In a dull time, real estate in Bangladesh is thriving

Dhaka's skyline is ever-changing, with new apartment blocks rising each year to meet the demands of consumers with fat wallets. Yet, despite this construction frenzy, it is hard to spot a "Flats for Sale" sign, especially for luxury properties. Instead, "Flats to Let" signs are common in any high class neighbourhood in the city .

Data from the Directorate of Registration confirms the growing demand for flats in the country. Up until March of the current fiscal year, flats worth Tk24,000 crore were sold.

For perspective, sales in the nine months (July-March) were Tk3,000 crore higher than the total sales of the last fiscal and more than double of FY21. If the current monthly sales average continues, total sales by the end of this fiscal year are likely to exceed Tk30,000 crore.

Amid an ongoing economic uncertainty, who exactly are purchasing these costly assets? 

According to stakeholders and experts, the market drivers are population growth, rapid urbanisation, substantial remittance, and, notably, inflows of black money investment.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told The Business Standard that individuals accumulating wealth outside of known income source, invest a large part of it in the real estate sector. 

"Although the government scrapped the provision of black money investment in this sector in the last budget, it has kept an unwritten scope for black money investment. And this black money is mostly invested in buying luxury housing or expensive land," said the economist. 

He said the housing market size is also increasing due to rapid urbanisation. Also, a large part of the amount of remittances that come to the country is invested in the real estate sector.

The impressive flat sales figures this year were reached even without provisions to legalise black money with amnesty. As the government plans to bring the special opportunity to legalise undisclosed money in the next fiscal, the sector may see another dramatic growth.

Next fiscal year's money whitening opportunity is expected to include an amnesty provision once more, guaranteeing that government agencies will not ask about the sources of these funds. Stakeholders say that corrupt individuals are likely to exploit this legal loophole to channel their illicit gains into property investments.

In FY21, individuals could legalise undeclared money by investing in the stock market or holding it as cash, bank deposits, and savings certificates. Additionally, they could invest in land and flats, with the tax rate varying by location and size. This opportunity was most utilised for deposited money.

A distorted market?

The surge in demand and the shadowy financial manoeuvres sustaining it highlight a critical issue: Dhaka's real estate boom is not merely a response to housing needs but a reflection of the pervasive corruption that continues to distort the market, analysts say.

Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), told TBS that many countries offer "second home" opportunities, causing significant outflows of money from Bangladesh for foreign real estate. 

"Allowing undeclared money in the local real estate sector would bring investors under the tax net and increase government revenue. If the next budget permits black money investments in real estate, it will strengthen the housing sector and boost government income," he added.

The demand for flats is reflected in the latest provisional GDP data from the Bangladesh Bureau of Statistics (BBS), released just two days ago. The real estate sector is projected to grow by 3.79% in the outgoing fiscal year—the highest growth rate in four years. On the other hand, many sectors including manufacturing, wholesale and retail trade, transportation and financial and insurance activities dropped significantly in the outgoing year.

However, the actual transaction values are estimated to be three to four times higher than the figures recorded by the Directorate. 

Real estate market size

International market researcher organisation Statista Market Insights says the real estate market in Bangladesh is expected to reach a value of $2.68 trillion by 2024. 

Among the different segments, residential real estate is projected to dominate the market. With a volume of $2.05tn in 2024. Over the period of 2024 to 2028, the market is anticipated to grow at an annual growth rate of 7.13% resulting in a market volume of $3.53 trillion by 2028.

According to the Real Estate and Housing Association of Bangladesh (REHAB), Bangladesh's real estate sector consists of segments such as land purchase investment, residential house or apartment purchase and investment to buy commercial space. About 90% of this is investment in the construction and purchase of residential houses or apartments.

REHAB President Md Wahiduzzaman told TBS that since 2012, every year an average of Tk1.5 lakh crore has been invested in the country's housing sector. During the course of the two years of Covid-19 pandemic, the amount of investment decreased slightly. 

There has been good growth again in the last three years, he said. 

He added that various national and international organisations are publishing reports on the growth of Bangladesh's housing sector, calculating the investment from both the public and private sectors.

Statista Market Insights says in its study, in 2020 the market size was $2.16 trillion, $2.28 trillion in 2021, $2.45 trillion in 2022, and $2.48 trillion in 2023. Residential real estate is projected to dominate the market with a volume of $2.05 trillion in 2024.

Before the budget  of 2023-24, the total gain taxes and fees on buying flats and plots amounted to 10-12.5%, which increased by 1-2 percentage points in the budget of 2023-24. However, investment in the housing sector has increased.

Popularity of vertical living

Real estate businesses say there is a growing demand for real estate properties, particularly in urban areas. Customers are increasingly looking for affordable housing options that provide modern amenities and convenient access to essential services such as schools, hospitals, and shopping centres. 

Additionally, there is a rising interest in gated communities and high-rise apartment complexes that offer security and a sense of community.

Naimul Hassan, former executive committee member of REHAB, told TBS that one notable trend in the real estate market is the increasing popularity of vertical living. With limited land availability in urban areas, developers are focusing on constructing high-rise buildings to accommodate the growing population. This trend is also driven by the desire for modern and luxurious living spaces that offer panoramic views of the cityscape. 

Another trend, Hassan said, is the emergence of mixed-use developments, which integrate residential, commercial, and recreational spaces in a single complex. These developments cater to the needs of urban dwellers who seek convenience and accessibility to various amenities within close proximity.

He added that Bangladesh is experiencing rapid urbanisation with a significant portion of the population migrating to cities in search of a higher standard of living. 

"This influx of people has created a demand for housing and infrastructure development in urban areas, leading to the growth of the real estate market," he added. 

Hassan further said government initiatives such as the "Vision 2021" and "Vision 2041" plans have prioritised the development of the real estate sector. 

"These plans include the construction of affordable housing projects and the establishment of special economic zones to attract foreign investment," he added.