Home provides a sense of security. It is an address, a shelter for one’s entire life, and this is what one leaves behind for the family. Everyone dreams of owning a home, but how many people can afford it? The savings and financial management involved in buying or building a home are often long and complicated.
Another way to avail a home is through home loans. Banks and other financial institutions offer loans of single digit interest rate to people looking to realise their dreams.
Private, state-owned and foreign commercial banks, specialised housing finance providers Bangladesh House Building Finance Corporation (BHBFC), Delta-Brac Housing (DBH), National Housing Finance (NBH), other non-bank financial institutions (NBFIs) and micro credit lenders offer home loans. Some employers such as the government offer home loans as well.
The interest rate for home loans is a minimum of 8% and a maximum of 15%, while the loans can range between two lakh to Tk1.2 crore.
The minimum debt-equity ratio spans between 10:90 and maximum 50:50. Most of the banks provide loans at debt-equity ratio of 30:70 for locals and 25:75 for expatriates.
The banks that provide clients with single digit rate home loans include IFIC Bank, Brac Bank, Standard Chartered Bank, and financial institutions IDLC and Bangladesh House Building Finance Corporation (BHBFC), among others.
Thanks to the single digit interest rate, the country’s banking sector has seen a surge in home loans in recent times.
According to a study of Bangladesh Institute of Bank Management (BIBM), as of June 2016, a total of Tk56,290 crore was disbursed in home loans, 9.1% of the total credit to the private sector.
BIBM Director Prof Mohiuddin Siddique, Associate Prof Md Alamgir and Dr Md Tajul Islam authored the report.
The report showed that of the total disbursed home loans, private commercial banks provided the largest portion - 55% or Tk30,920 crore - followed by state-owned banks - Tk11,930 crore.
“Intense competition among the banks in attracting home loan borrowers has already lowered the interest rate to a single digit,” the report said.
It also said: “The ongoing emphasis on home loans by the banks may be partially attributed to the accumulation of excess liquidity in the banking industry. A persistent increase in per capita income coupled with the availability of loanable fund certainly will make the housing finance a potential venue for making profit in future.”
Moreover, a home loan is relatively safe for a bank in comparison to a business-focused loan, according to the research findings.
The report showed the default loans in home loan are low due to good recovery rate, as only 3.12% of the loans were defaulted in 2016.
Talking to the Dhaka Tribune, Mohammad Sarwar Jahan, principal officer of LankaBangla Finance Limited, said: “Till now, we have disbursed around Tk1,000 crore to around 2,000 clients and 70% of them are from Dhaka city and rest are outside the capital.”
IFIC Bank, which began financing home building a year ago, aims to disburse Tk1,000 crore home loan by this year and the bank has already disbursed Tk400 crore in the first half of 2017.
Shah A Sarwar, managing director (MD) of the bank said: “Clients usually refrain from buying flats due to high interest rate of home loan. We are getting good response after offering home loans with single digit interest rate.”
IFIC Bank is now providing clients housing loan with 9.99% interest rate. It was 11.95% when the bank first introduced the loan.
“Though many banks are offering home loans with a single digit interest rate, the high interest rate is still a constraint for home loans,” said Abrar A Anwar, chief executive officer of Standard Chartered Bangladesh.
He said: “The interest rate should be reduced further to make home loans more affordable and a bond market should be developed to collect funds for long-term financing like home loan.”
BIBM supernumerary Prof Helal Ahmed Chowhdhury said: “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.”
Home loans in Bangladesh are regulated by 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 or 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.
Now, the central bank is developing a guideline to make the home financing schemes more affordable for the middle class, said BB Deputy Governor SK Sur Chowdhury.
He said: “Though the banks operate their businesses depending on the deposits from the middle-class people, they make it harder for middle-class people to avail loans. That is why Bangladesh Bank is preparing a guideline to make the home financing schemes more affordable for the middle class.”
BIBM Director General Dr Toufic Ahmad Choudhury 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 taking this loan to rural areas.
Bangladesh House Building Finance Corporation, the state-run housing finance body, has disbursed home loan of Tk375 crore in the last year and aims to disburse home loan around Tk400 crore.
Islamic Development Bank (IDB) has recently approved a loan of $95.24 million for rural and peri-urban housing finance project in Bangladesh.
BHBFC Managing Director Debasish Chakrabarty said: “We will disburse the loan only to borrowers living outside Dhaka and Chittagong metropolitan areas for construction of multi-storied residential buildings.”
He said under the project, a total of 1,046 buildings will be erected to accommodate 47,856 people.
The loan would be disbursed under ‘Pallima Scheme’, a newly launched scheme of the corporation.
Loans would be distributed to construct 4,050 units in rural areas, 2,825 units in peri-urban areas and 1,101 units for non-resident Bangladeshis (NRBs), said Debasish.
He also said one could take loan up to Tk60 lakh while the interest would be 8.5%.
“We would take the house building culture to urban, peri-urban and even to those municipality areas which are not under the project. We would like to provide low-cost home financing for low-income rural people as part of project assistance.”
The BHBFC will hold the ‘Housing Financing Fair 2017’ to disseminate information on the housing sector. A total of 82 organisations will participate in the fair to be held at Hotel Sonargaon from October 19-21.
A private service holder, Arifur Rahman, 45, told the Dhaka Tribune: “It was quite impossible for me to dream for my own home with my salary. But as banks have lowered interests, I am planning to buying a flat.”
Beware of hidden charges
Abdur Rahman, a government official, who bought a flat taking a home loan from a private bank, said: “I have taken a home loan of Tk80 lakh and bought a flat. When receiving the loan, the bank did not inform me about the hidden charges; they only informed me about the interest. But now I am paying the credit, they are charging Tk50,000 extra by the name of several charges.”