• Monday, Aug 03, 2020
  • Last Update : 06:05 pm

The pricing effect

  • Published at 10:15 pm July 6th, 2020
The pricing effect

To tackle the downturn the real estate industry is facing, the government has taken two major steps

One of the basic laws of the economics states that when the demand of a product is high and supply is low, its price will go up. But real life is not so basic. Many aspects and elements are intertwined with determining the price of a product — some arise from organic and natural situations while others are created artificially. The ongoing Covid-19 pandemic has thrown many of the economic metrics out of the window by lodging a proverbial wrench through everything and governments and businesses alike have been scrambling to minimize its effect and return things to the way they were before the pandemic.

For that, the national budget announcement was a very important roadmap, indicating what aspects of the economy should be focused on and set the precedence for how that recovery might move forward.

Now we are living in the post-budget time of the new fiscal year that was specifically designed to deal with the economic crisis brought on by the pandemic, and everyone has a better understanding of what to expect in the next 12 months. To tackle the downturn the real estate industry is facing, the government has taken two major steps —first,reduced the registration cost of property from 14% to 10%, and second, allowed previously undisclosed money to be invested in real estate with nominal taxes.

Both of these announcements have been heavily applauded by those within the sector and the hopes are high that this will help reinvigorate the property marketing during this time of crisis. But this begs the question, will a resurgence in demand see property prices rise? Will it sore past the pre-Covid-19 pricing?

Going back to basic economics —it stands to reason that since real estate project constructions or even initiation have been almost non-existent in recent times due to the shutdown, lockdowns and health hazards, property or home supply in the market, at least until for a time being, will be limited. On the other hand, it is expected that the recent regulation changes will be instrumental in bringing people to the market, both old and new.

If that is the case, the real estate sector could see a boom in demand as properties get booked left and right. But evidently, such an increase will lead to higher property prices. And if indeed such a scenario arises, the people who were banking on reduced pricing to purchase property, they may be left in the dust.

A big criticism and fear of the newly minted regulation of allowing undisclosed income to be invested in real estate is that many may, at least to some extent, take advantage of this by investing only for the sake of “whitening’ their money. While that would, no doubt, increase the inflow of money to the sector, it may somewhat deter its ultimate goal, which is to create investment opportunities for people as well as provide housing solutions.

While a significant number of people will prosper under such a scenario, those who had been looking to invest in a permanent housing solution may be hurt due to rising prices as either they would have to increase their budget which is oftentimes stretched already or compromise with something lesser if not abandon the decision altogether.

But then again, that might not happen. The situation where property prices increase so much in so little time that it goes out of the ability of average home buyers might never happen at all. That is because, for all intent and purposes, the real estate market is quite resilient and stable. Even if there is a significant surge in property demand and booking in the coming few months, prices would probably remain more or less the same and would begin to slowly and steadily increase over time.

This is evident by the fact that even during the global economic crisis, when the property market of Bangladesh was on the ropes, prices did not vary significantly. While there were some price cuts and discounts offered for real estate projects, prices have remained steady.

The current crisis, though, has the potential to exceed even that of 2008, unless the global pandemic is handled imminently. In fairness, there is still no definite numbers that indicate whether property prices have varied or not due to the crisis. So far, all is known that the market is seeing a lack of transactions even though the demand is still quite high and construction-work at a halt.

But this could, and still can, be a great opportunity for home buyers if real estate developers and secondary property sellers begin to compromise on their prices and offer discounts. Although, such buyers would have to act fast when and if this opportunity arises because many of those with previously undisclosed income may have the ability to swoop in and invest in those properties without even needing the support of financial institutions.

Throughout the years, property prices have increased significantly during a period of real estate boom and dipped during times of economic turmoil such as the one the market is experiencing now. But even then, real estate is one of the only non-depreciable assets in this world that, when it comes to the overall picture, almost always follows an upward trajectory in prices. That is why it is a premier choice for investment.

The new regulations will no doubt increase the lucrativeness of real estate as investment options even further. However, since economics is a matter of great complexity, whether this resurgence will benefit or have a detrimental effect on the average home-buyer by helping rapidly increase property prices is something that needs to be waited and seen.

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