Rich businessmen, expatriates, politicians and bureaucrats in the capital are major buyers of luxury apartments as they want more than four walls – all comforts with ecological balance and a lot of open spaces in homes, industry insiders say

Breaking away from the notion of a normal home, well-off people are going big by choosing to live in premium homes that offer a luxurious lifestyle rather than just a postal address.

Over the past 10 years, the high priced housing sector has witnessed investments amounting to around Tk1,00,000 crore, with intent to meet demands of homebuyers looking for an ultra-modern lifestyle.

From use of state-of-the-art construction materials to modern technology, everything is directed at making the living experience in high-end homes extraordinary. Such homes come with features, such as playgrounds, greenery, swimming pools, gyms, manicured lawns and much more.

Rich businessmen, expatriates, politicians and bureaucrats in the capital are major buyers of luxury apartments as they want more than four walls – all comforts with ecological balance and a lot of open spaces in homes, industry insiders say.

In recent years, the wealthy people in a large number have been moving into luxury housing.

What will it take to increase affordable housing finance in Bangladesh?

Consider this: the path to affordable housing for lower income groups requires that financial institutions negotiate the triple obstacles of informal property and informal income, a lack of long-term finance, and weak titling and foreclosure laws.

For most financiers, that is a triad of trepidation – few lenders would venture into such a space.

Yet the housing market, if it could safely be tapped, offers tremendous benefits. And it is a market whose time has come. A combination of political will and capacity building could change the game for the better.

Existing demand for urban affordable housing is approximately 6mn units, and is expected to rise to 10.5mn units by 2030, says Nuzhat Anwar, the acting country manager for the International Finance Corporation in Bangladesh.

Roughly 67 million people live in urban areas as of 2020, according to Anwar. By 2030, she estimates that half the country’s population could be city dwellers.

The IFC estimates that the current financing gap is approximately $59 billion for some 3.5 million residential units.

To meet this demand, home loans worth $2.5 billion have to be disbursed annually. Yet mortgage penetration in Bangladesh is just 3%, Anwar says.

For comparison, it should be noted that mortgage penetration in India is 10%. In the developed world it is between 50-70%.

Housing, she explains, has not been a priority sector. There is no technical definition of affordable housing, and no separate regulatory framework for banks and NBFIs regarding housing. The market has also been held back by difficulties in titling and a lack of foreclosure laws.

But affordable housing financing is possible as long as “the legal framework and enforceability” and “the regulatory framework of completing the process” supports it, according to Naser Ezaz Bijoy, country CEO, Standard Chartered Bank Bangladesh.

Ten percent of bank and NBFI financing goes to housing, but the capital markets have not been tapped.

Life insurance funds, pension funds and sovereign funds could play a bigger role, but there needs to be confidence in the ability to repossess assets if needed, Ezaz says.

Since the urbanization ratio correlates directly with economic prosperity, if the country hits its target of achieving high-income status by 2041, then the urbanization ratio could reach 60%.

Ezaz calculates that if Bangladesh’s population hits 200mn people by 2041, that would mean that some 120 million people – nearly twice as many as now – would be living in urban areas. And they would need a place to live.

Housing currently contributes 8% directly to the economy, and construction 8.4% indirectly.

Ezaz explained that the repayment track record of the affluent market segment and first-time home owners was good.

The aspirant segment who leveraged their properties in more speculative investments, were not as credit worthy and banks have had a lower risk appetite for such borrowers.

Experts suggested the government should take initiatives to formulate suitable policies, implement an appropriate land management system, and support real estate investors to ensure affordable housing for all.

Planning that can realistically be implemented should be formulated, keeping the real estate sector in mind.

“Government has to modify existing policies and regulation for ensuring affordable housing for all,” said Yan F Zhang, senior urban economist, Urban Development, South Asia Region, World Bank, in his keynote presentation at a webinar, “Supply of Affordable Housing,” jointly organised by Policy Research Institute of Bangladesh (PRI) and the International Finance Corporation (IFC), on Thursday.

For analysing and decision making on real estate, emphasis should be given to empowering government institutes and collection of information on the real estate sector. The government should also take strict measures in setting land pricing and controlling the market. A modern digitalised land management system can play a significant role in this regard, she added.

The senior urban economist said real estate investors, as well as individuals, have to be provided with the required support from the government. The Bangladesh Bank can offer house building loans on easy lending terms.

As chief guest of the programme, Dr Shamsul Alam, minister of state, Ministry of Planning, said the government has taken up many housing projects to ensure housing for slum dwellers, homeless people, and low-income people.

Vivek Sharma, principal and fund manager, Tamil Nadu Shelter Fund, India, said the housing sector is considered to be the third-largest sector in India. Providing easy loans and controlling the construction material market helped ensure housing facilities for all citizens of Tamil Nadu. There will be no one homeless in the state by 2025.