In Part 1 of this article, I wrote about the perilous situation of the Chinese real estate industry on account of the massive debts of big property developers like Evergrande. I also elaborated on Ponzi schemes and opined that companies like Evergrande behave much like the Ponzi scheme operators since greed is the common denominator.

What about the real estate sector of Bangladesh? I have lost count of the number of delinquent developers who have left their customers in the lurch. I feel bitter when our industry is referred to as “bhumi dosshu” because of the fraudulent companies. There are many genuine real estate developers in Bangladesh who work honestly and make the dream of owning a home come true for thousands of people of our country. It is not fair to calumniate and put a pernicious label on all developers on account of a few rogue operators.

Our real estate market is fertile ground for Ponzi schemes and indeed it is rife with crooked operators. Here is how it works- The developer makes a very attractive offer to the landowner to do a joint venture deal. This offer being so much better than the other offers, the landowner agrees to sign the contract. The defrauder then prepares an alluring brochure, spends generously on advertising and backs it all up with a tantalizingly low selling price. It is the perfect recipe for a Ponzi scheme. The apartments on offer are sold out quickly and the developer is flush with cash. Having diverted some of this cash to buy a new Pajero, he proceeds to repeat the act with another landowner and then another. Being clever, he duly completes one after another project thus gaining a reputation in the market which prompts more landowners and flat buyers to flock to his offices. The con game here is that the developer is not concerned about the financial viability of the projects; he is only interested in the cash flow and the more cash flow he generates the more lavish his life style becomes and the more projects he takes up. But alas, sooner or later, the losses from all the completed projects become too big and even more cash from new projects is not enough to fill the deficit. The developer then starts slowing down the construction of his projects which rings the alarm bells for the buyers. They in turn stop the payment of their instalments and like a domino effect of the classic Ponzi scheme everything comes tumbling down. The developer leaves many projects incomplete and there is a chaos and pandemonium amongst the buyers and landowners who are left in the lurch. This may sound familiar to those who have been conned by the e commerce companies which have recently collapsed. It is nothing new. This con game has been going on in the world for more than a hundred years.

While I was serving in the REHAB Executive Committee, I had a first hand experience of dealing with such a case. One of our members had pulled a Ponzi scheme and his disgruntled landowners and buyers came to meet the Executive Committee en masse. After a lengthy discussion, it was concluded that filing criminal charges or even putting this rouge developer behind bars would only make matters worse for the affected parties because the land and the unfinished apartments would become litigated. Therefore, under the circumstances their best option was to compromise with the developer who offered to complete the projects if he was paid more than the contracted amounts by the buyers and if the landowners accepted a lower share than what was originally agreed upon.

There is an old saying, “A fool and his money are soon parted”. In contract law, especially relating to property transactions, caveat emptor is a term often used. It is a Latin term literally meaning, “Let the buyer beware”. This implies that it is the responsibility of the buyer to not be ignorant of the nature of the property he is buying from another party. Just like the buyers who could not resist the lucrative offers of the rouge e commerce websites, buyers of real estate also tend to get waylaid by attractive offers by some developers. I think that buyers and landowners who get duped by the unethical developers are also victims of their own cupidity. Whether you eagerly order a refrigerator being offered at 50 percent discount by some e commerce website or you buy an apartment at a price which is much lower than the prevailing market rate, you are ignoring your own good sense and letting your avarice get the better of you. Do not shed the tears of a victim if you get taken for a ride. You knew all along that this was too good to be true.

Despite the relevance of caveat emptor in real estate transactions, there should be checks in place to ensure that rouge operators do not have a free rein. The fraudulent developers are parasites. They destroy our industry because the buyers’ confidence is essential for the growth and success of the real estate industry. The Real Estate Association of Bangladesh (REHAB) has a very important role to play in this matter. It must abandon the mindset that it exists to protect the interests of its members. REHAB exists for the greater interest of the real estate industry NOT just for protecting the interests of its members. The two objectives are mutually exclusive.

I am a proud Bangladeshi. I consider myself fortunate to have lived through the glorious war of our independence and then over the years witness our badly mauled country described by Kissinger as a “bottomless basket” evolve into a thriving and prosperous nation. In the immortal words of Bangabondhu, “আমরা যখন মরতে শিখেছি তখন কেউ আমাদের দাবায়ে রাখতে পারবা না.” In sha Allah we will overcome all odds. No Ponzi scheme will be able to suppress our growth. The real estate industry is one of the key drivers of our nation’s economy. Directly and indirectly, it contributes 15 percent to the nation’s GDP. The prospects of this sector are very bright but since it is now a matured industry with a huge turnover, we need to have the right policies in place to facilitate the natural growth of this vibrant sector. It is also high time that proper controls are put in place to ensure that the sector is not damaged by unscrupulous operators. I think it would be most effective if the members of our industry commit to self governance through our trade body because if we fail to do this, the government regulatory bodies will have to intervene and that will only bring red tape and bureaucracy to the detriment of our businesses.