An unholy nexus of real estate business tycoons is moving capital out of the country to find second homes, deceiving banks and their clients looking for apartments.
Md Yasin Ali, former Bangladesh Bank executive director, said that without using the bank loans drawn for real estate development, the realtors siphon off their capital abroad to build second homes, thus putting the banks in danger of default and contributing to the rise of default loans.
“They purchase their new homes in Western countries like Canada, USA, Switzerland, also in Malaysia and Singapore, without paying off the bank debts,” he said at a round-table meeting on ‘Home Loan of Banks: Trend and Impact’ organised by the Bangladesh Institute of Bank Management in its auditorium on Thursday.
“The developers also deprive their clients of timely registration of their long-cherished flats. In most cases, it so happens that customers keep chasing after their apartments years after years while manufacturers lead a flamboyant life in their second homes, ignoring the banks’ debts as well as their clients,” he said.
Yasin said developers sell off their flats, but do not have them registered for their owners, because they fail to pay off their bank loans. He urged the government to look into this “unholy practice that throws apartment buyers into disarray”.
The central bank Deputy Governor SK Sur was present at the discussion as the chief guest.
He urged the bank to facilitate home loans on “easy terms so middle-income people can dream to arrange a shelter in the capital”.
He said Bangladesh Bank is working on a home loans policy which will help loan seekers get loan on easy terms.
Home loans in Bangladesh are mainly regulated by the government policy and Bangladesh Bank guidelines. In order to arrest the flow of credit from banks to unproductive sectors, banks are also instructed not to provide any loan/credit facility for purchasing land.
All scheduled banks are instructed to refrain from disbursing any loan to private housing projects which are not approved by statutory government organisations.
This instruction aims at stopping the ongoing practice of disbursing bank loans for unapproved private housing projects which poses high credit risk as well as environmental risk.
BIBM Director General Dr Toufic Ahmad Choudhury, who chaired the programme, said a home is a shelter of an individual and as such, there should be more flow of credit disbursement on easy terms in this sector. He also stressed the importance for reaching out this loan to people living in villages.
In his address, BIBM supernumerary Prof Helal Ahmed Chowhdhury said apartment buyers have to make sure before their purchases that developers have run their housing projects on land not mortgaged to banks.
“In some cases, it happens that realtors develop their structure on the land mortgaged to banks, and sell them off, while the banks turn up in course of time to realise their loan,” he said.
At this, customers fall into problems while builders escape.
“If the provision of home loan is lowered to 1% from the existing 2%, bankers would be interested in disbursing more loans and a level playing field could be ensured,” Helal suggested.
Standard Chartered Country Head Abrar Anwar termed the high rate of interest on home loans “a big obstacle”.
BIBM Director Prof Mohiuddin Siddique presented the keynote speech at the round table along with associate Prof Md Alamgir and Dr Md Tajul Islam.
According to the keynote speech, defaulted loans are less in the housing sector than that in other sectors.
In 2006, the ratio of non-performing loans in the housing sector was only 1.57% while it was 5.45% overall.
In 2016, NPL was 8.16% overall while it was 3.12% for home loans. In 2006, the home loan disbursement ratio between urban and rural areas was 95:05, while in 2016 it was 83:17.