Flat Sales Fall 35% in a Year as Bangladesh Housing Sector Sinks Deeper into Crisis

Bangladesh's housing sector is sinking deeper into crisis as high bank loan interest rates, runaway construction material prices and falling purchasing power squeeze buyers. According to housing businesses, flat sales in the country have fallen by about 30 to 35 percent over the past year. The slump is also putting the large number of allied industries and jobs linked to the sector at risk.

Inflation has pushed up spending on food, house rent, medical care and children's education, leaving people with less ability to save. As a result, interest in buying a flat as a long-term investment is also declining. For many families, buying a flat has become a far harder decision than before.

Many people dream of owning a flat in the capital Dhaka. Yet despite the demand, high prices and the rising cost of borrowing are making that dream hard to fulfil. Although Dhaka's population is more than 25 million, sources say over 70 percent of its people have no home of their own — meaning nearly 20 million people live without their own housing, most of them from lower- and middle-income families.

Many families save for years to buy a flat. But with the recent rise in the prices of daily necessities, rent, medical treatment and children's education, much of that saving is now spent on everyday needs. Many prospective buyers are therefore unable to accumulate the amount needed to buy a flat.

At the same time, high interest rates on bank loans have discouraged people from buying flats on credit. Weighing the risk of taking on long-term financial liability, many are postponing their decision to buy a house or a flat. Businesses say demand for home loans has also fallen because of high interest rates.

According to housing businesses, the price of construction materials has risen by more than 31 percent in the past year. Over the past three years, flat prices have risen by up to 40 percent. As construction costs rise, developers have had to adjust the prices of new projects. That raises builders' costs on one side and pushes many flats beyond buyers' reach on the other.

As a result, a gap has opened up between demand and supply in the market. Businesses estimate the housing shortfall against demand has reached about 300,000 units. Demand exists, but the lack of purchasing power means it is not turning into actual sales.

The importance of the housing sector is not limited to building and selling flats. More than 250 allied and supporting industries are linked to it, including rod, cement, brick, sand, sanitary goods, electrical equipment, tiles, doors and windows, transport and labour-based services. When new projects decline and flat sales stall, these industries also suffer.

People connected with the sector estimate that the jobs of more than five million people are at risk. Fewer projects hurt everyone from construction workers to suppliers and small traders.

Meanwhile, even amid the downturn, some of those who are buying flats have accused developers of failing to hand over flats on time and of fraud in money transactions. In some cases, buyers say they paid instalments and advance money but did not receive their flats under the agreement. That is increasing uncertainty among buyers and damaging trust in the housing business.

Analysts say that to overcome the crisis, construction costs and loan interest rates must be brought to a tolerable level, and flats must be built in line with the purchasing power of the middle and lower-middle classes. Planned housing outside Dhaka, along with better transport and civic facilities, could also ease the pressure concentrated on the capital.

They also say developers must meet handover deadlines, contracts must be transparent and buyers' money must be protected. Their warning is that without effective steps in these areas, the stagnation in the housing sector could drag on and the pressure on related industries and employment could grow further.