The impacts of COVID-19 are still visible in many sectors, whereas the real estate sector faired better than most other sectors during that period. However, a substantial increase in the prices of construction materials, thanks to the Russia-Ukraine war, has dented the progress. But, Professor Dr. Md. Salim Uddin, chairman of Bangladesh House Building Finance Corporation (BHBFC), said in an interview with Industry Insider that the sector hasn’t suffered much and calculated government moves are leading it correctly.

A prominent accountant, Dr. Salim is a professor of the Accounting Department at Chittagong University. He currently serves as president of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) and as chairman of the board of directors of Union Bank. Previously, he served as chairman of the Executive Committee of Islami Bank Bangladesh Limited, Rupali Investment Ltd, and Chittagong Stock Exchange Ltd.

Tanjim Hasan Patwary, the Chattogram Coordinator of Industry Insider, conducted the interview. You can find the recorded interview on Industry Insider’s YouTube channel: @industryinsider 

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Industry Insider: In 1970, there were only 5 real estate companies in Bangladesh, which is over a thousand now. REHAB’s membership has also exceeded 1,200. This is one of the constantly developing sectors in Bangladesh. What are the reasons behind this growth, and how do you see the future of it? 

Professor Dr. Md. Salim Uddin: Thank you (for the question). We call the real estate the ‘mother of all sectors.’ Let me explain. This sector started its journey in 1970 with only 5 companies. There was, maybe, only one company in 1966. Then, since 2009, the number of registered real estate companies at REHAB has grown to almost 1200, involved in various construction works.

The concept of the real estate business is much bigger. Any land with infrastructure can be included in this sector. Therefore, it’s not confined to buildings; works like road construction, city planning, and construction of various structures are also part of this sector. This sector can be categorized into residential real estate, commercial real estate, land as real estate, industrial real estate, etc.

Since Honorable Prime Minister Sheikh Hasina assumed power in 2009, Bangladesh’s real estate sector has expanded. Different development projects and goals, including SDG implementation since 2009, construction of 100 economic zones, (vision of) converting the country into an upper-middle-income one by 2030, and the Smart Bangladesh vision by 2041, have helped real estate flourish. Besides, rural-urban migration has increased. Currently, 40% of Bangladesh’s total population lives in the city areas. By 2050, it will be around 50%. This is another reason for this sector’s growth. Also, Bangladesh’s per capita income has increased. People spend 30-40% of their income on house rent. 

There are 3 types of real estate buyers. One is the high-income class, who prefer luxurious apartments; this class comprises less than 3% of the buyer population. Two, middle-class households which comprise 15-20%. Three, the lower-middle-income population comprises almost 82%. On the other hand, the national budget size is also increasing. In 2007, our budget was nearly Tk 670 billion (690 billion). It has now increased 10 times to over Tk 7610 billion. So, the nation’s overall development and growing per capita income have helped the cause of real estate growth.

Another reason for the growth of real estate is its safe and high return on investment. The return is so good that it always remains above the inflation rate worldwide. Bangladesh has been politically stable since 2009. For instance, Grade-A offices in Dhaka’s commercial real estate segment have grown from 10 million square feet to 20 million in the last ten or twelve years. And if you consider the newer real estate companies in the land business and developing infrastructures, the number will be even bigger. 

According to UN Habitat, about 1.8 billion people in the world live in unhealthy environments; 15 million are homeless. By 2030, about 3 billion people will need quality houses. To meet this demand, 96,000 new houses will be required daily. IFC (International Finance Corporation) states we have an 85 lakh housing unit shortage. If 50% of the total population moves to cities by 2050, the annual demand will be 100,000 units. Our current demand is around 0.7-0.8 million units, whereas the supply is only 25-30 thousand. So, the government is providing various benefits, including tax benefits, to grow this sector in every city in the country. Although the sector slowed down during COVID-19, it is now picking up again, even though global commodity prices are rising. These growth factors also make this sector potential. 

II: The real estate business is one of Bangladesh’s economic development pillars. As we know, the growth of this sector means the growth of several other related sectors. So, will it positively impact the related factors such as employment, social development, poverty alleviation, etc.? 

SU: The real estate business contributes to the economy in various ways. For instance, a good residence gives people mental peace, improves health, reduces healthcare expenses, and helps their children get a better education; overall, it ensures job stability. Simply, a healthy residence brings a qualitative change in everything. Apart from societal impact, there is also economic impact. This sector has 3 types of impact on every sector: direct, indirect and induced impact. To explain, it directly contributes to the country’s GDP. In 2023, the contribution was 7.93% of GDP, which has been rising consistently.

On the other hand, 300 to 400 sectors are indirectly involved with developing real estate business. For instance, if you move into a new house or build one, you’ll need furniture, electric appliances, etc., which will boost those businesses. Lastly, induced effects come from building infrastructures. For example, more cement will be required for an expanding real estate sector, leading to the cement industry’s growth. If we talk in terms of economic multiplier effect, real estate adds 1.5-2.2 taka to GDP against 1 taka investment. That means a million dollars would bring 1.5 to 2.2 million dollars. Similarly, 1 employment in this sector creates 1.71 to 2.01 employment. 

II: We would like to know about loan facilities or incentive packages for investors in this sector.

SU: Investors can invest in real estate business for many purposes like rental, capital appreciation, investing as a broker, etc. The government has kept all related costs as low as possible. Although this cost had increased at one point, it has now been reduced again. On the other hand, these businesses do not face any difficulties from the government if they properly pay green taxes and other taxes. Financial institutions currently offer loan facilities for real estate businesses for various terms. For example, Bangladesh House Building Finance Corporation (BHBFC) provides loans for a 25-year period. The country has a Tk 1000 billion loan portfolio in the housing sector alone. Almost all financial institutions provide loans for investors in this sector. Frankly speaking, BHBFC loans are easier than banks as, in most cases, you won’t get a loan for a period of 25-30 years there. Again, loan penetration in the housing sector is low in our country. Developed countries like China, the UK, the USA, etc., have a house-building loan rate of 95%. In Bangladesh, however, the rate is 3-4%. 

On another note, real estate in the country is hardly present in the capital market. We have 20 million sq ft Grade A offices. These investments could be boosted if made through the capital market. Our country has no dedicated mutual fund for the real estate business, making this an illiquid sector. We also don’t have mortgage-based security (MBS). Another thing we require to formalize this sector is an exchange trading fund. 

II: Real estate in Bangladesh is largely confined to cities like Dhaka and Chattogram. If we are to spread it nationwide, what should be the approach? 

SU: It’s true that most real estate business activities are confined to two major cities. But we have SDGs to implement. The current government’s election manifesto had the ‘My village, my city’ program. The essence of the program is to develop real estate business by ensuring necessary government facilities in every corner of the country, reducing rural-urban migration to megacities and introducing improved facilities at the municipality level, which are now available in Dhaka. As we are experiencing fast development in road construction, within 2041, there will be 12 special routes crisscrossing the whole nation. Infrastructural development will easily reach across the nation then. 

II: Tell us about the scope of using Artificial Intelligence in the real estate sector in Bangladesh. 

SU: If the investment is capital market based, like REIT (real estate investment trust), MBS etc., blockchain, AI, IoT, etc., technologies will be required. The baseline is information asymmetry which will ensure usage of technology regarding investment. From taking loans and investing to leading the business, space management, smart flat ideas, and building planning – AI will make everything efficient.

II: Apart from road construction, the biggest portion of the real estate sector, which segment do you think will be best for investing in 2024?

SU: Well, primary investment in this sector is done. Now, the sector needs to be liquid and come to the secondary market so that the primary investors can resell flats/apartments to reinvest in new projects. An issue with this sector is that you have to wait a long time for profit. That’s why it needs easy financing. So, the smartest investment in real estate in 2024 would be to make this sector liquid in the capital market.

II: If we talk about smart cities, Kenya’s Charter City project is commendable. They have created small city blocks or neighborhoods with every required citizen facility. Can Bangladesh opt for such plans?

SU: The first thing is that Bangladesh is the world’s 8th most densely populated country, with 180 million people. With such a huge population on such a small land, we cannot afford to do anything unplanned. So smart city is an automatic necessity for us. See, we now think (in terms of building infrastructure) vertically, not horizontally. For instance, when there is a concentration of skyscrapers in a small area with facilities like schools, markets, etc., present within walking distance, it will be like a smart city. Because if the facilities are far from the residence, there will be vehicle movements with fuel consumption; thus, the project won’t be green or sustainable. We also have such projects in Bangladesh, like the ‘Amar Gram Amar Shohor’ project. Take Gazipur or the areas across the Padma as examples where all the government facilities are being set up in a single infrastructure. The government plans to build large government buildings in every city.

II: Can we draw a comparison between the real estate sector of developed countries with Bangladesh’s? 

SU: Mortgage penetration is high in developed countries, over 80%. Because of transparent due-diligence of information, selling property is safe there. They have well-functional secondary markets also, along with mutual funds. On the flip side, Bangladesh’s mortgage market is yet to grow. Our land registry offices still operate manually. These need to be digitalized to be comparable to those markets. Also, we have fewer loan facilities in this sector compared to them. Nevertheless, you cannot leave the market uncontrolled, which might create price bubbles. Such issues, however, are manageable with proper measures.

II: How is the industry going post-COVID? 

SU: Actually, our industry made progress even during the COVID. However, people’s incomes have reduced, and the market has become limited to the 3% of high-income customers. Also, war in different parts of the world led to a rise in construction costs. But, as people’s income didn’t rise enough, a stagnant situation arose. According to an IFC estimate made before the Russia-Ukraine war, there is a demand for 100 million flats if we consider 600 sq ft flats only. So there is huge potential. And there are problems to solve as well. For instance, we don’t have much land compared to the population. As a result, we often fail to comply with RAJUK or CDA’s guidelines, which creates issues like harassment. Not having a secondary market is another problem. On top of that, delay in project implementation is acute. The faster the big government projects are implemented, the better it is for the real estate sector, as many related development projects are taken based on the government’s mega projects. Hence, fast-track government projects accelerate other development projects as well.