Reducing registration fee, increasing the amount of home loans and reducing the lending rates will help the housing sector turn around, says the Bangladesh Bank
Flat prices in Dhaka have tripled over the last two decades and a major reason for this price hike is the high registration fee, according to the monetary policy review report released by the Bangladesh Bank on Wednesday.
In addition to reducing this fee, increasing the amount of home loans and reducing the lending rates will help the housing sector turn around, the report said in an analysis of the housing sector.
According to the central bank's review, the registration fee in Bangladesh has been reduced from 14% to 10% on the total price of the flat, but this rate is still higher compared to many countries in Asia.
Hong Kong has the lowest flat registration fee in Asia. Then there are Malaysia, Japan, Singapore and China.
Registration fees in Thailand and Taiwan are similar to that in Bangladesh.
The government is currently earning an average Tk500 crore from the sale of flats. The central bank thinks this income will increase manifolds if the registration cost is reduced to 5-6%.
According to the report, the flat prices in Dhaka have tripled over the last 20 years and the price hike is attributable to rises in prices of construction materials and land, and registration fees.
The highest price increase was in the 2000-2010 decade. In those ten years, prices of flats saw an eight-time increase, mentioned the review report, adding that the flat prices went up during the period, thanks to a huge investment of expatriate Bangladeshis in the housing sector.
Citing research by the Bureau of Statistics, the central bank said money remitted home by expatriate Bangladeshis are the most widely used for buying or building a home after meeting daily needs.
According to the central bank, land prices are highest in Baridhara, known as a posh area in the capital. On the other hand, land prices are lowest in the Badda area, a short distance from Baridhara.
"Rise in land prices also impact flat prices. Flats are costlier in posh areas as prices of land are there. In these areas, large flats are sold more, which is why prices of large flats are much higher than that of small and medium-sized flats there."
However, medium-sized flats are the most sold. Such flats account for 60-65% of total sales, the report added.
Mentioning that the housing sector is important for the macro economy, the report said after agriculture the real estate sector is the second largest employer.
According to the Real Estate and Housing Association of Bangladesh (REHAB), the number of people employed in the sector is about 35 lakh.
This sector and its linkage sectors have played an important role in driving the country's GDP growth to the 8% level.
However, the central bank report itself shows the housing and construction sectors' contribution to the GDP is falling.
The housing sector accounted for 16.8% of the GDP in 1998-99 but it fell to 14% in 2019-20.
The central bank has recommended decentralising the business as well as increasing the amount of loans from the housing loan fund and reducing interest rates for the development of the housing sector.
According to the review report, 98% of the real estate companies are doing business in Dhaka city alone.
If the businesses can decentralise, they will get new buyers and the business will be sustainable, the central bank observed.
It further said if buyers of flats can be given loans at a 5% interest rate, middle-class people will buy flats in greater proportions. Additionally, the central bank suggested reducing the current interest rate on home loans from financial institutions (NBFIs), which is around 11-12% at present.
The central bank said any negative impact on the housing sector would affect other sectors as well that is likely to hurt the economy as a whole. Even though there is a separate property price index in India, Bangladesh has not done anything like that yet.