Bangladesh Real Estate Market post Covid-19

Bangladesh Real Estate Market post Covid-19

I am frequently being asked about what is going to happen to the real estate market? Are the apartment prices going to go down? How much? Is it a good time to buy? I read comments in the newspapers from the so called experts; some also give their learned opinion on television talk shows. It seems that everyone has their two cents on this subject.

My honest submission is that I do not know what is going to happen to the real estate market in the coming days. Being in this business for nearly four decades one thing I have learned is not to make any predictions about it. And frankly I do not think that most of the people who are making the predictions have any idea of what they are talking about. But I can analyze the relevant facts and then leave it to you to make your own predictions.

Every country is busy fighting the Coronavirus pandemic while businesses are struggling to survive. Uncertainty is widespread in the financial world and there is a general worry and concern about the future of the world economy. After living with Covid-19 for the last two months the world is now trying to get back on its feet. Countries like America, Italy and Spain which have seen the worst of this scourge are opening up despite the fact that the pandemic is not over yet. The rate of infections and deaths have gone down because of the quarantine and social isolation measures but as soon as people are back to normal life there is bound to be a spike in the number of infections and deaths. But the world leaders have also realized that prolonging the lockdown would cause irreparable damage to peoples’ livelihoods and trying to keep people locked up any longer may cause mass revolts and upheavals in society. Basically, we have to accept the Coronavirus as our cohabitant in planet earth. It has been there for centuries and it will probably remain with us for many more centuries. The more pragmatic way is to learn to coexist with it and develop an immunity to it.

Though it may seem much longer, the world has been in a lockdown for only two months. Some countries were hit by the pandemic before others and are therefore  ending their lockdowns earlier whereas in Bangladesh we were hit later in March and hence after two months we are also now gradually opening up our economy even though the number of infections are on the rise. A lot is being said about the global economic devastation caused by this pandemic but personally I don’t think that the world economy will fall into a prolonged recession on account of a two month hiatus. There is fundamental difference between the present crisis and the previous global economic crises. For example, the 2008 crisis was a result of excess. There were problems with the economic fundamentals. It started with the collapse of the toxic sub prime mortgage loans in the US and gradually spread to the other areas of the US economy and since the economy of the entire world is somehow intertwined with the US economy virtually every country had an economic meltdown. This time around in the pre covid-19 era the world economy was on the right track. The world was prospering on sound economic fundamentals before the pandemic struck us like a terrorist attack. If this coronavirus were to go away quickly like the SARS virus then I would have argued that the world would see a quick V shaped economic recovery. Unfortunately it seems that the threat of Covid-19 will not disappear any time soon (even once a vaccine is approved it will have to be mass produced and mass administered, no simple task). Sooner or later there will be a herd immunization and we will have a peaceful cohabitation with the coronavirus. But for the next few months businesses and consumers will generally be more cautious in their spending and by virtue of this inflation will be restrained even though the world has poured trillions of dollars to support its economies and its societies during this pandemic.

I think that we will be seeing more of a U shaped economic recovery which will probably start in early 2021. The official forecasts are also very positive with predictions of a bounce back of the world economy in 2021. The IMF has predicted Bangladesh’s GDP growth to be 9.5% in 2021. However, there is a caveat here because the World Bank has projected this to be between 1.2-2.9%. The wide difference between the projections by these two venerable institutions also raises a lot of questions about the efficacy of the projections made by economists who are wrong more often than they are right. Irrespective of these projections, the Bangladesh economy has been on very sound footing. Metrics such as our GDP growth, foreign exchange reserves, debt as a percentage of GDP have all been very strong. These are some of the reasons to be optimistic about our relatively quicker economic rebound.

Having thrown some light on our macro economy let me analyze our real estate sector. Looking at the supply side a reassuring fact is that unlike in developed countries, the real estate developers in Bangladesh are not so highly leveraged. Generally, the private sector real estate projects in Bangladesh are done under joint venture with the land owner and therefore the cost of land which forms a big part of the investment in any development project is a part of the equity in the project.  This makes the sector reasonably robust which can withstand the periodic vicissitudes.

Between 2007 and 2012 our property market heated up abnormally. The reason was primarily the ever increasing demand of the landowners and the  irresponsible competition that the developers created with each other in the auction like bidding for land. The result was an inflated bubble which was not reflective of the real value of the property in the context of the economy or the buying power of the market. Market correction was imminent. Between 2012 and 2018 the prices of apartments in Dhaka fell by up to 30%. The correction caused a huge loss to a lot of the reputed developers who completed the projects absorbing the massive losses. Many of the less established developers abandoned their projects and to this day there are structures in Dhaka lying dilapidated and incomplete. In 2018 the market started to stabilize. The prices stopped falling and the market reached an equilibrium. This stability was good for the sector and the buyers gradually returned to the market. The point here being that the market correction has already taken place and the present prices of apartments are a correct reflection of their intrinsic value. Further price reduction would mean that property is selling below its fair intrinsic value.

For ongoing projects where the developer has already sold a significant number of apartments, reducing the price for new buyers would create a lot of discontent amongst those who have already bought the apartments at the earlier prices. These customers may also demand a price reduction or threaten to cancel their booking. Therefore the developers would be very wary of reducing prices for  ongoing projects.

Most developers will hold off launching new projects in the immediate future. This would also be the prudent thing to do because market prices are determined by supply and demand and adding supply to the existing unsold inventory would put further pressure on the selling price of the apartments.

Some smaller inexperienced developers tend to take land giving very high percentage share to the landowners. They also sell their apartments at lower than market value. This is the only way they can compete with the genuine established developers. But it also means that they have extremely low margins and in such a crisis they panic and reduce their prices further for the sake of their cash flow. Every time there has been a price correction in our market, we have seen the same phenomenon repeated. These fringe developers panic and slash their prices only to find that the project has become unviable and they are forced to abandon the project or delay it till the market improves. Just as in the past the same scenario is likely to play out again where some unsuspecting buyers will be lured to such low priced offerings but it will be a risk that they will be taking. That being said there would also be some very attractive deals offered even by the prominent developers in projects which have been completed but a few odd units remain unsold. In this uncertain period the developers would be keen to off load such inventory at discounted prices.

On the demand side there will be some wait and see by the buyers but this will probably last only a few months. By the next quarter normalcy would be returning to our lives and those buyers who were sitting on the fence will start to reenter the market which will see a surge in demand due to the suppressed transactions in the previous six months.

The coronavirus pandemic has brought all economic activities to a grinding halt and the government would be keen to get things moving as soon as possible. To this end the Bangladesh Bank will try to maintain low interest rates to spur economic activity. This may lead to some inflation and the property market will not be exempt from this inflation. The savvy buyer knows that when the prices start going up it happens all of a sudden and the best opportunity to buy is lost to those who procrastinate. These smart buyers will come into the market sooner than others.

The woes of the pandemic aside the Bangladesh economy has been flourishing and this has created a thriving middle class. Unlike a decade ago when high end apartments in the posh areas of Dhaka was the most lucrative segment of the market now it is the mid range category which is the most vibrant. The buyers from this segment are mostly involved in local businesses which are much more insulated from the turbulence in the global economy and will not be so adversely affected by the present crisis. These buyers will be looking to purchase their dream home sooner rather than later.

There are two major types of buyers. Ones that are looking to buy a home and the other which is the investor. Real estate and the capital market are the two main investment options for investors everywhere. Our capital market has been unpredictable and unrewarding for the retail investor. From Jan 2018 to date the Dhaka Stock Exchange index has fallen from 6300 to 4000 where it has been fixed to avert further hemorrhaging. There is very little investor confidence in the capital market. Over the past so many decades it has been proven time and again that investment in property in the metropolis has been the most lucrative option for investors in Bangladesh. This investor class will also be boosting up the demand for real estate and will be keen to avail the good deals that the developers will be offering for their unsold inventory in their completed projects that has been mentioned above.

Owning a home is an instinctive human need. This need cannot be kept suppressed for too long. Based on the above analysis I shall leave it to the readers to draw their own conclusion about what is going to happen to the property market in the coming months. As I have submitted at the beginning of this article, I do not know and I do not make predictions.

In parting I would like to leave you with the opening lines from the song Home Sweet Home written by the American dramatist John Howard Payne. These lines were also quoted on the brochure of our very first project in 1984 called Forum Apartments.

 “Mid pleasures and palaces though we may roam, be it ever so humble, there’s no place like home”.

Comments (22)
  • Thanks for sharing your thoughts. I would like to receive more news feeds from you. You are doing a wonderful job.
    – Dr. Muhammad Riazul Hamid
    Former Professor
    Ahsanullah University of Science and Technology, Dhaka.
    USGBC LEED AP (BD+C). (O+M)
    Mobile No: 01715182762

  • I am very much optimistic about our economy,it will be booming in post pandemic era in new normal life where work efficiency will be increased.

  • I do agree that need cannot be kept suppressed for too long. So that InshaAllah there is a stable business come soon.

  • I tend to agree that the need for a “sweet home” will always be there as it is some form of identity to a family, however artificially raising the prices makes it even difficult for people those who are working in the private sector dreaming of having a flat/apartment unless they are in a high salary range. The fortunate ones are those inherited lands in Dhaka city. As stated in this write-up people engaged in doing business seems to have been buying flats/apartments but it would be really good to know the actual information who are the people buying these flats/apartments, not necessarily the expensive or high end ones.

    During this pandemic a group of people have enough money to spend for all they need as is reflected when visited in the marketplace, it would been nicer if they could spare some for the destitute as it is impossible for the Government to feed all. If you take a survey it will be easy to find out their occupation. So much of an extra earnings in whatever ways. Definitely the country is moving forward but at the cost of a middle class which takes centuries to be built. Middle class being the backbone of any country sadly it is eroding. The country needs to focus in creating citizens with honesty and integrity to become a proud nation and the chance of which seems to be remote as things are now. We have to look holistically to really become a great nation. We have to encourage and ensure the Millennial can build a great nation because there is hardly any hope with baby boomers and generation X.
    My comments may not be as appropriate but just sharing on a different note.

    • Thanks for giving a senerio on real estate business. I donot have stastics how many construction worker and supervisor are working with this sector. Most of Construction worker are passing days without work and income. Can we request the Govt to declare a package for them.

  • Informative and valuable article indeed. Thanks for sharing.

    • This article seems to me like an open book solution both for the developers and the buyers, even for the linkage industries as well. All the facts and the possible happenings are described here with the help of strong logic. Now it is really upto us, the readers, to decide on our own initiatives. End of the reading, one thing I took away that everything is going to be allright, which I do believe!

  • The next 6 months will be one of the worst phases in terms of new supply additions, home loan market activity will stand at well below par during this period & rents receivables will remain in stagnant even after the current uncertain economic scenario will come over.

  • Assalamu alaikum
    Thank you very much. Sold my first flat in last week of March. Talks are going on for another two.
    I enjoyed your article. You are right. Though I am am new in this business, there’s no point in giving away to a throw away price. Let us wait and see.
    We look forward to read more thought provoking ideas.
    Thank you.
    Ehsan yousuf

  • Articulate, informative and unpretentious. Thank you for sharing.

    • Remarkable written up. Coming day more know from you. Eid Mubarak you.

  • Very nice article with so many reality and forecast on upcoming future of economy. Wishing and hope for a quick recovery of our lagging.

    Any thoughtful thought is a matter of right thought that drives all thoughts.

  • Keep writing. Love it.

  • Your article regarding investment strategies in the real estate is well-written and contained sound, practical advice. I appreciate your clearly written and thought-provoking article.
    While much has been written on this topic, your article expresses both the positive and negative aspects of this important topic, without taking an emotional stance on either side of the issue.
    I look forward to reading your next informative work. Thank you.
    Zahed,
    Fortuna Apartment

  • Excellent write up indeed to be optimistic, I wanna put in a bit as my notes: Market price is determined depending on fair play of demand & supply where other socio- economic determinants perform their normal protocol, hoping this scenario is coming back in our Macro economy sooner by taking initiatives of declaring a package of crisis management by authority concerns may be :
    1. Consent to invest unauthorized money for at least 2 fiscal years.
    2. Repayment of Realtors debt will restart after a considerable breathing time frame may be from January, 2021.
    3. Ensure supply chain (Labor & materials) at earliest.
    4. Declare an incentive package like other industry in Bangladesh.

  • Very nice writing presenting the dangerous situation of Covid-19 and forecasting on economy across the country and the globe. Please keep on writing

  • I also think it’s a positive forecasting about the real estate sector in the coming days (After or in between this period of COVID-19).
    Though you mentioned that you do not know what is going to happen to the real estate market in the coming days and you can’t or do not want to predict either.
    The points that you quoted about the stock market index, decreasing the price of the apartments, compromising the developers’ interest in some aspects, buyers negligence of paying the rest payment builders may have to reduce the price.
    Thus the certain developers may affected but the overall real estate sector will run in a good speed may be in new dilemma or new formula. But eventually this will be in a good direction and in a new starting.
    Being a real estate member of obviously I’ll hope for the best.
    Thank you for this post. It’s really an analytical scenario. Now someone to pick the way he wants to demonstrate.
    Thanks

  • There is no disagreement with you. People who loves to share intellectual thoughts in social media/media what is their contribution in the development of this sector? We always create opportunities for the buyers to take advantage of the ignorance, immaturity, non-cooperation and lack of mutual understanding between the people of the industry. How many people of this country can afford a home and how many are still in rented houses do we know? Emotionally we all seek for our own home for ensuring safety of our family members, and to step out from the ruling of the landlords. nCovid-19 will not vanish their need of own home rather has given them the feeling that if I am not around where my family will land finally? This is rather time to build affordable homes for these people, business will definitely grow. We do not look for luxury, we look for a safe and affordable place to live in and there is no option but a developer with a great track record and demonstration of promise being kept. Our industry is not for a limited number of HNWI buyers.

    • Fully agreed.

  • There are some discrepancies between the world economy and our micro economy. I don’t think this problem will hit all countries at the same level or in the same way. Maybe it will last here for a few months. We may have to adapt to some socioeconomic evolution. This article seems promising to me. Specially for the companies who are doing business on principle and commitment.

  • Thanks a lot for the thoughtful explanations of the future situation, New-Normal-Bangladesh- Real Estate Market .
    No one, I mean no human being, can define the future but can predict based on his or her experience and mastery of the knowledge about the specific arena or field. The prediction might be right, partially right or proven wrong. I found you more diplomatic at the beginning and ending or may be it is the reflection of the expertise of long four decades. Ha! ha!

    “Some smaller…………………………………………….. share to the landowners”

    ‘This is rather time to build affordable homes………………………………… Our industry is not for a limited number of HNWI buyers”. – Shihab Ahmed

    These above quoted observations remind me a very basic perspective of Business, the Ethics. I wish we could find the THE LOST TREASURE OF THE BUSINESS in the coming new-normal era. We all have learnt in our childhood stories …the wrong deeds of the Ghost is eliminated by the heroic Prince and the Prince and Princess live in peace. Hope to see any of our heroic Prince, any of the Experienced one like you, would lead us to the REAL ESTATE WORLD OF PEACE AND LOVE !

    Would highly appreciate if you write on
    Pre and Post pandemic Business Ethics in Context of the Real Estate Culture of Bangladesh.

    Thanking you

  • There is so big gap between the prediction of GDP from IMF and WB. It only indicates the confusions that possibly exists about the future of economy. But you are right, there are many indicators to be optimistic. Being a optimist I also believe this standstill phase will go away fairly quickly.

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