the housing industry.

The Tk72,500 crore stimulus package and the housing industry.

The Coronavirus outbreak is causing a widespread economic disaster across the globe. The economy of every country is hit and the government of every country is working on a rescue package for its economy.

President Trump has approved a 2 trillion dollar relief package which is aimed at providing the marginalized people $1200 in direct payment. Unemployed people will be given 39 weeks of unemployment benefit. $400 billion has been set aside for small business loans as long as these businesses pledge not to lay off any workers and $425 billion has been set aside for distressed large businesses. Canada has earmarked $75 billion as coronavirus relief bill which is almost exclusively for those who have become unemployed and will be paid $2000 per month for the next four months. India has also sanctioned $23 billion to help the poor who have been affected by the lockdown.

Our Prime Minister has announced a courageous $8.5 billion dollar (Taka 72,750 crore) stimulus package for the Bangladesh economy. What I found very far sighted in our stimulus package is that it addresses the economy along with the social security program. Tk 30,000 crore has been allocated to provide working capital with low interest rate @4.5% for the coronavirus affected enterprises. Tk 20,000crore has been earmarked for working capital @4% for the small and medium industries. An Export Development Fund of Tk12,750 crore has been created for importing raw materials. A Pre- shipment Credit Refinance Scheme is going to be set up with a funding of Tk5000 crore where the interest rate will be 7%. Earlier on 25th March the Honourable Prime Minister had announced a stimulus package of Tk5000crore for the export oriented industries for the purpose of only paying the salaries of workers and employees.

All in all this is a very bold strategy taken by our government which has recognized that in the long run if the country is to overcome the ravages of this pandemic then along with supporting the poor people, the business enterprises must be saved from bankruptcies.

Unfortunately the sector which has been completely overlooked in the stimulus package is the housing industry; the proverbial “black sheep” of our society. The housing industry has been a pillar for the development and growth of our economy. It contributes 5% of the GDP equivalent to US$15 billion. It is a highly labour intensive sector engaging about 500,000 labourers. Thousands of engineers, architects, accountants and marketing professionals are engaged in this industry. So many linkage industries like tile manufacturing, steel re rolling mills, cement factories, brick and concrete block factories to name a few are supported by this sector. Yet sadly not a word was mentioned in the Prime Minister’s stimulus package to address the woes of this industry. Those reading this article may immediately misconstrue my lament as the whining of a self- serving developer. But before you jump to conclusions, let me briefly explain my concern.

For now I shall not try to defend ourselves from the unsavoury and unjustified sobriquet of “bhumi doshu” even though in the past 25 years we have built and handed over more than 200,000 homes to the people of our country. Though it is heartening to see that every segment of our economy has been included in the stimulus package from the blue- eyed garments sector to the SMEs and all other industries and service institutions affected by Covid-19, sadly not once have we been mentioned. Even if it were categorically said that the housing industry will not get anything it would not have felt so bad because at least someone thought of us.

Hence, while wiping a tear I shall not propose any benefits for the developer. No working capital financing or waiver of interest on loans or wages for the millions of labourers or the salaries of the thousands of engineers, architects, accountants, sales and marketing professionals who have been sent on leave by government orders while we are paying the salaries during this time. No. We will bear all those costs. But I do worry about the fall out of this pandemic which may affect thousands of ordinary people who have paid their life’s savings to small and medium sized developers with a dream of owning an apartment or given their land which is arguably their biggest asset for development to a small or medium sized developer. The real estate market world- wide has a very peculiar character. It is sentiment driven. If there is apprehension, the buyers just go into hibernation. And then to bring them out of this shell takes a very long time. In 2008 when the sub- prime mortgage fiasco hit the US housing market, it reverberated throughout the world. In the USA the housing market remained in decline for about four years. The ripple effect of that debacle also affected our housing industry and for a good five years our market was in the doldrums. We at bti lost crores of taka during this time. Projects which we had taken with the assumption to sell for say Tk15,000/sft had to be sold for Tk12,000/sft or sometimes even less. Being in this business for thirty seven years we have seen many ups and downs of this market and we have learned to never get euphoric when we see the good days. The nature of this business is such that the bad days come so suddenly that it is impossible to predict. If there is one axiom for this business it is to be conservative.

This may be one of the reasons why we have been able to weather so many storms over the years. But during our market crash following the US sub- prime crisis, many smaller companies had to close down. So many projects got stuck for years. Landowners who had given their land to be developed found their life’s biggest asset litigated on account of non performance by the builder.

Please excuse me for being a little pessimistic but I do apprehend another crisis facing our housing industry post the coronavirus era unless some proactive measures are taken.  Mortgage interest rates in USA have been reduced to a record low and are primed to fall again after the Federal Reserve’s latest dramatic policy moves to combat the economic impact from the deadly pandemic. To keep the market propped up the Fed has said that it will be buying $200 billion of mortgage backed bonds, a move that will stabilize and likely lower the mortgage rates even further. These are extreme measures to ensure that the housing market does not collapse thereby ruining the lives of millions of American citizens.

I had proposed to our association REHAB two simple actions to be taken by the government to prevent our housing industry from going into a coma for the next few years.

 Neither of these measures would give any direct benefit to the developer aka bhumi doshu and would also not put any immediate strain on the government exchequer.

  1. Home Finance @5% for those who buy apartments in the next one year. This will spur the aggregate demand and act as a confidence booster for the prospective home buyer.
  2. 50% reduction in the registration cost of the apartments purchased in the next one year. The current cost of registration in our country is one of the highest in the world. This measure will motivate the prospective buyer to take advantage of the opportunity and in fact add revenue to the government exchequer because many people procrastinate registering their apartments due to the high cost of registration.

Needless to mention that a flourishing housing market is a great revenue earner for the government exchequer. Apart from the income tax paid by the developer the government collects gains tax of the land being developed; VAT and  registration costs are collected; Rajuk collects large sums for the plan approval of every project and the list goes on. The point being that any cost that may be incurred by the above measures would be more than offset by the subsequent revenue earned by the government and most importantly these measures may save our housing sector from collapsing.

The housing industry is generally regarded as the barometer for the health of the country’s economy. Housing is also one of the basic rights of every citizen  as enshrined in Article 15 of our constitution. I was hoping that this sector would be given a little more importance in these desperate times.

Comments (14)
  • Very well written article! It is certainly necessary for the government to protect the established cash cow industries that uphold the economy. Without a strategic focus on industries such as residential real estate, the nation is more likely to face economic peril.

    At this moment, the Bangladesh government is facing a tall task that it is ill-equipped to deal with (for reasons such as poverty, illiteracy, population density, inadequate healthcare infrastructure). Relief packages can only go so far in extending a temporary lifeline to those in need. In virtue of this, it remains critically important that each and every ‘poisha’ is judicially allocated.

    There is huge value to the actions that have been proposed to REHAB. Notably, these are actions of omission, not commission; these are actions that require the government to take less, rather than give more. For poorer countries, acts of omission can serve as an instrumental tool because the government does not have the wherewithal to actively intervene indefinitely.

    • Sir, pioneer thinking and good writing. Most relevant for this real estate industry.

      • Thank you sir. You are righ.

  • Thank you so much Sir… for taking the leadership in addressing such issue in right time. Very well written and to the point. Strongly believe GOVT. will consider the matter. My humble gratitude for ur bold initiative to represent our industry in such pendamic situation. Stay Home and Be safe.

  • Well thought, Well written. Many more people needs to learn from this. Please promote to reachout more people.

  • Excellent article written on the contemporary subject matter!

    Strongly agreed that Bangladesh Government should have special focus taking immediate necessary steps to prevent imminent collapse. REHAB to talk to the Govt. to minimize VAT and Registration Costs, and to facilitate low interest rate of Home Finance for the apartment buyers.

  • It is an excellent article for real estate sector. Expect govt. will be think on this sector and take initiative in feature to develop our country. Without a hygienic environment health protection is not possible. Housing & Real Estate Sector always helps to provide peoples a hygienic & healthy environment for society.

    • Honorable sir,,
      Pioneer thinking & great initiative for our real estate industry.

  • Sir, our country’s economy already has felt effects of COVID-19 as because all the local business and international business activities are stopped for an indefinite period of time. It is very alarming.
    Our industry (Real Estate) will definitely face huge suffering from the effects of COVID-19 therefore, it is now required to set a collective proposals to Implement for Our Industry (Real Estate).
    The nature of business is directly linked to: >Local/International Suppliers, >Local Customers, >NRB Customers, >Financial Organization, > Govt. Authorities , >Workers/Daily Labour, >Local raw material producers/suppliers, >Permanent Employees,, it means that Each and Everyone of the mentioned entity is going to face effects of this crisis. And this will definitely not bring good results for the industry in coming months. Hence, Government and the Real Estate Company must take initiatives to support both their stakeholders and business needs throughout the time.

    Sir, Possible negative effects we will face:
    > slow down in construction work due to reduced labour presence
    > buyers will delay in their home purchase decisions ( which will Decline in New Sale)
    > disruptions in raw materials supply/ lack of transportation services ( which increase Disruptions in project execution)
    > reductions in collections of dues instalments ( which will Reduces Work-in-Capital cash flow in hand)

    Sir, What Govt. Can Do to support us:
    > tax relief for Import Item (construction raw material) will help this industry. Construction cost will not rise.

    > banks and other financial authorities can give shot term loan facilities for the company at a minimum interest rate to carry out their expanses

    > banks/other financial organisation can give special home loan packages (at 5% interest rate) to : 1) attract new customers & 2) help financing existing customers to carry out their instalments

    > financial support to the workers/day labour (to be paid for wages). Like special packages approved by Govt. For other industries

    > be flexible with black money/white money issues in terms of investment in real estate
    (Note: past history says, investors buy real estate in bad times).

    … thank you,
    Rahul

  • Dear sir,
    Thank you so much for taking this issue in strong consideration. When we find mentors like you besides us, we feel more confident.
    To be very honest, I was highly expecting to hear at least something from hour honourable Prime Minister regarding her plans for the Real Estate Sector, like you mentioned. When I did not hear a word, I was really heart broken and immediately I thought of REHAB. May be our pain scream was not loud enough to reach our GOVT or even REHAB.
    I would like to mention that, from last few months our real estate sector is already facing huge problems for RAJUK’s new registration procedure and now the “COVID-19”. Unfortunately we are still trying to run with a fractured leg. In these tough time, we truly expect proactive attitude from REHAB. Since, we trust them, rely on them and strongly believe that REHAB is always there to hold us up when we are in a crisis moment like today. But we also believe it’s never too late to take good initiatives.
    I highly agree with your suggested initiatives, I believe these steps will definitely help us to fight this tough time. Thank you once again for bringing this issue in limelight.
    Wish you a good health. Stay safe.

  • completely Agreed with this valuable discussion which Elaborately described Mr. Arshi Haider sir.
    very very logical issue this is
    for the real estate sector by this critical situations.
    i think Especially our prime minster have to shown focused in this sector also she can considered the recommendations of Mr. Arshi Haider sir to blance the financial situations.

  • Very well sited! It’s very regret that real estate owners can never raise their hands together to push govt. in such issues. It’s time to wake up REHAB with it’s previous honor and work with govt. to fight back.

    Why REHAB is sitting idle when BGMEA, BKMEA etc. are in field to fight with govt. against COVID-19. REHAB should raise fund for the workers, employees and organizations of real estate industry

  • I think govt. can think about extension of our cities, still huge amount of lands fallen having without any income generation propensity around the country, where Developers needs access to build-up town with low cost of fund. This will certainly help both supply & demand side to avail their desired flats at low cost. Otherside, Developers also need to enter into the Bond market to avail their fund on long term maturity & at cheaper compare from bank borrowings.

  • Dear sir
    Thanks for such proposals I m highly impressed to read your article which is fullly informative eand path finding to get read of these situation.
    Pl circulate it more to general Public so that people can raise demands in line with you.
    Thanking you Again

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