• Tuesday, Jul 05, 2022
  • Last Update : 04:24 pm

Stimulating the real estate industry

  • Published at 03:26 am May 5th, 2020
Stimulating the real estate industry

Eligible big businesses will be able to take out a loan at 4.5% interest rate, with the government bearing the rest (4.5%) as a subsidy, under the government stimulus package

The Tk72,750-crore stimulus package unveiled by the government last month was applauded and welcomed by everyone. It will undoubtedly inject much-needed life into various industries across the country.

Most of this fund will be in the form of liquidity support – as in, repayable loans – and will be allocated to big industries, mostly export-oriented such as readymade garments, and small and medium enterprises (SMEs).

As a result, the business and industries that do not fall under the purview of the stimulus package are worried about staying afloat as the Covid-19 crisis continues. 

One of those industries that have been left out from the package is real estate, which has been a significant contributor to the GDP of Bangladesh – around 7.8%.

This has left many working in the industry, and those outside, worried about the future of the sector.The question on a lot of people’s minds right now is -will the current situation be a repeat of the 2007-08 crisis?

Back then, the housing sector of the country was ill-prepared,unlike today. The real estate industry of today has braced itself in anticipation of an impact that is sure to come. As the president of the Real Estate Housing Association of Bangladesh (REHAB), Alamgir Shamsul Alamin said, there will be a trickle-down impact on the industry due to unemployment, as it is expected that the pandemic may lead to, according to industry insiders,at least 350,000 employees and workers losing their jobs.

For a sector that employs about 50,000 labourers and thousands of engineers, architects and marketing professionals, this will be a severe blow. Unfortunately, most of this unemployment will be shouldered by the informal workers and labourers of the industry, as almost all construction activity continues to stay on hold for the time being.

However,access to these funds, as requested by REHAB, from the current or future stimulus package may help mitigate the impact to a certain degree and quicken the recovery. Back in 2007-08, the government launched a refinancing scheme for the housing sector that had been vital for recovery in the long run. A similar step can be just as valuable as it was back then.

Under the current stimulus package, eligible big businesses will be able to take out a loan at 4.5% interest rate, with the government bearing the rest (4.5%) as a subsidy. Something akin to this can be set up to help the housing industry.

Furthermore, Arshi Haider, chairman of BTI Holdings, proposed two particular actions that hold some merit and can be implemented to help out the entire sector as well as motivate prospective buyers. These proposals include a reduction of home loans at 5% for buyers and a 50% reduction in property registration costs. These actions, coupled with REHAB’s call to suspend interest on existing loans of businesses directly related to the industry until December of this year and reschedule them as soft loans, can immediately put the entire sector on the right path again.

Similar steps have been taken across several countries, chiefly the US. The lending rate has been reduced to a record low - near 0% - in order to foster and rejuvenate the market in addition to the announcement of a $2-trillion stimulus package to get the economy back up again. Though some experts say that even that is not enough for the real estate industry of the country, the expectation for next year, when the pandemic passes over, is high as property prices continue to climb even with low real estate activity.

The real estate scene in Bangladesh, as it is less dependent on the mortgage market, is much more stable than that of the US. However, similar to the US, the housing market of Bangladesh is poised for a quick recovery. Such expectations are possible due to the fact that, even if transactions are low at the moment, the demand is still more or less the same. According to Bproperty,the number of property requests and leads has remained almost at the same level during the general holiday period as it was before. As a result, the organization is continuing to provide real estate support, albeit from home.

As real estate is a big investment, the people who decided to buy properties prior to the pandemic are still determined to do so. All that has happened is that the process has slowed down now. But since this is already a lengthy process on its own, people are still requesting sellers and organizations such as Bproperty for properties and using their virtual platform to move the process along in the meantime, so they can complete the transaction once the situation becomes normal.This is why many industry experts say that even if the sector takes a big hit, all is not lost.

But there will still be an impact that the housing industry must bear, and there will still be a recovery period for it.Access to the stimulus package, as well as implementing actions to motivate prospective buyers, will have a lasting effect on the industry and reduce the time it takes to get back on its feet. The year 2019 was relatively a stellar year for the housing market of Bangladesh, and the aim is to go beyond that level as soon as possible. But for that, the industry could very well use some stimulation.

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