberation and planning. As with everything else, some factors will be in our favour, while others may seem preposterous.

But with so much changing in terms of interest rates and financing, the implementation of eco-friendly materials and the increased ease of consumers, it is fair to say the ups will outweigh the downs. And that is always a good sign for the industry and its consumers.