While the recent lockdown may have dented the momentum, the need, the desire and the means to acquire property are still there, waiting to become active again
“Volatility’ is not a characteristic that is attributed to the real estate sector. Unlike almost every other market that is currently experiencing massive turmoil and high-volatility, the housing sector is, at most, currently on “pause.”If experts are to be believed, the world is currently, or will be in the very near future, in recession. Yet, it is also forecasted that the housing market will recover as soon as the recession is over thanks to the low volatility characteristic of real estate.While the transaction of property might be low due to the current scenario, the market will definitely bounce back — especially here in Bangladesh.
There is no doubt that when civilization finally peeks its head out from all the catastrophe we are currently experiencing,there will be massive economic consequences — a price that is necessary to pay in order to keep everyone safe.However, as housing is a basic need and, unlike stocks and shares, real estate is a highly-tangible asset, the value of which is largely national,the appeal of this product is not expected to dwindle greatly.
In fact, when real estate activities resume, the market may even become more competitive and valuable than what it was due to investors looking for more stable investment opportunities. Whereas millions of investments in stock can be wiped out in mere minutes during a recession, property prices barely nudge in the negative direction.
A recent study by ATTOM Data Solutions, a leading real estate data provider in the United States, on the previous five recessions in the US real estate market showed that only two of those recessions saw home prices go down, one of which was the great recession of 2007.But the real estate market is not like that of the US — it is far less volatile.Unlike the United States real estate market, the Bangladesh real estate market is not heavily dependent on the mortgage sector. It is also relatively new in comparison.
While the real estate downturn of 2011 took five years to overcome, it had been an eye-opening and learning period for the market.Since then, the industry has been more “demand-focused” and has been experiencing a “housing boom”so to speak.
The real estate sector has experienced significant growth since 2016. According to the Real Estate Housing Association of Bangladesh (REHAB), the market saw around 6% growth in 2017 and at least 9% in 2019 while sales slipping a bit in 2018. The growth last year is more evident by the volume of incoming demand Bproperty received in 2019.
Last year, the only property solutions provider in Bangladesh saw a staggering 115.29% surge in property purchase demand from the previous year. And that momentum continued onto 2020 without letting off— that is until the pandemic hit. So, while the recent lockdown may have dented the momentum, the need, the desire and the means to acquire property are still there, waiting to become active again.
This “trust” in upward real estate demand is the result of a few simple things. One, housing is a basic need where the decision to buy is usually made when someone enters a new stage of life and is independent, to some extent, of other national economic indicators. Two, real estate’s perception as a wealth generator and an asset that is usually free from depreciation. And three, the efforts of the governing bodies to foster more real estate investment.
In recent times, the regulatory bodies have taken several steps to encourage new real estate investors such as reducing tax and fees associated with home purchase, increasing the home loan ceiling to Tk2 crore and capping the interest rate to 9%, which has come into effect on April 1 this year.The result of these regulation changes was just coming into play before the lockdown and their full effect was still far from realization.So, as these regulations will remain at play after the situation normalizes, there is no reason to expect anything other than a renewed and rejuvenated real estate sector that is full of those eager to invest.
However, the one thing that might be in the way of this resurgence may be a lack of supply. Even if for a limited time, the market will surely experience a significant shortage of property, and houses or apartments in particular, since the development and construction of new properties have come almost toa screeching halt. Many construction projects have been abandoned mid-way or are being pushed back until the situation goes back to normal — which will result in great delays.
Furthermore, the battle against the Coronavirus is just as mental as it is physical. The fear that has gripped the minds of the people will not go away as soon as the situation comes under control. Reluctance to resume work in construction may still remain for a time —delaying completion of many projects.Since high demand and low supply of any product pushes its price to go up, expecting property prices to increase is not a thought that is out of the bounds of possibility.
But the real estate sector is more durable than most other sectors and is expected to be less impacted by the current scenario. Additionally, the property market of Bangladesh is now in a better position — not to mention less volatile —than others and is capable of taking a hit if the situation comes to that.
People of the country want to invest in something tangible, in something that can deliver great returns down the line. That is why even if the real estate industry goes into hibernation for now, it will wake up and resume its activitieswith nearly the same vigour with which we are all familiar.