A balanced and detailed recovery path is necessary
The global economic crisis of 2007-08 had been devastating for almost every market around the world.Housing sectors, in particular, had been greatly impacted by the collapse and took years to recover. The real estate market in Bangladesh suffered the same fate. The sector was much unprepared to handle any calamity, and as a result, the market was suffering almost throughout the entire 2010s. It was only during the tail-end of the decade that real estate of the country truly flourished.
Unfortunately, just as the sector was making strides and the future seemed teeming with potential, the world began to experience another economic crisis —with the potential to be far more devastating.
However, the real estate sector of Bangladesh is more mature now than it was back during the last crisis and the goal is a far quicker recovery period.But for that to happen, the stars need to align first, if not by their own volition and through intervention if necessary — and that means creating and executing a short-term as well as a long-term recovery plan which will help stimulate the industry and return to the pre-economic crisis pace.
But as the market continues to experience turmoil for the time being, creating only a short-term or a long-term plan alone will not be enough to get the real estate sector back on its feet. A balanced and detailed recovery path is necessary.
Safety of the workers
As industry experts, think tanks and policymakers continue their work on forging a recovery path for real estate,the initial focus for developers and contractors needs to be on the safety of the construction workers. Without ensuring their safety, it is impossible to sustain a progressive and realistic construction pace. They are an essential part of the process and they need to be kept safe by providing adequate personal protective equipment or PPE that are not only appropriate for construction sites, but will also prevent the transmission of viruses.
Furthermore, proper distancing and hygienic measures need to be adopted so that the pace of the workforce does not dwindle as construction work progresses. There have been some mishaps in the past in that regard that cannot and should not be repeated.
Working capital through refinancing
The housing industry of Bangladesh benefitted tremendously from a government-sponsored refinancing scheme during the last economic crisis. It had been a vital part of the recovery, both in the short and the long run. The scheme helped struggling real estate entities to amass a working capital to stay afloat. A similar refinancing scheme will also be quite beneficial for the recovery of the real estate sector of Bangladesh.
Luckily, some refinancing schemes have already been introduced to the market via stimulus packages in light of recent crisis — although, access to it as a real estate entity can be difficult even though according to the Industries Ministry, the sector is eligible for a low-interest loan to be used as working capital.
Last month, the Real Estate and Housing Association of Bangladesh (REHAB) requested an exemption from paying loans on interest till the end of this year as well as rescheduling them as “soft loans” with more favourable terms that would help the recovery of the industry. The call for such measures would enable real estate entities to worry less about loan interests and focus more on creating products for the consumers to bolster the sector.
Home loan interest rate
On the consumer side, a low home loan interest rate will also be a great motivator. The government reduced the home loan interest earlier in the year below double digits — a long-standing request by both developers and buyers —and set it at 9%. This was greatly applauded by the real estate industry and was expected to have a terrific effect. But as the current crisis hit, even a 9% interest rate may be unfavourable to some extent.
Even though there is and will be much demand for real estate in the coming days, people might not move ahead with their decision due to — in comparison to the current situation — such a high-interest rate. If the rate is reduced further, people will be more inclined to engage with real estate, which in turn will foster a quick recovery for the real estate sector as a whole.
Reduce property purchase taxes
Along with interest rates on home loans, the regulatory bodies need to re-evaluate the taxes that are related to purchasing a property. Similar to interest rates, property purchases taxes had been reduced by some margin in recent times. However, the accumulated cost of tax in Bangladesh is still one of the highest among the South Asian nations.
High taxes had been a long-standing barrier in peoples’ real estate decisions. But now is the most appropriate time to reduce real estate purchase taxes to a more favourable number that would motivate people to buy properties.
Cement, steel and all other supportive industries of real estate are also enduring massive losses and difficulties as raw material supply continues to stay dry and almost all construction activity remains stopped. During this dire time, the real estate industry and the linkage industries need to come together and formulate a plan that would be beneficial for all parties. They need to work hand in hand if all of those industries are to sustain in the long-run.
Current and future works
The economic crisis will have a profound effect on all current and future real estate projects. The ongoing projects will no doubt see a delay in completion and handover as construction activities cease almost entirely. But even when it resumes, there will be capital issues, the rising cost of raw materials and other problems deferring the completion of projects.That is why, before other, new real estate projects are initiated, the complete focus of the developers should be on minimizing the length of the delay and completing the ongoing projects. Delays will be understandable by the consumers when they see the effort being made to complete in time.
On the other hand, a real estate product takes years to complete. So, any recent or upcoming projects need to be re-evaluated to fit the growing and emerging needs of the people coming out of this crisis. If possible, maybe the ongoing projects can also be modified to fit the need but any upcoming project should be properly and thoroughly re-evaluated and redesigned if necessary.
The goal, at the end of the day, is a quick and successful recovery of the real estate sector, which has been a great contributor to the GDP in recent times. It is a vital source of employment and economic growth for the country. As such, any and all measures should be taken to ensure that the real estate industry does not suffer economically unnecessarily and can be a major player soon again.