Driven by an increasing population and a growing middle class, the demand for housing in Dhaka has never been higher. But despite the rising demand, owning a house in the capital is still an elusive dream for most people.
Primarily, the reason behind the issue is two-folds with the unavailability of housing being number one. According to 2022 IFC data, in Bangladesh, there is a need for 60 lakh units of housing to meet annual demand, whereas the supply currently stands at 31,500 units (primary/brand new property) with more than half being provided by the private sector in Dhaka alone.
So when it comes to purchasing a primary property, people simply do not have enough options. Even if they find one, most people find it difficult to finance it because of the high purchasing cost. And this is the second reason -- owning a house in Dhaka is still out of reach for the majority of people.
But what makes it difficult to buy a primary property right now, and why is the primary real estate market going through a tough time?
When the pandemic hit, back in 2020, most economic sectors in every country of the world were affected by its turmoil. Factories went out of commission and production decreased significantly (in some cases by half). While the economy was quick to rebound, the wounds from the impact remained fresh.
But when everything seemed to be healing, the war on Europe's border between Ukraine and Russia again exacerbated the condition by instigating what is known as economic fallout. Energy prices went up, people lost their purchasing ability, and everyone in the world suddenly found themselves under inflationary pressure.
Needless to say, that didn't bode well for Bangladesh's economy either. Every sector of the economy, including real estate, went under inflationary influence and experienced a major surge in price. That is to say, before the pandemic, a tonne of steel was sold at Tk53,000, and a 50kg bag of cement was sold at Tk360. Now, according to data from the Trading Corporation of Bangladesh, the cost of steel (60-grade) is between Tk85,000 and Tk93,500 per tonne in the local market. According to another report , a bag of cement (50kg) is selling at Tk520-530.
Not only that, the price of stone per cubic foot went up by 24%, brick (per thousand) by 22%, construction sand (per cubic foot) by 50%, and electrical 1.5 BYA cable (per foot) price by 94% according to a report by the Bangladesh Association of Construction Industry (BACI).
In addition, the proposed budget for the financial year 2022-23 has the experts from REHAB (Real Estate and Housing Association of Bangladesh) questioning its effectiveness in light of the import duty increase on elevators from 11% to 19%, on cable from 5% to 10%, and 20% duty on aluminum foil, which was previously duty-free, among other items.
These rapid changes in raw material prices ultimately led developers to halt their construction to revise their budget, causing property prices to go up with handover delays. As a result, people who previously booked apartments from developers have been asked to pay extra to balance out additional accrued cost.
And to tackle the rising construction material cost, REHAB is advising increasing the flat price by Tk1,000 per square foot (sq ft) to sustain the market.
For regular buyers, this turned out to be a concerning matter since they are the ones who are taking a heavy blow at the end of the day. REHAB, on the other hand, was quick to address the issue by asking both parties to come to a settlement only if the construction cost exceeds 10% of the previously determined property value.
However, that didn't seem to improve the situation, demotivating people, and as a result, primary property (brand new flat) sales dropped by half in 2022.
These adversities left regular buyers with only one option: To go for second-hand property. And there are many real estate experts who would agree that this is high time for risk-averse buyers to invest in a second-hand property instead of a primary one.
First of all, with second-hand properties, there is no supply shortage. According to Bproperty CEO Mark Nosworthy, the secondary property market is about 25 times the size of the primary property (new apartment) market, and every year 250,000 transactions take place in the second-hand property market compared to about 10,000 in the primary property market.
That is to say, no matter the type of property you want, the second-hand market can provide. Whether you want to invest in real estate or want to move in with a family, a second-hand property can cater to your residential needs.
Second, the price of such properties tends to be lower than a brand-new one. Because these properties are already built and are immune to any construction price fluctuations. Other than the usual property appreciation rate over the years, there is nothing that influences the price of a second-hand property.
Besides, every second-hand property tends to come in a ready-to-move-in condition with utility connections and all the residential amenities. So you have the option to generate a monthly cash flow by putting the property up for rent. And when it comes to long-term ROI, property appreciation rate is usually much higher than inflation rate. Meaning, you can sell your property at a much higher price than you purchase it at.
So, is the second-hand property market the only way out for prospective buyers? For the time being, it appears to be the case -- unless you are willing to pay a whole lot more than what you would in a stable market condition.
All things considered, if you want to purchase a brand new property, great, but if you are more concerned about investing your hard-earned money into a market that is more likely to be in a volatile state than ever, do consider investing in the second-hand property market.
Khan Tanjeel Ahmed is a business growth enthusiast.