If you are a Dhaka resident and do not already possess a property in the capital, there is every chance that you might end up not owning one in your foreseeable future even if your monthly income is in the six-digit range.
This was the conclusion of a recent study which compiled a year of research work by urban planners and economists in the country. The publication, titled “Urban Bangladesh: Challenges of transition,” was conducted by the Power and Participation Research Centre (PPRC); a private research organisation.
According to this publication, for most Dhaka dwellers the prospect of being able to buy a house appears to be the poorest in South Asian cities as the price income ratio here is 5:1 or more. (Even the neighbouring Indian city of Kolkata has a ratio of 3:1).
Normally a ratio of between 2:1 and 3:1 would generally imply that a significant portion of the middle-income population could afford to purchase house, although highly unequal income distribution would push down the proportion, said the study.
The ever-increasing cost of house rent hasforced the Dhaka-dwellers to spend 35% of their income on average. Sometimes the share of income paid in rent is as high as 45%.
Calculations done in one of the studies of this publication shows that even if the current income of a person is Tk100,000 per month and he is able to save half of this amount after bearing living expenses, it would take him at least a decade to save enough money to purchasing a property in the outskirts of the capital, provided that the housing market remains steady, which is very unlikely.
Data provided by the urban and regional planning (URP) department of BUET says that in areas of Dhaka and its outskirts, land prices have increased by more than 300% between 2000 and 2007. Real estate developers’ estimates suggest the increase would be close to 350% since then.
According to Real Estate and Housing Association of Bangladesh (Rehab) data, the price of a katha of land rose by 344% in Mohakhali; Dhanmondi was close behind at 331%; and 300% in Banani and Gulshan.
Land prices in Motijheel, the commercial hub of Bangladesh, increased by a slightly above-average of 214% during this period.
The most modest price rise was in highly congested Azimpur, at just 118%.
Talking with the Dhaka Tribune, Prof Dr Sarwar Jahan, head of the URP department of BUET, and the author of one of the studies of the publication, said the scarcity and high cost of land has become the stumbling block to facilitating accessibility of the middle- and lower-income people to housing.
“Land development multiplier (LDM) is an indicator that reflects the premium that had to be paid for a plot of land developed for housing in comparison to raw, undeveloped land. The LDM of Dhaka was estimated around 2 in 1991, but it increased to about 7.5 and 18 in 2001 and 2011 respectively,” he said.
The weakness of the financial sector in terms of providing funds for housing is also a major obstacle to housing development. The formal mortgage finance system is small relative to new housing construction, serving only the highest income groups, said Dr Jahan.
Referencing a World Bank study conducted in 2007, Prof Jahan said that Dhaka’s land prices are comparable to those in suburban New York or London, although the median income in Dhaka is 50 to 100 times lower.
Prof Jahan said in Dhaka more than 65% of households rent houses to live in. “Like other commodities, house rent increased tremendously during the last few decades. As per available statistics, it was found that the house rent in Dhaka in 2007-2008 was more than 24 times the rent in 1973-74,” he said.
He also said that about 60% of urban dwellings in Bangladesh are owner-occupied, but the percentage is only 30 in Dhaka city. “Over time, there has been a declining trend in single owner-occupied housing, as real estate companies emerge and renovate a single owner houses into an apartment complex,” he said. Tanveerul Haque Probal, former president of Rehab, said the increased prices of land and construction material have forced real estate developers to sell ready-made apartments at high prices.
“Land owners now prefer handing over the ownership of land to the real estate developers, as in this housing market scenario [that] is much more lucrative for them,” he said.
Probal said the current price of apartment in a decent location of the capital is not affordable to middle-income people. “That’s why developers have started to construct low-price condominiums in the outskirts of the capital,” he said.
However, he said the overall situation of the sector was not good, and that the reason for the slowdown in sales was lack of financing from banks. “In the past, banks used to finance the housing sector. But now they seem less enthusiastic. It has impacted the sector,” he said.
Economist Prof Wahiduddin Mahmud said a point of Dhaka is that the average income of its dwellers has not reached a threshold at which one can afford to buy a house in such a large city.
“Costs of necessary civic amenities, in terms of investment and maintenance, are beyond the income capacity of most of the city’s dwellers. This is actually the cost of unplanned city expansion,” he said.
Prof Mahmud said optimum use of land under extreme land scarcity cannot be ensured only through market or private incentives, but through incentives by public interventions.
