UNDERSTANDING

THE HOUSING
SECTOR IN
BANGLADESH
MARKET STUDY

11 March 2020
UNDERSTANDING THE HOUSING SECTOR IN
BANGLADESH MARKET STUDY

11 March 2020

The study was originally commissioned to Unnayan Shamannay by the International Finance
Corporation, IFC. Hence, they hold the copyright to the finalized version of the report. This is
the final draft version of the report and Unnayan Shamannay alone is responsible for the
inferences and recommendations presented here.

[1]
Contents
List of Figures ........................................................................................................................................ 4
List of Tables ......................................................................................................................................... 5
Acronyms .............................................................................................................................................. 6
Executive Summary............................................................................................................................... 7
1. Background and Context ............................................................................................................. 12
2. Methodology .............................................................................................................................. 15
Defining the Target Market and Affordable Housing ...................................................................... 15
Survey: Area, Sampling, and Data Collection Tools ......................................................................... 16
3. Overview of the Housing Sector.................................................................................................. 19
The Housing Sector and GDP Growth ............................................................................................. 19
Employment in Housing Sector ....................................................................................................... 20
4. Housing Demand Analysis ........................................................................................................... 22
Assessing Current Demand ............................................................................................................. 23
Characteristics of Urban Residential Housing ................................................................................. 24
Demand Projections........................................................................................................................ 26
Understanding Demand Side Features ........................................................................................... 27
5. Supply of Housing ....................................................................................................................... 29
Suppliers of Housing: Private Sector Suppliers ............................................................................... 29
Suppliers of Housing: Public Sector Suppliers ................................................................................. 33
Cost of Housing for private sector developers ................................................................................ 34
Current Supply and Future Outlook ................................................................................................ 37
Housing Supply Constraints ............................................................................................................ 39
Summary ......................................................................................................................................... 41
6. Housing Finance .......................................................................................................................... 42
Trends of Housing Finance in Bangladesh ....................................................................................... 42
Housing Loans by Financial Institutions .......................................................................................... 45
Affordability of Housing Loans ........................................................................................................ 46
Constraints faced by Housing Finance Providers ............................................................................ 49
Summary ......................................................................................................................................... 51
7. Urban Housing & Externalities .................................................................................................... 52
Access to Land ................................................................................................................................ 52
Carbon foot print of housing sector and green building ................................................................. 56
Connectivity .................................................................................................................................... 59
Gender Dimensions......................................................................................................................... 61

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 Summary ......................................................................................................................................... 61
8. Policy Environment ..................................................................................................................... 63
Mapping the Policy Challenges ....................................................................................................... 63
Mapping the Gaps ........................................................................................................................... 64
9. Ways Forward ............................................................................................................................. 67
Filling the Gaps: Action Plan............................................................................................................ 67
Concluding Remarks ....................................................................................................................... 74
References .......................................................................................................................................... 75

[3]
List of Figures
Figure 1-1: Trajectory of GDP of Bangladesh from 2009-10 to 2018-19 in billion BDT .............................................................. 12
Figure 1-2: Comparison of per capita GDP of Bangladesh, India, and Pakistan.......................................................................... 12
Figure 1-3: Per capita income of Bangladesh compared to other emerging economies in 2018 and 2030 ............................. 13
Figure 2-1: Respondents of the questionnaire survey ................................................................................................................. 18
Figure 3-1: Relationship between GDP growth rate and real estate sector growth rate........................................................... 19
Figure 3-2: Value addition of the real estate sector from 2005-06 to 2018-19.......................................................................... 20
Figure 3-3: Employment in real estate activities .......................................................................................................................... 20
Figure 3-4: Projected employment by housing sector with increase in current annual supply of housing units ..................... 21
Figure 4-1: Bangladesh urban population as share (%) of the total population between 2000 and 2019................................ 22
Figure 4-2: Urban population of Bangladesh and net in-migration of urban households ......................................................... 22
Figure 4-3: Average housing unit size (sq ft) for different income decile urban households .................................................... 23
Figure 4-4: Share of Type A and Type B households residing in different size housing units .................................................... 23
Figure 4-5: Occupancy status of target group households .......................................................................................................... 24
Figure 4-6: Structure of houses in urban areas of Bangladesh in 2016-17 ................................................................................. 25
Figure 4-7: Age of household heads (% of target group households) ......................................................................................... 26
Figure 4-8: Target group reliance on salaried income vs. non-salaried income ......................................................................... 26
Figure 4-8: Growth of Type A, Type B, and Type C households from 2019 to 2030 (figures are in million) ............................. 27
Figure 4-9: Key findings from the survey ...................................................................................................................................... 27
Figure 5-1: Cumulative supply of housing units by real estate developers in urban areas of Dhaka ........................................ 29
Figure 5-2: Real estate companies in Bangladesh by their inception period .............................................................................. 30
Figure 5-3: Share (%) of housing units developed by real estate developer companies going to different income group
households in 2017-18 .................................................................................................................................................................. 31
Figure 5-4: Per square meter price of apartments in city centers across the world .................................................................. 32
Figure 5-5: Allocations (million USD) for urban housing projects in Annual Development Programme (ADP) during recent
fiscal years...................................................................................................................................................................................... 34
Figure 5-6: Need for 600 sq ft housing units by different groups to ensure all of them reside in average housing units by
2030................................................................................................................................................................................................ 38
Figure 6-1: Sector-wise loan concentration in 2018 .................................................................................................................... 42
Figure 6-2: Outstanding housing loans (in billion BDT) by three different providers from FY 2014-15 to FY 2018-19 ............ 43
Figure 6-3: Gross NPL ratio for different sectors in Bangladesh in 2018 .................................................................................... 43
Figure 6-4: Share (%) of NPL of different sectors in the total NPL .............................................................................................. 44
Figure 6-5: Housing loan penetration (%) for different countries ............................................................................................... 45
Figure 7-1: Registering property score of Dhaka and Chittagong and other neighboring countries (as per the Doing Business
Report 2019 by the World Bank Group) ....................................................................................................................................... 54
Figure 7-2: Carbon dioxide released by Real Estate, Renting and Other Businesses (in kiloton) .............................................. 57
Figure 7-3: Carbon dioxide emission by real estate, renting and related business sector in 2017 ........................................... 57
Figure 7-4: Traffic index (2019) for Dhaka and some other cities across the world ................................................................... 59
Figure 7-5: Average driving speed in Dhaka (kilometers per hour)............................................................................................. 60
Figure 7-6: Ratio (%) of housing units registered to women owners during last 12 months..................................................... 61
Figure 8-1: Policy challenges for growth of housing in Bangladesh, the strategy to address those challenges, and hurdles on
the way of operationalizing the strategy as per 7 th FYP of GoB .................................................................................................. 63

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List of Tables
Table 2-1: Stakeholders for this diagnostic study .................................................................................................................. 17
Table 2-2: Qualitative interactions for data collection ................................................................................................................ 18
Table 4-1: Occupancy status by type of household and by city .................................................................................................. 24
Table 4-2: Housing unit size of target group by location ............................................................................................................. 24
Table 4-3: Average area, average monthly rental for housing units, and monthly rental as share (%) of monthly household
income............................................................................................................................................................................................ 25
Table 5-1: REHAB companies ranked in the top 10 list and average sizes of apartments developed by some of them .......... 30
Table 5-2: Apartment sizes and prices (per square feet) in Dhaka city ...................................................................................... 32
Table 5-3: Projects implemented and plot/flat developed by NHA between 2003 and 2017 ................................................... 33
Table 5-4: Housing projects implemented by RAJUK ................................................................................................................... 33
Table 5-5: Breakdown of expenses for developing a 9 storied apartment building with 16 housing units (2 units in each floor
except the ground floor) ............................................................................................................................................................... 36
Table 5-6: Breakdown of expenses for developing a typical floor (comprised of two 600 square feet apartments) .............. 37
Table 5-7: Ability of REHAB developers to meet the demand for housing of different groups by 2030................................... 38
Table 6-1: Housing finance by different providers in Bangladesh ............................................................................................... 45
Table 6-2: Urban households of Bangladesh segregated into income deciles and their average monthly household incomes
........................................................................................................................................................................................................ 47
Table 6-3: Affordability Heat Map: Percent of urban households able to buy housing units at different interest rates (on
housing loans) and for different repayment times. ..................................................................................................................... 48
Table 7-1: Interactions with land administration related offices to get a land registered for development of housing (for
Dhaka city) ..................................................................................................................................................................................... 52
Table 7-2: Increase in land prices and housing prices in Dhaka from 1990 to 2000 and from 1990 to 2010 ........................... 55
Table 8-1: Challenges for urban housing sector, required policy changes, need for change in acts/rules/regulations, and
necessary improvements in practices .......................................................................................................................................... 64
Table 9-1: Action plan for addressing the urban housing challenge in Bangladesh ................................................................... 67

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Acronyms
ADB : Asian Development Bank
BBS : Bangladesh Bureau of Statistics
BDT : Bangladesh Taka
BEZA : Bangladesh Economic Zones Authority
BIDA : Bangladesh Investment Development Authority
BLDA : Bangladesh Land Developers Association
DLRS : Directorate of Land Records and Surveys
EMI : Equated Monthly Installment
FGD : Focus Group Discussion
FY : Fiscal Year
GBIG : Green Building Information Gateway
GDP : Gross Domestic Products
GED : General Economic Division
HBFC : House Building Finance Corporation
HIES : Household Income and Expenditure Survey
ICT : Information and Communication Technology
IMF : International Monetary Fund
KII : Key Informant Interview
LEED : Leadership in Energy and Environmental Design
LRD : Land Registration Directorate
MAC : Middle and Affluent Class
NBFI : Non-Bank Financial Institution
NHA : National Housing Authority
NPL : Non-Performing Loan
NRB : Non-Resident Bangladeshi
OSS : One Stop Solution
RAJUK : Rajdhani Unnayan Kartripakkha
REHAB : Real Estate and Housing Association of Bangladesh
SDG : Sustainable Development Goals
USD : United States Dollar

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Executive Summary
A. INTRODUCTION
1. The economy of Bangladesh has been growing at an impressive growth trajectory over the
past two decades while remaining resilient to several global crises. From 2009-10 to 2018-19, the
GDP grew at an impressive rate from USD 72 billion to USD 132 billion. Over the past two decades
Bangladesh’s rapid economic growth at nearly 6 percent per annum has propelled the country into
lower-middle income status. If this growth pattern continues, Bangladesh will become the 26 th largest
economy in the world by 2030.
2. As the economy of Bangladesh grows, there are many challenges that it must overcome in
order to achieve its nationally set macro-economic objectives. These challenges include creating
employment opportunities for a growing number of youths; meeting its energy needs through
alternative sources such as solar power; diversifying exports and gaining access to new markets;
increasing agricultural production; improving investment related institutions to enhance ease of doing
business; ensuring stability of the financial sector; and developing better planned and sustainable
urbanization and industrialization.
3. In less than two decades, the total urban population more than doubled from 31 million in
2000 to 63 million in 2019 and the total number of urban households is estimated to be 16 million.
The capital city of Dhaka’s population is expected to reach 20 million by 2020. Currently 25 percent of
the population live in urban areas with more than 50 percent of that living in the four major cities of
Dhaka, Chittagong, Khulna and Rajshahi. A significant increase of rural to urban migration coupled 1
with the rising threats of climate change along the coastal belt is putting pressure on the housing
situation in urban areas. Bangladesh is struggling to provide adequate housing at a pace fast enough
to meet this growing demand, particularly in urban areas.
4. Addressing the growing gap between demand and supply of urban housing in Bangladesh is
a major macro-economic challenge, which, unless adequately addressed, may cause significant
hindrance to materializing the overall macro-economic targets of the country. It is evident that the
government is aware of this challenge and is looking for medium to long-term solutions.
5. The objective of this study is to produce a comprehensive assessment of the market for
housing and housing finance in Bangladesh. This will help policymakers, financial institutions, and
housing developers to work together towards improving the situation and create enabling conditions
for a well-developed housing market in the country.

B. DEFINING AFFORDABLE HOUSING AND THE TARGET MARKET

6. This report defines affordable housing as housing units that can be afforded2 by the 7th to
9th income decile households with an average monthly income ranging from USD 480 to USD 1,224
(Type A households) which makes up 30 percent of the population. The 5th and 6th income decile
households with an average monthly income ranging from USD 384 to USD 480, which make up 20
percent of the urban population were identified as Type B households. While this second group is
unlikely to afford housing loans in the existing market they were selected to analyze the viability of
receiving housing loans at a concessional rate. The study identified that the average housing unit size3

1
In 2008, 31 persons in every 1,000 migrated from rural to urban areas
2
This affordability is defined in terms of ability of households to procure housing loans from financial service
providers.
3
This includes buildings and other informal types of housing.

[7]
for urban areas of Bangladesh is 511 sq.ft. and
89 percent of urban households reside in units
smaller than this average size. Thus, taking this
into account along with other demand and
supply side considerations this report defines
an appropriate affordable housing unit to be of
600 sq.ft in size.

C. DEMAND AND SUPPLY SIDE ANALYSIS

7. Demand for housing in urban areas is
growing rapidly. Approximately 11.9 million
urban households (69 percent) reside in
informal housing4 and would need formal
housing. By 2030, it is estimated that an
additional 1.79 million Type A urban
households and 1.19 million Type B urban
households will require housing. Hence, on
average, 249,000 housing units will be required annually to meet the demand from Type A and Type
B households.
8. Supply of housing units in urban areas is insufficient. Currently, only 31 percent of
households are residing in housing in the form of buildings (the remaining are living in informal
housing). Annually 31,500 housing units are supplied, of which 17,000 are being supplied by private
sector developers. The average size of apartments built by these developers range from 1,100 sq.ft.
to 3,300 sq.ft. The Government provides housing for 8% of their officials (approximately 4,600 units)
based in Dhaka5. The public sector supplier- National Housing Authority (NHA) supplied only 2,169
housing units between 2003 and 2017, an average of 155 housing units per year. Our research did not
indicate any visible PPP projects on housing although the NHA website indicated that there are plans
to do so soon. The research conducted indicates that there are hardly any housing units available
whether supplied by either the private or public sector that could be considered as an affordable
housing unit.
9. Estimates suggest that even if organized private sector developers triple their annual supply
of housing units to 51,000 units per year, they will only be able to serve just over 20 percent of the
demand from the target households by 2030. Thus, to meet the demand, not only should there be
viable incentives for existing housing suppliers to increase the number of affordable housing units, but
regulations and fiscal incentives should also be in place to encourage new entrants to the market to
meet the growing demand.
10. Housing developers face many constraints. Discussions with housing developers indicate
several key constraints they face when developing housing which also has an impact on why
developers are not motivated in affordable housing development projects. Average land prices in
Dhaka increased by 220% between 1990 and 2000 and then by an astounding 625% between 1990 to
2010 due to inflated market speculation. In comparison, the average housing prices increased by 16%
and 174% in the same periods. Suppliers need to factor in a significant amount of time for the
necessary clearances, registrations and approvals. For instance, while on paper it should only take 15
working days to get a “land use clearance” certificate, in practice, it takes on an average 45 to 50
working days. The entire process may take up to six months before a project can start. Additionally,
land ownership related disputes remain a critical change for housing developers. To gain a competitive

4
The other 31 percent resides in buildings (under five stories or higher).
5
Data on government housing provided outside of Dhaka is not available.

[8]
edge over others, many developers provide a large sum of money as ‘signing money to landowners
for signing developer contracts. In just seven years (from 2011 to 2018), there was an exorbitant
increase in signing money by almost 300% in some areas of Dhaka. Finally, while there may be some
scope of developing affordable housing units in the city peripheral areas, as aspiring homeowners are
not interested to live in these areas due to low poor transport connectivity, there is not much incentive
for developers to build these projects.

D. URBAN HOUSING FINANCE

11. Banks are the largest providers of
housing loans with their current share in
total outstanding housing loans being 80.2
percent. On average, financial service
providers are channeling housing loans at
10 percent interest rate with average
period of loan repayment being 20 years.
12. The housing sector of the country
is receiving a relatively smaller share of
total loans disbursed. Despite having
better performance in terms of loan
recovery, the housing sector only receives
6.24 percent of loans and advances which
is even less than the share of small and
medium industries at 8.16 percent.
13. The housing sector has a
relatively lower gross nonperforming loan
(NPL) ratio6 compared to other sectors.
The gross NPL ratio for housing finance
was just over 7 percent which is much lower than the national average of 10.3 percent. Only loans to
the capital market, credit to nonbank financial institutions (NBFIs), and other consumer credit (i.e.
auto loan, credit card, and personal loans) have lower ratios than the housing finance sector. The trade
and commerce sector have the highest gross NPL ratio (13.05 percent), which is almost double that of
the housing sector. Housing finance not only has a relatively lower gross NPL ratio, it also has a
relatively low share in the total NPL at just 1.2 percent which is larger than only two other sectors -
loans to capital market and credit to NBFIs.
14. Bangladesh has a very low housing loan penetration ratio. Among every 100 adult persons,
only three have an outstanding loan to purchase a home. While this ratio is higher than neighbors
India (2.5 percent) and Pakistan (2.3 percent), it is significantly lower than other South Asian countries
like Sri Lanka (4.2 percent) and Nepal (6.7 percent).
15. Supply of loans to individuals for affordable homes is inadequate compared to the potential
demand. This report assesses that Type A households are eligible for home loans in the existing market
situation. However, to ensure that they receive home loans to procure an affordable housing unit by
2030, home loans worth USD 2.52 billion will have to be disbursed annually. Currently, while home
loans worth USD 1.15 billion are being annually added to the overall portfolio of the financial service
providers, only a very small share of these loans is given for affordable housing units.

6
Ratio of gross NPL of a sector to the total loan outstanding for that sector is the gross NPL ratio for that
sector.

[9]
16. Financial service providers face many challenges in enhancing supply of home loans.
Discussions with financial service providers indicate several key challenges for them when it comes to
providing housing loans. While the statistical analysis of household incomes indicates that
approximately 40 percent of urban households are eligible for home loans, in practice assessing the
average monthly income of a household is much more challenging. This is because an overwhelming
majority of the workforce is currently engaged in the informal economy and may not have access to
the formal banking system. Thus, as proof of income is required by financial institutions to give loans,
this makes it virtually impossible for banks and NBFIs to do so. Financial institutions also suffer from
virtually non-existent foreclosure practices particularly due to misleading property valuations and
complex legal procedures. Finally, banks and NBFIs have very limited scope of increasing the supply of
credit to the housing sector as there are strict directives from the financial sector regulator,
Bangladesh Bank to ensure that most of the credit share is disbursed to sectors like agriculture, SMEs,
and women entrepreneurs.

E. URBAN HOUSING AND EXTERNALITIES

17. Access to land is difficult for housing developers. Registering land is a complex process in
Bangladesh and stakeholders indicated that due to the significant amount of time required to register
land, it contributed to the rapid increase in land prices in urban areas of Bangladesh and thereby
impacting the price of housing units. By streamlining the services of the land related public offices, the
cost of housing development by private developers could be reduced by as much as 10 percent.
18. Traffic congestion hinders potential of developing low cost housing projects in the
peripheral areas. As of 2019, Dhaka is the fourth worst city in terms of long traffic congestions. The
trend shows that the situation is deteriorating over the years. The average driving speed in Dhaka was
21 kilometers per hour in 2009 and it has reduced to only 6 kilometers per hour in 2017. Hence, even
if affordable housing projects were to be developed around the city in peri-urban areas, people may
hesitate to purchase homes due to the distance and traffic constraints.
19. Green buildings are yet to gain traction. Green buildings have the potential to significantly
offset the effects of carbon footprint of the housing industry. While at the policy level, there is strong
interest in promoting the green building movement, in practice this area has yet to gain traction. There
is also a lack of awareness among stakeholders about the potential advantages, including cost savings,
of green buildings and hence there is a general misperception about the advantages of green
buildings.
20. Despite majority of new apartment owners being women, does not mean that they have
better access to housing. While on paper, many apartments may be registered in a woman’s name,
in reality, it is usually a male member of the family who purchases an apartment and registers it under
the name of a female member of the family, to avoid taxes and/or avoid inquiry about the sources of
fund.
F. IMPACT OF HOUSING ON THE ECONOMY AND EMPLOYMENT
21. Growth of housing sector can have significant positive impact on the economy.
Macroeconomic data show that in 2018-19, the contribution of the real estate sector was about 6
percent of the country’s GDP. A regression analysis of the growth in the real estate sector on the
growth in GDP indicates that every 1 percent growth in GDP leads to a 0.44 percent growth in the real
estate sector. The current value addition of the real estate sector to the country’s GDP is about BDT
1.9 trillion (nearly USD 23 billion).
22. Growth of housing sector can provide employment for a significant number of both skilled
and unskilled workers. As per the 2016 labor force survey data, a total of 113,000 people was engaged

[10]
in the real estate sector, of which 70 percent were employed in urban areas. This means that
approximately four jobs are created per housing unit supplied.

KEY STATISTICS: CURRENT VS PROJECTED DEMAND FOR 2030

Demand for
Affordable Housing
Current demand from target market (Type A and Type B) is 6 million
units. The projected demand is 10.5 million units.

Supply of
Housing
Currently, 17,000 units supplied per annum. 249,000 units per
annum required to meet the additional demand.
The projected supply gap is 93%.

Housing
Finance
Home loans worth BDT USD 1.15 billion disbursed annually*. USD
2.52 billion per annum required to meet the demand.

*A very small share of the current home loans is given for affordable housing units

G. WAYS FORWARD
The report identified the key challenges of urban housing to be (i) the significant gap in the supply of
housing units available for purchase that are affordable for most of the urban population and (ii) the
lack of access to financing that would enable the urban population to purchase their own homes.
Several recommendations at the national policy level as well as on policies related to the supply side
namely the developers and financial institutions to ensure an adequate supply of affordable housing
for the target market are proposed. The figure below provides a summary of these recommendations.
Additional and more comprehensive recommendations along with an action plan have been identified
in the narrative.

National Affordable Delineating standard size, facilities etc. for affordable housing units along with
Housing Policy directives to enhance supply of affordable housing and housing finance.

Affordable housing National database on informal economy activities which finance providers
for target groups could use to assess credit worthiness of all households.

Ensuring supply of Incentivizing housing developers to develop affordable housing through fiscal
affordable housing incentives, policy directives and improving regulatory bottlenecks.

Increasing housing Rolling out re-finance schemes and credit guarantee schemes for housing
finance finance developers and other incentives for affordable housing finance.

Improving access to Ensuring urban re-development through policy directives, enhancing efficiency
land of land administration, setting ceiling on urban land ownership.
[11]
1. Background and Context
The economy of Bangladesh has been growing at an impressive growth trajectory over the past two
decades while remaining resilient to several global crises. From 2009-10 to 2018-19, the GDP grew at
an impressive rate from BDT 6 trillion (USD 72 billion) to BDT 11 trillion (USD 132 billion) (see Figure
1-1). Besides targeting growth, several inclusive policies were taken by the government that includes:
a) extending digital connectivity of the economy; b) promoting policies of financial inclusiveness of the
poor and farming communities across the country; and c) extending social safety nets. This approach
by the government led to a fall in poverty rate and helped the country achieve significant results in
terms of social development indicators. For example, net enrolment rate (NER) for primary education
is 98 percent.

Figure 1-1: Trajectory of GDP7 of Bangladesh from 2009-10 to 2018-19 in billion BDT
12,000 11,055
10,224
8,835 9,479
10,000 8,249
7,299 7,741
8,000 6,463 6,885
6,071
6,000
4,000
2,000
-
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Source: Budget Documents, Ministry of Finance, Government of the People’s Republic of Bangladesh

Over the past two decades Bangladesh’s rapid economic growth at nearly 6 percent per annum
propelled the country into lower-middle income status. If this growth pattern continues, Bangladesh
will become the 26th largest economy in the world by 2030. The per capita income of Bangladeshis
have risen steadily – from USD 306 in 1990 to USD 1,638 in 2016 (see Figure 1-2), and furthermore,
the rise has been at a rate faster than that of Pakistan and India. This suggests a rapid growth in
demand for goods and services including access to quality education, healthcare, and housing.

Figure 1-2: Comparison of per capita GDP of Bangladesh, India, and Pakistan
2500
2000
1500
USD

1000
500
0
2018
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

Bangladesh India Pakistan

Source: World Bank Data, (World Bank, n.d.)

HSBC Global Research (2018) projected that between 2018 and 2030, Bangladesh’s GDP growth rate
would be 7.1 percent per annum. The government, however, has been projecting an even higher
economic growth for this period. The Asian Development Bank (ADB) has been particularly supportive

7
At constant price (base year 2005-06)

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of Bangladesh’s growth projections. Consequently, they asserted that by 2030, Bangladesh’s economy
will be larger than that of the Philippines, Pakistan, Vietnam, and even Malaysia. The 2019 Asian
Development Outlook of ADB places Bangladesh as the only country with more than 8 percent of GDP
growth in 2018 and in 2019, will remain the fastest growing country in Asia with 8.1 percent GDP
growth. World Bank projections also puts Bangladesh at a more elevated position than its South Asian
neighbors.

Figure 1-3 provides a comparison of Bangladesh with other emerging economies in 2030. It projects
that the country’s per capita income will be USD 5,700 which will exceed that of India’s per capita
income of USD 5,400 by 2030.

Figure 1-3: Per capita income of Bangladesh compared to other emerging economies in 2018
and 2030

BANGLADESH $1,600
$5,700
INDIA $1,900
$5,400
VIETNAM $2,500
$10,400
COTE D'IVOIRE $1,800
$4,400
ETHIOPIA $853
$2,800
PHILIPPINES $3,100
$6,900
MYANMAR $1,300
$4,800
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000

2018 2030

Source: Standard Chartered Bank, using World Bank, IMF, and UN data

However, as the economy of Bangladesh grows, there are many challenges that it must overcome in
order to achieve its nationally set macro-economic objectives and international commitments towards
the Sustainable Development Goals (SDGs). These challenges include creating employment
opportunities for a growing number of youths; meeting its energy needs through alternative sources;
diversifying exports and gaining access to new markets; increasing agricultural production; developing
investment related institutions to enhance ease of doing business; ensuring stability of the financial
sector; and ensuring planned and sustainable urbanization and industrialization.

In less than two decades, the total urban population more than doubled from 31 million in 2000 to 63
million in 2019 and the total number of urban households is estimated to be 16 million. The capital
city of Dhaka’s population is expected to reach 20 million by 2020. Currently 25 percent of the
population live in urban areas with more than 50 percent of that living in the four major cities of
Dhaka, Chittagong, Khulna and Rajshahi. A significant increase of rural to urban migration coupled 8
with the rising threats of climate change along the coastal belt is putting pressure on the housing
situation in urban areas.

8
In 2008, 31 persons in every 1,000 migrated from rural to urban areas

[13]
Bangladesh is struggling to provide affordable housing at a pace fast enough to meet the demand from
its growing population, particularly in urban areas. In this context, it is imperative that policymakers
of the country prioritize providing access to housing for its growing urban population.

This report intends to analyze the overall housing situation in the urban areas of Bangladesh examining
both the demand and supply side, reviewing market constraints and regulatory bottlenecks and
providing an actionable set of recommendations that can be used as a blue print to provide a solution
to the housing needs of Bangladesh’s urban population.

[14]
2. Methodology
The overarching goal of the study is to present a comprehensive assessment of the urban housing
market in Bangladesh through presentation of baseline information, development of an extensive set
of current data and analytics, mapping market bottlenecks and policy gaps, assessing the impact of
the industry on the environment, and finally, presenting recommendations to improve access to
housing.

The entire investigation has been divided into three broad phases. In the first phase, the study team
consulted with stakeholders to map the challenges, constraints, and a way forward from their point
of view to develop a strategy to conduct a market study. At the end of this phase, the team facilitated
an inception workshop where 16 participants, representing banks, nonbank financial institutions
(NBFIs), Bangladesh House Building Finance Corporation (HBFC), Bangladesh Bank, housing
developers, Real Estate and Housing Association of Bangladesh (REHAB), and building material
producers (rod and cement), took part in an interactive discussion session to finalize the strategy of
conducting the market study as a whole.

In the next phase, data and information were collected from both primary and secondary sources.
Both qualitative and quantitative surveys were conducted 9. The study team consulted and interacted
with sector experts and representatives from different groups of stakeholders, including buyers (urban
households) who have either purchased or would like to purchase a housing unit. The research team
also reviewed policy documents and research publications.

With inputs from the above phases, the team prepared the first draft report in accordance with the
objective of the study based on the information collected.

The final phase of the study will commence after the draft findings and the recommendations are
shared with the stakeholders (from both public and private sectors). A dissemination workshop to
share the findings will be organized where stakeholders from the various relevant ministries as well
as private sector developers, banks and financial institutions will be invited to participate.

DEFINING THE TARGET MARKET AND AFFORDABLE HOUSING

Preliminary interactions with housing loan providers (banks and NBFIs) in Bangladesh revealed that a
household with a minimum average monthly income of BDT 25,000 (USD 300) is eligible for a housing
loan in Bangladesh. As per the latest Household Income and Expenditure Survey (HIES 2016) by
Bangladesh Bureau of Statistics (BBS), top six income decile 10 urban households of Bangladesh (5th, 6th,
7th, 8th, 9th and 10th income decile) have income equal or above the said amount. However, the
financers also pointed out that in practice, this minimum average monthly household income
requirement is around BDT 40,000 (USD 480) per month. In that case the top 4 income decile urban
households (i.e. 7th, 8th, 9th and 10th income decile households) can procure housing loans from the
current market.

9
A structured survey having a sample size of 300, 52 KIIs and 4 FGDs
10
Income deciles divide the entire set of households into 10 equal segments. The first decile contains the
households with the lowest income and the 10th decile contains the households with the highest income.
Hence, the top four income deciles contain the richest 40 percent households, whereas the bottom four
income deciles contain the poorest 40 percent households.

[15]
Preliminary interactions with all stakeholders have revealed that the existing housing developers are
mostly catering to the demand of the richest urban household, leading to the assumption that the
demand for housing by the 10th decile urban households of Bangladesh are being adequately met.

Hence, this report defines affordable housing as housing units that can be afforded 11 by the 7th to 9th
income decile households with an average monthly income ranging from BDT 40,000 to BDT 102,000
(USD 480 to USD 1,224) (Type A households) which makes up 30 percent of the population.

The 5th and 6th income decile households with an average monthly income ranging from BDT 32,000
to BDT 40,000 (USD 384 to USD 480), which make up 20 percent of the urban population were
identified as Type B households. While this second group is unlikely to afford housing loans in the
existing market, they were selected to analyze the viability of receiving housing loans at a concessional
rate.

The poorest 40 percent of households (i.e. households belonging to the 1st, 2nd, 3rd, and 4th income
deciles) have average monthly income below BDT 30,000 (USD 360) and hence, are not likely to be
able to afford housing loans in the existing market situation. As this study is focused on market-led
solutions to the housing problem in urban areas of Bangladesh, these households have not been
considered as a target group. Yet, they have been grouped as Type C households and their demand
for housing units have also been presented. It is most likely that the households belonging to this third
group will have to rely on public sector-led initiatives for affordable housing.

The Survey on Occupied Residential Houses and Real Estate Services 2019 by Bangladesh Bureau of
Statistics reports that on an average, urban households in Bangladesh reside in 511 square feet
housing units. Data from HIES 2016 was analyzed to identify the share of target group households (i.e.
Type A and Type B households) living in housing units smaller than 511 square feet. It shows that-

▪ 78 percent of Type A households reside in below average size housing units

▪ 83 percent of Type B households reside in below average size housing units

Hence it can be safely assumed that these target group households will be willing to own larger than
average size housing units. In consultation with different stakeholders (from both demand and supply
side) this study has identified 600 square feet as a desirable housing unit size for the target group
households.

SURVEY: AREA, SAMPLING, AND DATA COLLECTION TOOLS

This study has covered three of the largest cities of Bangladesh, namely Dhaka, Chittagong, and
Rajshahi. The survey covered households that are currently living in the city corporation areas.
However, sub-urban areas surrounding the cities have also been considered in the survey. And while
interviewing or discussing with other stakeholders about the projected growth of housing areas, the
sub-urban areas were also covered. Thus, the entire districts of Dhaka, Chittagong, and Rajshahi have
been considered as survey areas. The entire survey is divided into two segments: 1) questionnaire-
based survey, and 2) qualitative interactions (KIIs, FGDs, and case studies). The following table shows
the key demand and supply side stakeholders from different perspectives.

11
This affordability is defined in terms of ability of households to procure housing loans from financial service
providers.

[16]
 Table 2-1: Stakeholders for this diagnostic study

Perspective Supply Side Stakeholders Demand Side Stakeholders

- Lawmakers - Housing Companies (REHAB
- Ministry of Housing, GoB members)
- RAJUK - Housing Companies (non-
- Other City Planning REHAB members)
Policy/Regulation Authorities - Banks, NBFIs
- Central Bank - Apartment owners from
- Other relevant public offices target group
- Target group which do not
own houses/apartments
- Housing Companies (REHAB - Apartment owners from
members) target group
- Housing Companies (non- - Target group which do not
Housing REHAB members) own houses/apartments
Development - Housing Associations (formal
and informal)
- Govt. developers (e.g.
National Housing Authority)
- Banks - Housing Companies (REHAB
- NBFIs and non-REHAB)
- Credit Cooperatives - Apartment owners from
Housing Finance
- Central Bank target group
- Target group which do not
own houses/apartments
- Ministry of Housing, GoB - Housing Companies (REHAB
- RAJUK & other city planning and non-REHAB)
Access to Land authorities - Target group
- PPP authority
- Other relevant public offices
- Building material producers/importers (e.g. cement producers)
Other - Construction companies
- Sector Experts (e.g. urban planners)

Questionnaire Survey

A sample of 300 households (purposive sampling) was chosen from the above mentioned three city
corporation areas (100 from each of the three districts). From each district, three types of respondents
were covered. The three types of respondents are shown in Figure 2-1. It shows the first group of
respondents are actually Type A households that currently do not own a housing unit. Similarly, the
second group of respondents are Type B households that currently do not own a housing unit. The
third group of respondents are either Type A or Type B households that have managed to procure
housing units with credit from financial service providers. This third group served as a control group
for the survey (i.e. their responses have provided information such as how a Type A or Type B
household can procure housing credit, how they pay the equated monthly installments (EMIs), what
type of housing units they prefer, etc.).

[17]
 Figure 2-1: Respondents of the questionnaire survey

Urban households not owning houses/apartments and having average

1 monthly income equal to or above USD 480 (39% of respondents).

Urban households not owning houses/apartments and having average

2 monthly income between USD 384 and USD 480 (41% of respondents).
respondents).

Urban households owning apartments and having minimum monthly

3 average income equal to or above USD 384 (20% of respondents).

Qualitative Interactions
In addition to the survey of urban residents, multiple qualitative data collection tools were used for
the purpose of this study. Key informant interviews (KIIs) were conducted with all the stakeholders.
Furthermore, to track interviewees, snowball sampling technique was used. Several focus group
discussions (FGDs) were organized with the target groups. These discussions were facilitated using
preset checklists. The FGDs provided in-depth understanding of the housing market, as well as
perception of the participants on various aspects of the market (reliability, accessibility, affordability,
etc.). Finally, content analysis of published documents played a pivotal role in answering some of the
key research questions. Preliminary investigations conducted for this study had already consulted
some key documents and texts that were useful in answering many of the research questions. The
following table shows the stakeholders engaged through qualitative interactions (FGD and KIIs).

Table 2-2: Qualitative interactions for data collection

Dhaka Chittagong Rajshahi Total
- Ministry of Housing (2) - Banks/NBFI (2) - Banks/NBFI (2)
- National Housing Authority (2) - Housing Developer - Housing Developers
- RAJUK (2) (2) (2)
- REHAB (2) - Sector Experts (2) - Sector Experts (2)
- Housing Developer (10-12)
KII - Bangladesh Bank (2) 52
- HBFC (2)
- Bank (4-6)
- NBFI (2-4)
- Construction (2-4)
- Sector Experts (2)
- FGD with urban households that own - FGD with urban - FGD with urban
apartments (1) MMIH and LMIH (1) MMIH and LMIH (1)
FGD - FGD with urban MMIH and LMIH 4
who want to own apartments (1)

[18]
3. Overview of the Housing Sector
With steady economic growth, Bangladesh is also gradually transforming itself into an urban society.
At the same time, there is significant in-migration to cities every year, while there exists a large gap
between the supply of houses (through real estate or commercial developers) and the demand for
housing. As such, prices of urban land and housing units have increased significantly.

Furthermore, cities and towns are becoming congested and at times, unmanageable. There are also
many benefits of developing a stable and efficient housing market as it will create significant forward
and backward economic linkages from production of building materials to home décor design and
manufacturing, etc. In the process, it will create jobs for both skilled and unskilled labor.

THE HOUSING SECTOR AND GDP GROWTH

It is well established that economic growth is linked to overall macro performance of the economy,
including that of the housing sector. Macroeconomic data for Bangladesh shows that the contribution
of the real estate sector (including real estate, renting, and other business activities related to it) is
about 6 percent of the country’s GDP (as in 2018-19). Based on this, we have run a regression of the
growth in the real estate sector against the growth in GDP to understand the correlation. The result
(see Figure 3-1) shows that the correlation between them is 0.77 and that every 1 percent growth in
GDP leads to 0.44 percent growth in the real estate sector.

Figure 3-1: Relationship between GDP growth rate and real estate sector growth rate

6.00
y = 0.4353x + 1.3411
Real estate and housing sector growth rate

R² = 0.60
5.00

4.00

3.00

2.00

1.00

0.00
0 1 2 3 4 5 6 7 8 9
GDP growth rate

Source: Data from Bangladesh Economic Review – equation is estimated

Value addition of the real estate sector to the country’s GDP is about BDT 1.9 trillion (in 2018-19),
equivalent to nearly USD 23 billion. It shows how economic growth pushes the real estate sector.
Indeed, the housing sector contributes significantly to the economy in terms of rents and other
economic activities built around it. Therefore, the forward linkage of the sector is also quite important
for Bangladesh. Value addition of the real estate sector has increased at an average rate of 13 percent
between FY 2005-06 and FY 2018-19 (see Figure 3-2)

[19]
 Figure 3-2: Value addition of the real estate sector from 2005-06 to 2018-19

2000 1868
1800 1664
1600 1445
1400 1237
Billion BDT

1200 1061
1000 912
788
800 687
544 601
600 451 494
379 413
400
200
0

Source: Bangladesh Economic Review 2019

EMPLOYMENT IN HOUSING SECTOR

Labor force survey data show that employment in the real estate sector decreased between 2004 and
2010 (see Figure 3-3). Experts suggest that this sharp fall in employment may have been due to
transition of the sector towards heavy equipment that requires less labor, and the use of ICT
technologies for designing, marketing, and other activities. Furthermore, since the government in
2007 changed the regulation for real estate construction and removed restrictions on the height of
buildings (previously residential buildings could not exceed five stories and now the regulation allows
them to go up to 16 stories on a case by case basis with approval from RAJUK), there has been a
gradual shift towards using heavy equipment. However, after crossing the initial phase of
adjustments, the sector began to grow again from 2010. As per the 2016 data, a total of 113,000
people was engaged in this sector, of which 70 percent were employed in the urban areas.

Figure 3-3: Employment in real estate activities

Total Urban Rural

300

250

200
IN THOUSAND

150

100

50

0
2004 2007 2010 2013 2016

Source: Labor Force Survey Reports of 2005, 2010 and 2016, BBS

[20]
This study conducted an exercise to project the potential contribution of the housing sector on overall
employment for different levels of housing units supplied. Figure 3.4 shows the projected impact on
the employment by the housing sector if the supply was increased by 10 percent, 25 percent, 50
percent, and 100 percent respectively (i.e. annual supply of 34.7K, 39.4K, 52.1K, and 63.1K housing
units respectively). Thus, a 100 percent increase in the current supply of housing units would
contribute to a 5 percent increase in overall number of new jobs for Bangladesh.

Figure 3-4: Projected employment by housing sector with increase in current annual supply
of housing units

Employment in Real Estate (in Thousand)

250

200

150

100

50

0
31.5K 34.7K 39.4K 52.1K 63.1K

The figure above shows that if the annual supply of housing units is increased by 10 percent (i.e. 34,500
units supplied annually), it will increase workforce engaged in the sector by 11,000 (i.e. additional
11,000 jobs will be created). And if the supply can be increased by 100 percent, then the additional
113,000 jobs will be created. This, however, requires creating an enabling environment to let the
sector grow.

[21]
4. Housing Demand Analysis
Bangladesh is urbanizing rapidly, and the average annual growth of its urban population is above 3.5
percent. The urban population, as a share of the country’s total population, has increased from 24
percent to 39 percent in the last two decades (see Figure 4-1). Figure 4-2 shows that the total urban
population more than doubled to 63 million in 2019 from 31 million in 2000 in less than two decades.

Figure 4-1: Bangladesh urban population as share (%) of the total population between 2000
and 2019
45
38 39
40 36 37
35
35 31
28
30
24
25
20
15
10
5
0
1999 2004 2009 2014 2019

Source: 2019 Revision of World Population Prospects, United Nations

Figure 4-2: Urban population of Bangladesh and net in-migration of urban households
70 61 63 600
59

Thousands
Millions

55 57
60 500
50 46
38 400
40 31 300
30
200
20
10 100
0 0
2000 2005 2010 2015 2016 2017 2018 2019

Urban population No of Households per year

Sources: Urban population: 2019 Revision of World Population Prospects, United Nations, In-migration:
estimated using household size estimates from HIES reports of Bangladesh (2000, 2005, 2010, and 2016)

Figure 4-2 also shows the number of new households entering the urban areas of the country each
year, thanks to both ‘push’ and ‘pull’ factors. It shows the growing need for providing houses to these
newly migrated urbanites. It should be noted that the new demand for housing units created through
in-migration is only a part of the total demand since many urban residents still live in below national
average size housing units.

In this chapter, first, the current unmet demand for housing units (at least 600 square feet in size) by
urban households is assessed. It is then followed by the projected growth of this demand till 2030.
Finally, expectations of the target households have been discussed.

[22]
ASSESSING CURRENT DEMAND
Analysis of HIES 2016 data reveals that on an average the whole of the target group (both Type A and
Type B households) reside in housing units that are smaller than the national average urban housing
unit size. Figure 4-3 shows that while average housing size increases from 5th to 9th income decile
urban households, this is still lower than the national average housing unit size (511 sq ft) for all of
those income decile households. It can be inferred that the average housing unit sizes for the target
groups A and B, are generally smaller than the national average urban housing unit size.

Figure 4-3: Average housing unit size (sq ft) for different income decile urban households

700.0
650.0 511 sq ft
600.0 National average size
550.0
House size (ft2)

500.0
450.0
400.0
350.0
300.0
250.0
200.0
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Type-C Type-B Type-A Richest
Decile
Source: Calculated from HIES 2016 data

As indicated earlier, Type A is composed of three income deciles (7 th, 8th and 9th). So, total number of
Type A households stands to be 4,512,057. As per Figure 4-4, 78 percent of Type A households reside
in housing units smaller than the national average urban housing unit size. This implies currently
3,519,404 Type A households are likely to want to own a 600 sq ft housing unit. Type B is composed
of two income deciles (5th and 6th). So, the total number of Type B households stands to be 3,008, 037.
As per Figure 4-4, 83 percent of Type B households reside in housing units smaller than the national
average urban housing unit size. This implies that 2,496,671 Type B households are likely to want to
own a 600 sq ft housing unit.

Figure 4-4: Share of Type A and Type B households residing in different size housing units

Below 300 sq ft 301-500 sq ft Above 500 sq ft

22.1% 17.4%

27.1% 25.1%

50.9% 57.5%

TYPE A TYPE B

Source: Calculated from HIES 2016 data

[23]
CHARACTERISTICS OF URBAN RESIDENTIAL HOUSING
HIES 2016 data reveals that on an average 59 percent of Type A and Type B households reside in
owned houses (see Figure 4-5 below). However, further investigation reveals that there exists
significant variation in this occupancy status from one city to another. Table 4-1 shows that of all the
Type A households in Dhaka 7 percent reside in housing units they own. 34 percent of the Type A
households in Chittagong live in owned houses and the ratio for Rajshahi is 67 percent. Of the Type B
households in Dhaka, 9 percent own the houses where they reside. The ratio for Chittagong and
Rajshahi are 23 percent and 69 percent respectively.

Figure 4-5: Occupancy status of target group households

Owned Rented Rent-Free

4.7% 6.8%
36.5% 34.3%

58.5% 58.9%

TYPE A TYPE B

Source: HIES 2016 data

Table 4-1: Occupancy status by type of household and by city

Occupancy Type A Type B
Status Dhaka Chittagong Rajshahi Dhaka Chittagong Rajshahi

Owned 7% 34% 67% 9% 23% 69%

Rented 92% 64% 25% 91% 75% 19%
Rent-Free 1% 2% 8% 0% 1% 12%
Source: Calculated from HIES 2016 data

While a higher share of target group households are residing in their own houses outside the capital
cities, the size of their dwellings are still largely less than 500 sq. ft (see Table 4-2). Thus, it can be
inferred that the majority of this group would still be interested to own 600 sq ft housing units, as they
are currently living in below average size urban housing units.

Table 4-2: Housing unit size of target group by location

Size of housing Type A Type B
unit Dhaka Chittagong Rajshahai Dhaka Chittagong Rajshahai
Less 300 sq ft 76% 63% 62% 83% 84% 85%
301-500 sq ft 11% 16% 25% 7% 10% 12%
501-750 sq ft 5% 6% 11% 7% 3% 1%
Above 750 sq ft 8% 15% 2% 3% 3% 1%
Source: Survey by research team

[24]
Table 4-3 shows that on average, urban households in Bangladesh reside in 511 sq ft housing units
and spend USD 71 for rental (which is 26.3 percent of their monthly income). While urban households
are spending a significant portion of their income on house rent, less than one-third of them (31
percent) reside in buildings. The largest portion of urban households reside in semi-pucca houses12
(42 percent). Another 26 percent lives in kutcha houses13, while 1 percent dwells in jhupri houses14
(See Figure 4-6).

Table 4-3: Average area, average monthly rental for housing units, and monthly rental as
share (%) of monthly household income

Average size of Monthly rental as share of

Average monthly rental
Type of urban area residential houses monthly household
(in USD)
(in sq. ft) income
City corporation 523 73 26.9%
Municipality 464 65 23.9%
Others 545 76 28.0%
Average (all urban) 511 71 26.3%
Source: Calculated based on data from Survey on Occupied Residential Houses and Real Estate Services 2019
and Household Income and Expenditure Survey 2016

Figure 4-6: Structure of houses in urban areas of Bangladesh in 2016-17

Jhupri Multi-storied (Five
1% storited or more)
Kutcha 12%
Building (Less
26% than five
storied)
19%

Semi-Pucca
42%

Source: Calculated based on data from Survey on Occupied Residential Houses and Real Estate Services 2018

12
Semi-pucca houses have walls made partially of bricks, cemented floors, and corrugated iron sheet roofs.
13
Kutcha houses are made of mud bricks, bamboo, sun-grass, wood, and occasionally, have corrugated iron sheet roofs.
14
Jhupri houses are shacks made of jute sticks, tree leaves, jute sacks, etc.

[25]
The following figures show additional interesting demand side features. Figure 4-7 shows that over 10
percent of type A households have household heads aged below 30 years. The ratio for type B
households stands to be 15.7 percent.

Figure 4-7: Age of household heads (% of target group households)

Under 30 yrs 30-40 yrs Above 40 yrs

52.3% 46.7%

37.7%
37.3%

10.4% 15.7%

TYPE-A TYPE-B

Source: HIES 2016 data

Figure 4-8 shows that majority of the households for both target groups are relying on non-salaried
income. The ratios stand to be 53.8 percent and 57.6 percent respectively.

Figure 4-8: Target group reliance on salaried income vs. non-salaried income
Non-salaried Salaried

46.3% 42.4%

53.8% 57.6%

TYPE-A TYPE-B

Source: HIES 2016 data

DEMAND PROJECTIONS
Figure 4-9 shows that the number of Type A households will increase from 4.51 million in 2018 to 6.30
million in 2030. In 12 years the number of households belonging to this category will increase by 1.79
million – an average annual increase of 150,000 households. The number of Type B households will
increase from 3.01 million in 2018 to 4.20 in 2030. In 12 years, 1.19 million households will be added
to this category – an average annual increase of 99,000 households. Thus, the total demand for
housing by 2030 from the target group will be 10.5 million units.

[26]
Figure 4-9: Growth of Type A, Type B, and Type C households from 2019 to 2030 (figures are
in million)

Type-A Type-B Type-C

9.00 8.40

8.00 7.39

7.00 6.30
6.02
6.00 5.54

5.00 4.51
4.20
3.70
4.00
3.01
3.00

2.00
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Source: 2019 revision of World Population Prospects by the United Nations (using the average household size
of 3.93 as reported in HIES 2016)

UNDERSTANDING DEMAND SIDE FEATURES

Apart from estimating current demand and projecting future demand, the study has also attempted
to grasp the characteristic of the demand for urban housing. For this, the research team engaged in
both qualitative and quantitative surveys. The key findings from the survey are given below:

Figure 4-10: Key findings from the survey

Of apartment owners have bought apartments larger than

78% their last rental house.

Of those living in rental houses are not willing to buy smaller

63% apartments.

Of the average monthly income can be spent on paying

40% installments on housing loans (willingness)

1) Households belonging to the target group (types A and B) living in Dhaka do not aspire to buy land
and build their own houses. This may be either because they do not have enough money at
present, or they assume that by the time they can save up enough, there will be very little to no
land available in the capital for buying within their means. In certain cases, even when a household
can afford to buy a piece of land or has inherited it, they still do not want to construct a house
themselves as they perceive it as too challenging. Instead, they prefer a real estate developer to

[27]
 come in and develop a multi-storied apartment complex, and give the landowner a fair share
(usually 50 percent) of the housing units constructed. This, they believe, will be a win-win
outcome.

2) In urban areas outside Dhaka, including urban centers around the city, households still prefer to
build their own houses on land that they own over buying an apartment. This has been found to
be especially true for respondents from Rajshahi. This may be because private sector developers
are virtually absent from that city, or the cost of land has, perhaps, remained low.

3) A key characteristic observed among all types of households surveyed is that they usually want
bigger apartments. As high as 78 percent of the households with income above BDT 32,000 (USD
384) that bought apartments reported that the units were actually larger than the last rental
houses they had lived in. Again, 63 percent of the households belonging to types A and B reported
that they were not willing to buy apartments that are smaller than the houses they were currently
renting.

4) The reason for urban households in Bangladesh being more willing to buy larger apartments may
be socio-cultural. But it may have some economic dimensions as well. Many households,
especially the lower-middle and middle-income ones, most often see buying an apartment as a
lifetime investment. Since there is little scope of individual investment (other than saving in banks
and buying national savings certificates), most households often buy apartments as an investment
as well. Hence, they seek to buy bigger apartments.

5) Finally, households have been found willing to spend a very high share of their gross monthly
income on (EMIs) for housing loans. While banks and NBFIs do not want the EMI to monthly
income ratio to go beyond 28 percent, households responding to the survey reported that they
were willing to go up to 50 percent. On an average, the households said that they were willing to
pay 40 percent of their gross monthly income as EMIs for housing loans, provided that the
apartment they procure meets their expectations.

[28]
5. Supply of Housing
The demand for housing in urban areas has been growing rapidly, mostly due to increasing
urbanization of the economy. This chapter explores to what extent and in what manner this growing
demand is being met by the supply side. Along with discussions on the current supply situation, it also
presents an outlook of the possible growth of supply and its adequacy or inadequacy in context of the
growing demand.

SUPPLIERS OF HOUSING: PRIVATE SECTOR SUPPLIERS

As expected, the country’s real estate business has also been growing steadily. In 2000, real estate
developers supplied around 3,000 housing units in Dhaka, while in 2018, they were able to provide
16,000 new apartments or housing units (see Figure 5-1).

Figure 5-1: Cumulative supply of housing units by real estate developers in urban areas of
Dhaka

250
206
190
200 173
156
In thousands

140
150 123
109
93
100 76
59
38 46
50 20 25 32
3 6 10 15
-
2004
2000

2001

2002

2003

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
Source: Dhaka Structure Plan 2016-2035, RAJUK (figures from 2014 to 2018 are projected)

Outside the capital city, however, the penetration of real estate developers is very little. Less than 10
percent of the housing developed by real estate developers are outside the capital city. This means
that most urban houses in Bangladesh are still provided by the landowners themselves to
accommodate the growing urban population.

As of 2016-17, a total of 3,132 real estate companies were supplying housing units in the country (BBS,
2018). Consultation with real estate sector stakeholders revealed that these companies have been
developing housing (including land development) primarily in urban areas (none could report
development of housing by private companies in rural areas). There are two business associations for
real estate establishments in Bangladesh, namely the Real Estate and Housing Association of
Bangladesh (REHAB) and Bangladesh Land Developers Association (BLDA). Over one-third (34.29
percent) of the private housing developers have membership of REHAB, and 9.39 percent have
membership of BLDA.

Private real estate development in Bangladesh began in the late 1970s and early 1980s. The public
sector in general has been unable to meet the housing demand in the urban areas, especially in Dhaka
city (Seraj, 2012). At the beginning, there were only five developers and by 1988, the number rose to
42. As demand kept on growing and more developers soon joined the supply side, REHAB was formed
in 1991 with 11 members. The association now has over 1,000 member companies. The key factors
contributing to the growth of this business in urban areas (mostly in Dhaka) are: 1) Real estate business
is profitable for both the landowner and developer; 2) Change in family structure in urban areas

[29]
(increase in the number of nuclear families); 3) Land value is too high in Dhaka city for middle and
higher-middle income families to afford; and 4) Additional services and security provided in
apartments (ibid).

However, statistical trend analysis show that the number of new entrant real estate companies has
been decreasing throughout the last two decades (see Figure 5-2). Of the 3,132 real estate companies
that are currently operating, only 780 were in business on or before 2005. This implies that only one-
fourth of the companies have over 15 years’ experience of serving. The number of private housing
suppliers saw a quick surge between 2006 and 2010- a total of 1,440 new companies joined the supply
side during that period (they comprise almost half of the total companies in operation now). In the
next five years (between 2011 and 2015), only 666 new real estate companies entered the market.
And the number of companies joining after that is just 246.

Figure 5-2: Real estate companies in Bangladesh by their inception period

1,440

780 666
246

Were in the market on Joined the market Joined the market Joined the market in
or before 2005 between 2006 and between 2011 and 2016 or after
2010 2015

Source: Calculated using data from Survey on Occupied Residential Houses and Real Estate Services, 2018

Real estate developers are not formally ranked in Bangladesh. However, a leading web-based property
trading company does a ranking of these developers. The ranking is done based on (i) Quality of the
apartments developed, (ii) location of the apartment complexes, (iii) timely delivery and after sales
services, (iv) reputation among the customers, and (v) number of apartments sold during recent
period. This company has shared with the survey team, a list of real estate developers (all members
of REHAB) who according to them belong in the list of top ten developers of the country. Of the 13
companies listed, average size of apartments developed was found for 6. And none are willing to share
the number of apartments they have developed during recent years (see Table 5-1).

Table 5-1: REHAB companies ranked in the top 10 list and average sizes of apartments
developed by some of them
Average
Rank Name of REHAB member company size
(sq ft)
01) The Structural Engineers Ltd (SEL)
02) Building Technology & Ideas Ltd (bti)
Bay Developments Ltd.
03)
Shanta Holdings Ltd. 3,953
Navana Real Estate Ltd. 2,683
04)
South Breeze Housing Ltd.

[30]
 Urban Design & Development Ltd.
05) Sheltech (pvt.) Ltd. 1,521
06) Concord
07) Rangs Properties Ltd. 3,653
08) Eastern Housing Ltd. 1,931
09) Comprehensive Holdings Ltd. 1,806
10) Suvastu Space Development Ltd.
Source: Survey conducted by research team

From the data available, it becomes evident the top listed companies are building apartments that are
much larger than the average sized urban housing unit. And most likely these are being procured by
urban households belonging to the top income decile. Survey respondents have suggested that a small
share of Type A households may be procuring some of these housing units and a very negligible share
of Type B households may also be procuring some of these housing units.

The latest data on which income groups are buying what share of the housing units produced by real
estate companies are not available. A field survey from 2010 (Seraj, 2012) presents the distribution of
apartments sold that year against various groups from different gross monthly household income
ranges. Using that data, the current distribution can be estimated after adjusting the gross monthly
household incomes against the Consumer Price Index (CPI) produced by the Finance Division of the
Ministry of Finance15. The output from this exercise is shown in Figure 5-3.

Figure 5-3: Share (%) of housing units developed by real estate developer companies going to
different income group households in 2017-18

Above 157K, 9%
31K-63K, 19%
125K-157K, 11%

94K-125K, 23% 63K-94K, 38%

Source: Estimated using CPI data by Finance Division, MoF, and 2010 field survey by Seraj

As per the figure, 59 percent of the developed housing units (annual 17,000) by private real estate
developers went to households with average monthly income between BDT 31,000 and BDT 94,000
(USD 372 and USD 1,116) which meets less than one percent (0.16 percent) of the current housing

15
CPI is calculated holding FY 2005-06 as the base year. And as per the latest Bangladesh Economic Review,
BDT 100 in FY 2005-06 was worth BDT 156.59 in FY 2010-11, and worth BDT 245.22 in FY 2017-18

[31]
demand from the target market. Households having average monthly income above BDT 94,000 (USD
1,128) bought 43 percent of the housing units supplied by real estate developers.

One of the key reasons for the target urban households not being able purchase housing units
produced by real estate developers is the high price of apartments in Bangladesh. The research team
surveyed 15 real estate developers who are engaged in developing apartments in Dhaka. The survey
results show that per square feet price of apartments in the capital vary from BDT 3,500 to BDT 18,400
(USD 42 to USD 221), based on the size and the area where the apartment is located (see Table 5-2).

Table 5-2: Apartment sizes and prices (per square feet) in Dhaka city

Apartment Apartment Size (sq. ft) Apartment Price (USD per sq. ft)16
Category Minimum Maximum Average Low value area High value area
Small 750 1,400 1,118 41 66
Medium 1,200 2,000 1,500 98 140
Large 2,000 5,500 3,300 110 221
Note: Figures are from survey findings. These are for Dhaka city area only.

These findings are consistent with global comparisons - as per the latest comparison data published
by NUMBEO17, per square meter price of apartments in central areas in Dhaka is USD 1,450 (i.e. per
square feet price is USD 135, which almost matches our assessment of medium size apartment prices
in high value areas). This is significantly higher than cities in neighboring India and Pakistan which
indicates that Bangladesh’s private housing developers may lack price competitiveness (see Figure
5-4).

Figure 5-4: Per square meter price of apartments in city centers across the world

Karachi $716

Ankara $780

Cairo $790

Kolkata $1,154

Riyadh $1,233

Dhaka $1,450

Source: https://www.numbeo.com/cost-of-living/city_price_rankings?itemId=100

16
Apartment prices vary from high value areas to low value areas. High value areas are those where survey
respondents (representatives of real estate developer companies) perceive the demand for apartments and/or
land value to be high. And low value areas are those where the demand for apartments and/or land value is
perceived to be low.
17
Details may be accessed at https://www.numbeo.com/cost-of-living/city_price_rankings?itemId=100

[32]
SUPPLIERS OF HOUSING: PUBLIC SECTOR SUPPLIERS
There are two major suppliers of housing units in the public sector - the National Housing Authority
(NHA) and Rajdhani Unnayan Kartripakkha (RAJUK). While RAJUK is focused on supplying housing units
and plot development in Dhaka city and adjacent areas, the NHA does so all over the country.

Between 2003 and 2017, NHA has implemented 26 projects. Among those, nine were apartment
development projects, which developed a total of 2,169 apartments. NHA also implemented 17
residential plot (land) development projects, which developed a total of 4,233 plots.

The following table (Table 5-3) shows the projects implemented by NHA between 2003 and 2017:

Table 5-3: Projects implemented and plot/flat developed by NHA between 2003 and 2017
Type of Project Location No. of projects No. of flats/plots
completed developed
Dhaka city 4 1,502
Flat/apartment 2 324
Chittagong city
development
Other cities 3 343
projects
Total 9 2,169

Dhaka city - -
Plot 2
Chittagong city 561
development
Other cities 15 3,672
projects
Total 17 4,233
Source: Survey conducted by the research team

As shown here, NHA apartment development projects have mainly focused on Dhaka (over 69 percent
of the apartments developed are in the capital city). However, in the case of land or plot development
projects, other urban areas have been prioritized. There were only two plot development projects by
NHA in Chittagong city, and none in Dhaka city, between 2003 and 2017.

The NHA has another 15 ongoing apartment development projects, of which 11 are in Dhaka. And
over 81 percent of the flats to be developed will be in the capital. This implies that NHA intends to
focus its apartment development projects on Dhaka in the near future as well.

RAJUK mainly focuses on township development projects and developing plots (not apartments) is a
key component of the projects. It has implemented 13 such projects in Dhaka city and adjacent areas
(shown in Table 5-4). It has also completed two apartment/building projects.

Table 5-4: Housing projects implemented by RAJUK

Type of Project Project Name
Gulshan Residential Model Town
Banani Residential Model Town
Baridhara Residential Model Town
Uttara Residential Model Town (1st and 2nd phase)
Township Development
Nikunja-1 Residential Area
Nikunja-2 (Joarshahara Rehabilitation Area)
Gandaria Rehabilitation Area
Karwan Bazar Rehabilitation Area

[33]
 Type of Project Project Name
Shyampur Rehabilitation
Officers Housing Area at Malibagh
Jurain (I,G Bagan)Rehabilitation
Badda Rehabilitation
Dattapara Resettlement Area
Constructed 42, 4-storied residential quarters and allocated to
Buildings/ various organizations
Apartments/Quarters
NAM Village & Villa Apartments (260) at Gulshan & Banani
Source: RAJUK official website: www.rajukdhaka.gov.bd

RAJUK also has four ongoing township development projects in four locations just outside Dhaka
(Savar, Gazipur, Keraniganj, and east side of the city), and three building projects that will produce
over 50,000 apartments within the city area.

Currently, only eight percent of government officials in the capital city enjoy housing facilities. As of
2018, the Government of Bangladesh committed to provide 40 percent of public servants based in
Dhaka with housing. In the Annual Development Programme (ADP) for the last four fiscal years, the
government allocated a total budget of USD 1,198 million for 25 housing projects in urban areas, all
of which target only government employees. Figure 5-5 indicates the ADP allocation for urban housing
projects over the last four years. While these projects aim to provide housing for government officials
only, as of FY 2019-20, the government’s ADP commitment increased by 20 times since FY 2016- 17
which is indicative of the government’s interest in solving the urban housing challenges in Dhaka.

Figure 5-5: Allocations (million USD) for urban housing projects in Annual Development
Programme (ADP) during recent fiscal years 935
161
55
47

FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20

Source: Annual Development Programmes of Ministry of Finance, GoB

In the latest National Budget proposal (for FY 2019-20), a total of nine Public Private Partnership (PPP)
projects for urban housing worth USD 8 billion was listed as un-approved projects. However, none of
them have been approved yet (after the first six months of the fiscal year).

COST OF HOUSING FOR PRIVATE SECTOR DEVELOPERS

The main input materials utilized by private sector developers in Bangladesh to develop apartments
are: two types of sand (Sylhet sand and local sand), bricks, cement, and MS rod. The study team

[34]
reviewed available secondary source information and consulted with private sector developers to
understand the current supply of these input materials.

Sand
Generally, private sector developers in Bangladesh use sand extracted from river beds. Sand
used are classified based on Fineness Modulus of sand, i.e. FM Values of sand. FM value is an
index number which represents the mean size of the particles of the sand. In Bangladesh, two
types of sand are usually utilized in construction by private sector developers, namely- Sylhet
sand and local sand. Sylhet sand has FM value of 2.5, while the local variety has an FM value of
2.0. Sylhet sand is collected from Sylhet district. Other major locations from where the local
sand variety is extracted are Paksi (in Pabna district) and Kumarkhali (in Kushtia district).

Bricks
According to Bangladesh Brick Manufacturing Owners Association around 7,000 soil-burning
brick kilns produce around 25 billion bricks annually. Producing bricks in soil-burning kilns
requires use of topsoil. Topsoil is the outermost layer of natural soil with the highest
concentration of organic material. It is composed of mineral particles, organic materials, water
and air. This implies that production of bricks using topsoil results in loss of fertile soil, which is
a problem for an economy like Bangladesh which relies heavily on agriculture. As per the
information available from the Ministry of Housing and Public Works, it has been working for
over 4 decades to develop eco-friendly bricks that do not require use of topsoil and instead are
made of concrete blocks. House Building Research Institute, a wing under the ministry, has
developed different varieties of eco-friendly blocks such as- Compressed Stabilized Earth Blocks
(CSEB), Interlocking CSEB, Hollow Block, Thermal Block, Aerated Concrete, and Ferro-cement
Sandwich Panel. Although there are around 30 producers who are now producing eco-friendly
bricks, sector stakeholders have pointed out that there is lack of awareness among the building
developers about the potential benefits of using these.

Cement
Until the late 1990s Bangladesh used to import most of the cement it required. Till 1990 the
country imported 95 percent of the cement it required. Local producers started to enter the
market in large numbers to serve the already existing high demand in the local market from
1997. Currently, the local producers are not only meeting the local demand, but also are
exporting cement in the global market. In FY 2015-16, Bangladesh cement exporters exported
cement worth BDT 133.6 million (USD 1.71 million). There are mainly two types of cement
produced, namely- Ordinary Portland Cement (OPC) and Pozzolanic Portland Cement (PPC).
PPC has the same strength and durability as OPC. However, PPC requires lesser amount of
clinker (65 to 80 percent) compared to OPC (95 percent clinker required). Hence, producers
prefer producing PPC. The ratio of producing PPC and OPC currently is 95:5. Cement producers
in Bangladesh have to rely on imported clinker for production. Clinker is imported mainly from-
China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Phillippines, Singapore, and
Thailand.

The top five cement producers in Bangladesh are: Heidelberg Cement Bangladesh, Lafarge
Surma Cement Limited, M.I. Cement Factory Limited, Premier Cement Limited, and Meghna
Cement Limited. Heidelberg produces 1.7 million MT cement per year. The next three

[35]
 companies produced 1.5 million MT cement per year each. And the fifth producer- Meghna
produces 1.2 million MT cement per year.

At present the Bangladesh cement industry is experiencing an overcapacity in terms of

production. The industry can produce 40 million MT, while the actual production is 32 million
MT. That is, the utilization rate is 80 percent of the production capacity.

MS Rods
In Bangladesh, steel manufacturers produce three types of steel, namely- MS rod, flat steel,
and stainless steel. Private housing developers mainly use MS rod for housing construction.
The country is self-reliant in terms of construction steel. There are no integrated mills in the
country. Producers here use electric arc and induction furnaces only. This involves processing
scrap and transforming those into finished steel. Before 2008, MS rod producers in Bangladesh
did not produce graded products. From then, leading producers started producing high quality
graded steel. As a result, dependency on imported steels not only for housing development but
also for large infrastructural projects have almost diminished. At the moment, Bangladesh steel
industry is producing at least 5 high quality grade steel. Producers are also changing technology
from traditional manual to auto-rolling and semi-auto rerolling mills. There are 300 steel mills,
of which 150 are re-rolling mills, and 30 are auto-rolling mills. As of 2018, Bangladesh steel
industry had a production capacity of 8.5 million MT and the country consumed 7.0 million MT
steel. In 2008, this consumption was less than one-fourth of this amount. Sector stakeholders
expect steel consumption to grow to 18 million MT per year by 2030. Three of the largest steel
producers, namely- Abul Khair Steel, BSRM, and KSRM serves almost 50 percent of the local
market demand. They produce 1.4 million MT, 1.2 million MT, and 0.8 million MT steel
annually.

The study team collected detailed data on construction cost to estimate the breakdown of expenses
for developing a 600 sq ft apartment in low value areas of Dhaka city. Table 5-5 presents the detailed
breakdown. It estimates expenses for a 9 storied apartment building which will have 2 housing units
in each of the typical floors (i.e. all floors except the ground floor). The per square feet development
expense has been estimated to be BDT 3,106 (USD 37).

To understand the development expenses in terms of materials used and their respective costs,
breakdown of expenses for developing a typical floor (which will house two 600 square feet housing
units) is presented in the next table (see Table 5-6).

Table 5-5: Breakdown of expenses for developing a 9 storied apartment building with 16
housing units (2 units in each floor except the ground floor)

Unit (sq Rate Total Total

ft) (BDT) (BDT) (USD)
A) Civil Work Expenses
1 Soil Test 15,000 180
2 Marketing 400,000 4,800
3 Design 450,000 5,400
4 Earth Excavation & Removing 500,000 6,000
5 Piling 1,200 1,000 1,200,000 14,400

[36]
 Unit (sq Rate Total Total
ft) (BDT) (BDT) (USD)
6 Foundation 1,200 650 780,000 9,360
7 Ground floor 1,200 800 960,000 11,520
8 Typical Floors (1200*8) 9,600 900 8,640,000 103,680
9 Roof top 500 500 250,000 3,000
10 Boundary Wall etc. 500,000 6,000
Sub-total (A) 13,695,000 164,340
B) Other Expenses
11 Electrical 10,800 100 1,080,000 12,960
12 Sanitary 10,800 80 864,000 10,368
13 sub and gen 10,800 25 270,000 3,240
14 Lift 10,800 80 864,000 10,368
Sub-total (B) 3,078,000 36,936
C) Land Price18 16,773,000 201,276
Grand Total (A+B+C) 33,546,000 402,552
Expenses Per sq ft 3,106 37

Table 5-6: Breakdown of expenses for developing a typical floor (comprised of two 600
square feet apartments)
Unit No. of Unit Unit Cost Total Cost Total Cost
(BDT) (BDT) (USD)
Sylhet Sand Cubic Foot 360 56 20,160 242
Normal Sand Cubic Foot 2,040 21 42,840 514
Brick Piece 24,000 11 264,000 3,168
Cement Kilogram 25,000 9 225,000 2,700
Rod Kilogram 3,300 67 221,100 2,653
Labor Square Foot 1,200 250 300,000 3,600
Grand Total 1,073,100 12,877
Expenses per sq ft 894 11

CURRENT SUPPLY AND FUTURE OUTLOOK

REHAB companies supply approximately 17,000 housing units per year. And non-REHAB private
developers, independent landowners and the public sector combined supply another 14,500 housing
units annually. This means the total supply of housing units per year now is 31,500.

As this study is focused on mapping possible market-led solutions to the housing problem in urban
areas of Bangladesh, the annual supply of housing units by organized housing developers (i.e. REHAB)
is considered here. Hence, the current supply is taken to be 17,000 housing units per year. The analysis
here intends to point out the adequacy, or inadequacy, in the supply of housing units in urban areas
to meet the demand for larger than average size (i.e. 600 square feet) housing units by the primary

18
Land price is held to be equal to the sum of overall development cost because a developer usually has to
hand over half of the housing units developed to the land owner as price of the land.

[37]
and secondary target groups. To do so, firstly, the projected growth of Type A and Type B households
from 2019 to 2030 in the urban areas of Bangladesh needs to be revisited.

Figure 5-6: Need for 600 sq ft housing units by different groups to ensure all of them reside in
average housing units by 2030

150K housing units per year To ensure all Type A households reside in average size
housing units by 2030.

99K housing units per year To ensure all Type B households reside in average size
housing units by 2030.

As shown in Figure 5-6, the annual demand for average size housing units by Type A and Type B
households combined (which is 249,000) is much higher than the annual supply by REHAB developers
(which is only 7 percent of the annual demand).

Since this study is focused on Type A and Type B households only, the next table shows to what extent
REHAB developers can meet the demand if they were to increase the capacity to supply housing units
to different extents (25%, 50%, 100%, and 200%). Three different scenarios are presented here: i) if
REHAB developers aim to provide average size housing units to Type A households only; ii) if REHAB
developers aim to provide average size housing units to Type B households only; and iii) if REHAB
developers aim to provide average size housing units for both Type A and Type B households. It is
assumed for all three scenarios that the REHAB developers will be producing only 600 sq ft housing
units.

Table 5-7: Ability of REHAB developers to meet the demand for housing of different groups
by 2030
Number of housing
Share of
REHAB capacity to supply housing units units produced by
demand met
REHAB per year

Current capacity maintained 17,000 units 11.3 percent

(i)
Supply capacity increased by 25% 21,250 units 14.2 percent
Only Type A
Supply capacity increased by 50% 25,500 units 17.0 percent
households
Supply capacity increased by 100% 34,000 units 22.7 percent
targeted
Supply capacity increased by 200% 51,000 units 34.0 percent

Current capacity maintained 17,000 units 17.2 percent

(ii)
Supply capacity increased by 25% 21,250 units 21.5 percent
Only Type B
Supply capacity increased by 50% 25,500 units 25.8 percent
households
Supply capacity increased by 100% 34,000 units 34.3 percent
targeted
Supply capacity increased by 200% 51,000 units 51.5 percent

(iii) Current capacity maintained 17,000 units 6.8 percent

Both Type A and Supply capacity increased by 25% 21,250 units 8.5 percent
Type B Supply capacity increased by 50% 25,500 units 10.2 percent
households Supply capacity increased by 100% 34,000 units 13.7 percent
targeted Supply capacity increased by 200% 51,000 units 20.5 percent

[38]
Table 5-7 shows that in case the REHAB developers focus on serving the demand of Type A households
only, and they increase their supply of housing units by three times, they will still only be able to serve
just over one-third of the demand by Type A households by 2030.

In case the REHAB developers focus only on serving the demand of the Type B households and can
increase their supply of housing units by three times, they will be able to serve just over half of the
Type B households by 2030.

Moreover, if the REHAB developers can triple their annual supply of housing units (51,000 units per
year) and serve both types A and B households, then they will be able to serve just over one-fifth of
those households by 2030.

It is evident that there is a huge gap between the annual demand for average size houses by the target
groups and the annual supply by organized private sector developers. This necessitates identification
of the constraints faced by developers in increasing supply as per the existing demand.

HOUSING SUPPLY CONSTRAINTS

Interactions with housing developers and other stakeholders (including aspiring home buyers) have
revealed certain obstacles to increasing supply of housing units by private developers, especially for
the target groups. These are presented below:

High price of housing units

When setting the selling price for a housing unit, real estate developers have to take into account
many expenditures such as cost of procuring and developing land, raw materials, marketing and
operational expenses, etc. Developers then need to set a margin of profit above all the expenses
combined (see earlier Table 5-5). For an existing small sized apartment of 750 sq ft supplied by private
developers19 in the current market, the selling price ranges from BDT 2.6m to BDT 4.2m (USD 31,000
to USD 50,000) depending on the area. While this can be considered affordable for at least some
constituents in the target market, there is a general perception that the housing selling prices
established by private sector developers are inflated. As a result, a significant share of the customers
from target groups are not interested to purchase homes developed by housing companies.

Customers wanting bigger housing units

Developers are not incentivized to build smaller sized apartments as there is not much demand for
those in the market. Survey results have also revealed that overwhelming majority of the households,
regardless of their income, want to buy larger housing units20. Hence, developers generally have to
build larger housing units which costs more. And consequently, the housing units supplied by the
developers remain beyond affordability of the middle and lower-middle income households.

The developers have to develop apartment buildings in partnership with landowners in urban areas
(a certain share of the developed housing units goes to the landowner). In many cases, the landowners
themselves persuade the developers to build larger units. They usually do not prefer smaller
apartments, as that would mean more households residing in the same building.

19
currently this is the smallest size apartments build by private developers
20
Reasons for customers wanting to buy larger housing units as revealed through the questionnaire survey and
FGDs have been discussed in detail in Chapter 4.

[39]
Low demand for housing units in peripheral areas
Land prices are much lower in peripheral areas surrounding the urban centers. Hence, it is possible
for housing developers to build housing units in those areas at a relatively lower cost, which target
groups can afford. However, target group households generally prefer to live as close as possible to
city centers (as they do not want to spend too much time in commuting to their working places).
Moreover, peripheral areas of major cities such as Dhaka and Chittagong do not have adequate
facilities (such as access to education, healthcare etc.) to induce lower income households to procure
housing units there. As a result, developers are not building many apartment complexes in peripheral
areas.

Limited success of smaller housing unit projects

Housing developers have developed a few projects around Dhaka that provide smaller size housing
units at a lower price. A significant share of the households buying units from these projects were
actually from the target groups. However, in most cases, they were not eligible to get housing loans
from financial service providers. As a result, they had to pay either from their savings or from the
money they received from selling properties they owned elsewhere. Since there are not many target
group households that have adequate savings or properties to sell, it took much longer than expected
to sell the smaller housing units. And consequently, profits from selling the smaller units have been
significantly lower than expected. Due to the limited success of the smaller housing projects, not many
developers are interested in developing such projects.

Land ownership related problems

RAJUK reports that 80 percent of the residential buildings in Dhaka are three storied or less, implying
significant scope for urban redevelopment or regeneration. However, ownership of land upon which
those buildings stand has been a critical challenge for housing developers (the situation is said to be
not much different in other major cities). In most cases, pieces of land are inherited by multiple
persons, making land registration related processes as well as the overall negotiation much difficult
for real estate developers. In many instances, once developers show interest in developing a housing
project on a particular piece of land, the co-owners of that land engage in legal disputes. Be it land
registration related problems arising from multiple persons inheriting the same piece of land or be it
legal disputes over ownership – it delays the development process, resulting in higher cost of
production. Hence, in recent years, developers have not been very much interested in developing
projects on such land. They are generally interested in land pieces that are not disputed. As a result,
they cannot take up higher number of projects.

Poor Regulatory Delivery

A housing developer after completing negotiations with the landowner(s) has to get a “land use
clearance” certificate from RAJUK before designing a housing project. While on paper it should not
take more than 15 working days to get this certificate (upon ensuring compliance), in practice, it takes
on an average 45 to 50 working days (meaning more than two months). The designing process
generally takes on an average two to three months. Once the designing is completed, the developer
once again has to get the design approved by RAJUK. This again takes another 45 to 50 working days.
This implies that after completing the negotiations with the landowner, it takes a developer around
six months to get a project started. The longer it takes to start a project, the higher the production

[40]
costs become. It is believed that speeding up the administrative process will likely reduce the
production cost to a significant extent (as much as 10 percent).

Rapidly increasing land prices

Generally, instead of buying the land from a landowner, the developer reaches an agreement on
sharing housing units with the owner once the project is completed. In the early 2000s (from 2001 to
2005), developers were offering 25 percent of the housing units developed to the landowner. But as
the market grew, landowners bargained for a higher share. From 2006 to 2008, the average share of
landowners in a project rose from 30 percent to 45 percent. By 2008, many households were
interested in buying apartments not just for residing in, but also as a good investment opportunity (as
there was a provision for spending untaxed money for housing purposes). As a result, the market
started growing at a much faster pace (which many stakeholders considered to be unrealistic and
hence, non-viable). Naturally, the number of developers also increased rapidly during the period (as
discussed earlier. To gain a competitive edge over others, many developers started handing out a
certain sum of money (as ‘signing money’) to the landowners for signing the partnership contracts. By
2011, the average share of landowners in the developed projects went up to 50 percent and the
amount of signing money also crept up significantly.

This boom resulted in unrealistic speculation among landowners (especially in major cities like Dhaka
and Chittagong). Over the last seven or eight years, the average share of the developed housing units
offered to landowners has remained at 50 percent, while the signing money required has gone up
much higher. For example, a developer reported that signing money in a particular area in Dhaka
increased by 300% between 2011 and 2018.

Along with the challenges discussed so far, other supply side challenges and/or constraints have been
pointed out through the survey. Those are related to access to finance and overall lack of governance,
and hence, are discussed in later chapters of this report.

SUMMARY
A total of 3,132 real estate companies are supplying housing units in urban areas of Bangladesh.
Despite rapidly increasing demand for housing in urban areas over the last decade or so, the number
of new enterprises or investors joining the market to supply housing appears to be decreasing.

Survey results have revealed that private housing developers have not been able to adequately meet
the demand of target groups.

Supply projections have revealed that even if REHAB developers can triple their annual supply of
housing units (51,000 units per year) and serve both Type A and Type B households, they will be able
to serve just over one-fifth of those households by 2030.

Major constraints faced by housing developers in urban areas are rapidly increasing land prices (due
to unrealistic speculation), poor regulatory delivery (due to lack of efficiency in the public offices), land
ownership related problems (developers are not interested to invest in disputed land), limited success
of smaller housing unit projects, aspiring homeowners not interested to live in peripheral areas (due
to lack of connectivity), and higher price of housing units developed by private developers.

[41]
6. Housing Finance
Lack of proper housing finance is a key challenge for the growth of this sector in Bangladesh. The
government has identified the lack of available and accessible housing finance as one of the major
hurdles in improving housing conditions for middle and lower-income households (Hoek-Smit, 1998).
This section presents the current housing finance growth trends, share of housing loans in the total
loan disbursed, cross-country comparison, and affordability of housing loans by different income
groups.

TRENDS OF HOUSING FINANCE IN BANGLADESH

In urban areas, there are three types of housing loan providers: 1) Specialized housing finance
providers, 2) Banks, and 3) Other financial institutions. Review of housing loans supplied (by all three
types of providers combined) during recent years reveals that it increased from BDT 440.5 billion (USD
5.2 billion) in FY 2014-15 to BDT 814.5 billion (USD 9.8 billion) in FY 2017-18. The average annual
growth of these loans during the period was BDT 93.5 billion (USD 1.1 billion). Banks are the largest
contributors to housing finance. Average annual growth of housing loans provided by banks is BDT
76.8 billion (USD 921 million), which dwarfs the contributions by specialized housing finance providers
and other financial institutions (with average annual growth of BDT 5.9 billion (USD 71 million) and
BDT 10.9 billion (USD 131 million) respectively). Figure 6-1 shows that as of 2018, housing sector of
the country had 6.24 percent of the loan concentration. And that amounts to BDT 563 billion (USD 7
billion)21.

Figure 6-1: Sector-wise loan concentration in 2018

Agriculture & Infrastructure & Transport, 0.83% Leasing, 0.36%
Fishing, 4.63% other Construction,
3.35%
Others, 0.10%
Service Industries,
5.95%
Housing, Large Industries,
6.24% 25.98%

MSMEs, 8.30%

Wholesale & Retail,

Miscellaneous, 17.78%
10.74%

Import & Export,

15.74%

Source: Financial Stability Report 2018, Bangladesh Bank

21
Of this amount around 4 percent goes to individuals in rural areas. And over 43 percent goes as housing
loans to individuals in urban areas. The largest share (about 45 percent) goes to housing developers in urban
areas.

[42]
Figure 6-2 shows outstanding housing loans by all three types of providers for the last five fiscal years
(the figures for FY 2018-19 are proposed). As shown here, in recent years, banks have been the largest
providers of housing loans, followed by other financial institutions and specialized housing finance
providers. There are 59 scheduled banks, 31 other financial institutions, and three specialized housing
finance providers currently providing housing finance. Of the three specialized housing finance
providers one is government owned (House Building Finance Corporation, HBFC).

Figure 6-2: Outstanding housing loans (in billion BDT) by three different providers from FY
2014-15 to FY 2018-19
Specialized Housing Finance Providers Banks Other Financial Institutions

66.7
63.8
51.9
23.2 30.8
665.0
533.2
392.0 449.5
358.0

59.3 63.6 71.1 77.9 82.8

FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19*

*FY 2018-19 figures are proposed. Note: None of the figures include housing finance provided in rural areas.
Source: Bangladesh Bank Annual Reports for FY 2016-17, FY 2017-18, and FY 2018-19

While the housing sector is currently receiving a relatively smaller share of the total loans provided, it
has a relatively lower gross nonperforming loan (NPL) ratio22. As shown in Figure 6-3, in 2018 the gross
NPL ratio for housing finance was just over 7 percent, much lower than the national average of 10.3
percent. The trade and commerce sector has the highest gross NPL ratio (13.05 percent), which is
almost double that of the housing sector.

Figure 6-3: Gross NPL ratio for different sectors in Bangladesh in 2018
13.05%
12.63%

10.30%
9.92%

9.93%
9.30%
7.09%
3.97%
2.96%
1.17%

Source: Financial Stability Report 2018, Bangladesh Bank

22
Ratio of gross NPL of a sector to the total loan outstanding for that sector is the gross NPL ratio for that
sector.

[43]
Figure 6-4 shows that the share of housing finance in total NPL is just 1.2 percent, which is larger than
only the shares of two other sectors (loans to capital market and credit to NBFIs). This suggests that
despite having better performance in terms of loan recovery, the housing sector is still receiving a
relatively smaller share of the total loans disbursed.

Figure 6-4: Share (%) of NPL of different sectors in the total NPL
1.2%, Housing
0.2%, Credit to NBFIs Finance 1.3%, Other
Consumer Credit

5.0%, Agriculture
0.1%, Loans to Capital
Market
6.9%, Other Loans

10.8%, Industrial
(Services)

46.1%, Industrial
(Manufacturing)

28.3%, Trade and

Commerce

Source: Calculated from Financial Stability Report 2018, Bangladesh Bank

As the housing sector receives a relatively lower share of loans (compared to other sectors), this
indicates a low coverage of consumers (i.e. households seeking housing loans). A cross-country
comparison was made for Bangladesh to assess the housing loan penetration. Housing loan
penetration is calculated as a percentage of the adult population with an outstanding loan to purchase
a home can be a suitable indicator for this purpose (Badev et al, 2014).

Figure 6-5 shows housing loan penetration ratios for Bangladesh and some other Asian countries. It
shows that Bangladesh has a housing penetration ratio of 2.9 percent, meaning that among every 100
adult persons, three have an outstanding loan to purchase a home 23. This ratio is higher than
neighbors India and Pakistan, but it is significantly lower than other South Asian countries like Sri Lanka
(4.2 percent) and Nepal (6.7 percent). In comparison with Malaysia (which has a housing loan
penetration of 17 percent), Bangladesh’s ratio appears to be very meager.

23
This includes housing loans provided in both rural and urban areas by all types of loan providers.

[44]
 Figure 6-5: Housing loan penetration (%) for different countries

16.9%

6.7%
5.4% 5.8%
3.9% 4.2%
2.5% 2.9%
2.3%

Pakistan India Bangladesh Philippines Sri Lanka China Thailand Nepal Malaysia

Source: Badev et al. (2014)

HOUSING LOANS BY FINANCIAL INSTITUTIONS

Even though a large number of financial institutions provide housing loans to home loan-seekers, the
minimum income of the recipients, rate of interest, and period of repayment vary across providers.
On average, the loan providers charge 10.56 percent interest rate to individual households in urban
areas. This rate is lowest for specialized housing finance providers (10 percent) and highest for other
financial institutions (11.55 percent). However, the minimum average monthly household income
requirement for loan eligibility is found to be most flexible in the scheduled banks (just BDT 35,000).
It is highest in other financial institutions (BDT 40,000 per month). The loan repayment period varies
from 12 years to 25 years, and the average is 20 years.

Table 6-1: Housing finance by different providers in Bangladesh

Financial Institutions Interest rate on Minimum average Loan
housing loans monthly household repayment
(urban, individual) income for eligibility period
(years)
Scheduled Banks 10.39% BDT 35,000 (USD 420) 21
1 DBBL 10.50% BDT 40,000 25
2 Al-Arafah Islamic Bank 10.50% BDT 40,000 15
3 The City Bank 8.75% BDT 35,000 25
4 Bank Asia 11.00% BDT 25,000 25
5 Brac Bank 8.50% BDT 25,000 25
6 Eastern Bank 8.50% BDT 30,000 25
7 Exim Bank 13.50% BDT 50,000 18
8 IFIC Bank 8.75% BDT 35,000 25
9 MTB 9.00% BDT 25,000 25
10 Dhaka Bank 9.00% BDT 40,000 20
11 UCB 9.50% BDT 25,000 10
12 One Bank 9.99% BDT 30,000 25
13 MBL 10.00% BDT 30,000 12

[45]
 Financial Institutions Interest rate on Minimum average Loan
housing loans monthly household repayment
(urban, individual) income for eligibility period
(years)
14 SEBL 10.00% BDT 30,000 20
15 Prime Bank 10.50% BDT 45,000 25
16 NRB Bank 11.00% BDT 40,000 20
17 Meghna Bank 11.00% BDT 30,000 20
18 EBL 8.50% BDT 30,000 25
19 Agrani Bank 9.00% N/A N/A
20 BDBL 9.00% N/A N/A
21 Janata Bank 9.00% N/A N/A
22 Rupali Bank 9.00% N/A 25
23 Sonali Bank 9.00% N/A N/A
24 AB Bank 12.50% N/A N/A
25 First Security Islamic Bank 15.00% BDT 50,000 10
26 ICB Islamic Bank 14.00% BDT 25,000 20
27 Social Islamic Bank 14.00% BDT 50,000 25
28 Midland Bank 10.00% BDT 50,000 20
29 National Bank Ltd. 10.00% N/A 10
30 Standard Bank Ltd. 17.00% BDT 20,000 25
31 Shahjalal Islamic Bank Ltd. 9.50% N/A N/A
32 Shimanto Bank 8.25% N/A N/A
33 Basic Bank 9.00% N/A N/A
34 Standard Chartered bank 10.00% N/A N/A
35 HSBC 11.00% BDT 40,000 25
Other Financial Institutions 11.55% BDT 43,333 (USD 516) 20
1 Lanka Bangla 11.95% BDT 30,000 25
2 Premier Leasing & Finance 12.00% BDT 50,000 15
3 IDLC 10.70% BDT 50,000 20
Specialized Housing Finance 9.75% BDT 40,000 (USD 480) 20
1 Delta Brac Housing 9.50% BDT 30,000 20
2 NHFIL 10.00% BDT 50,000 20
Overall 10.56% BDT 39,444 (USD 473) 20

The average monthly household income for eligibility can be as low as BDT 25,000 (USD 300). The
lowest reported interest rate is 8.25 percent, and the longest reported repayment period has been
found to be 25 years. This implies that the most flexible housing loan package currently available in
Bangladesh requires a household to have a minimum average monthly income of BDT 25,000 (USD
300) to be eligible for a loan. The interest rate will be 8.25 percent and it can be paid in monthly
installments over a period of 25 years (i.e. 300 EMIs).

AFFORDABILITY OF HOUSING LOANS

Households that plan to purchase housing units have to take housing loans from financial service
providers (banks, NBFIs, and specialized housing finance providers). This necessitates segregation of

[46]
the entire spectrum of urban households based on their “credit-worthiness”. Credit worthiness refers
to a household’s eligibility to get housing loans from financial service providers. To assess the credit-
worthiness of Bangladeshi urban households, their average monthly household incomes have been
estimated as shown in Table 6-2.

Table 6-2: Urban households of Bangladesh segregated into income deciles and their
average monthly household incomes
Average monthly Income range (USD)
Deciles Income
household income
share (%) Min Max
(USD)
1st 1.16 72 0.0 132
Type C 2nd 2.99 192 132 240
households 3rd 4.18 276 240 300
4th 4.99 324 300 360
Type B 5th 5.91 384 360 432
households 6th 7.17 468 432 480
7th 8.35 552 480 612
Type A
8th 10.49 684 612 780
households
9th 13.31 876 780 1,224
10th 41.44 2,712 1,224 Above
Source: Population Census 2011 has been used to estimate the population in 2016, and the income
distribution has been taken from HIES 2016

As per the survey of banks and NBFIs conducted by the research team, the financial institutions in
Bangladesh charge an average interest of 10.56 percent annually on the housing loans they provide.
The loans offered for urban housing usually have an average repayment period of 20 years, and the
debtor may choose to repay the principal amount along with the interest in 20*12 = 240 equated
monthly installments (EMIs).

The “28/36 rule of housing loan” dictates 24 that a household should spend a maximum of 28 percent
of its gross monthly income on paying monthly installments against the housing loan it takes. And its
total debt service expenditure (including that for housing loans) cannot exceed 36 percent of the gross
monthly income.

This implies that urban households in Bangladesh can procure housing loans for which monthly
installment payments should not exceed 28 percent of their average monthly income.

Survey findings have revealed that the minimum apartment price is BDT 3,400 (USD 40.8) per square
feet. This implies that the price of an average size apartment stands to be (3,400*600) = BDT 2.04
million (USD 24,480).

The banks and NBFIs surveyed reported that they generally give housing loans equivalent to a
maximum of 70 percent of the apartment’s price. Thus, for a 600 square feet apartment, the figure
will be BDT 1.4 million (USD 16,800).

24
28/36 rule in Investopedia.com, please refer to https://www.investopedia.com/terms/t/twenty-eight-thirty-
six-rule.asp

[47]
To estimate what percentage of urban households can afford a housing loan of the mentioned size
and under what conditions (interest rate and loan repayment period), a heat map has been developed
(using HIES 2016 data and the “28/36 rule of housing loan”).

Table 6-3: Affordability Heat Map: Percent of urban households able to buy housing units at
different interest rates (on housing loans) and for different repayment times.

10 Years 15 Years 20 Years 25 Years 30 Years

5% 30% 50% 60% 70% 70%
6% 30% 50% 60% 60% 70%
7% 30% 50% 50% 60% 60%
8% 30% 40% 50% 50% 60%
9% 30% 40% 50% 50% 50%
10% 20% 30% 40% 40% 50%
Housing unit size = 600 square feet; per square feet price = BDT 3,400 (USD 40.8); housing loan = 70% of total price of
housing unit; credit-worthiness = size of monthly installment does not exceed 28 percent of monthly household income.

As shown in the heat map above, the percentage of households that can afford the said housing loan
increases with increase in loan repayment period and decreases with increase in interest rates. The
heat map also shows that under the most favorable conditions (i.e. 5 percent interest rate and a 30-
year repayment period), 70 percent of urban households will be able to afford the loan (leaving just
the bottom three income decile households). And under the least favored conditions (i.e. 10 percent
interest rate and a 10-year repayment period), only the top 2 income decile households can afford the
loan.

Under the conditions closest to the current situation (i.e. 10 percent interest rate and 20-year loan
repayment period), 40 percent of urban households (top 4 income decile households) can afford the
loan. That is, all Type A households can afford a housing loan under existing market conditions.

And if the interest rate is reduced to 6 percent (keeping the repayment period unchanged at 20 years),
then an additional 20 percent of households become eligible for housing loans. That means the 5th
and 6th income deciles (Type B households) will be able to procure housing loans.

▪ All Type A households can afford housing loans at prevailing interest rate (10 percent)

▪ All Type B households can afford housing loans at concessional interest rate (6 percent)

This necessitates assessment of the total number and amount of home loans required to serve the
households that can afford the loans.

It has been mentioned already that to procure a 600 square feet housing unit, a household would
require a home loan of BDT 1.4 million (USD 16,800).

As of 2019, there are around 3.5 million Type A households that require a 600 square feet housing
unit. This implies that a total of 3.5 million home loans, each worth BDT 1.4 million (USD 16,800), is

[48]
required. Thus, the total amount of loans required to fill the existing gap would be BDT 4.9 trillion
(USD 59 billion).

CONSTRAINTS FACED BY HOUSING FINANCE PROVIDERS

Discussions in the previous two chapters (chapters 5 and 6) and this chapter have revealed that there
exists a huge gap between the demand for housing finance and its supply. Interactions with housing
finance providers (banks and NBFIs) as well as other stakeholders have pointed out certain constraints
faced by the housing finance providers in channeling more home loans. These are presented below:

Informality of the Economy

Statistical analysis (of household incomes) shows that approximately 40 percent of urban households
are eligible to get home loans in the existing market situation. However, in practice assessing the
average monthly income of a household is much more challenging. This is because of the informal
nature of the economy. An overwhelming majority of the workforce is currently engaged in informal
economy. A household primarily relying on informal economy for income may have adequate average
monthly income to be eligible for a home loan. But the banks and NBFIs require proof of that income
which is, most often, not available for such households.

Financial Institutions can only ‘Bridge the Gap’

Banks and NBFIs typically provide 70 percent of the price of the housing unit to be procured as a home
loan to an aspiring home buyer. The buyer has to manage the remaining amount of money from
her/his savings or from other sources (e.g. selling property). Many of the households having adequate
income to pay the EMIs cannot apply for home loans as they cannot manage that remaining 30 percent
money.

The heat map has shown that a higher share of urban households can afford home loans if the
repayment period is increased. This implies that if the person applying for a home loan is relatively
young, then a bank/NBFI could extend the loan repayment period. This would result in smaller EMIs
and households with relatively smaller average monthly income could afford home loans. However,
younger household heads usually do not have adequate savings or income from other sources to pay
30 percent of the price of the housing unit to be bought on her/his own.

Challenges in Foreclosure
Banks and NBFIs provide home loans holding the housing units (which are procured with the home
loans) as mortgages. Hence, when a debtor fails to pay the loan back, the bank or NBFI gets to
repossess that housing unit. It is expected that the bank or NBFI would get its money back (at least
most of it) by reselling the housing unit. There are three types of challenges the financial service
providers face in case of foreclosure.

Firstly, misleading valuation of properties (the housing units) creates problems. There is usually a
difference in the actual price paid by the home buyer and the price registered for a housing unit. When
the home buyer seeks a home loan, he or she takes a loan that is equal to 70 percent of the actual
price that has to be paid to the housing developer. However, in most cases when the home buyer
registers that housing unit with public offices, a relatively smaller price is shown on paper to avoid
high registration taxes (in many cases, the registered price is half of the actual price). As a result, if the
bank or NBFI repossesses and attempts to resell that housing unit, it must do so as per the registered
price.

[49]
Secondly, the process of foreclosure is very complex and legally challenging. All suits concerning
recovery of loan by a bank or financial institution are filed in the Money Loan Court as per section 5(1)
of the Artha Rin Adalat Ain, 2003 (Money Loan Court Act, 2003). The defaulter can go to court and get
a stay order very easily. The borrower can file a writ for stay of the auction procedure. The grounds
taken in such Writ Petition varies from case to case but generally it involves irregularity or
noncompliance with the auction procedure laid out in sub-sections (1), (2) and (3) of section 33 of the
said Act, failure to provide appropriate time on the auction notice, failure to providing mandatory time
between the publication of the notice and the date of auction; the property being homestead; chances
of the property being sold at a shockingly low price and irregularity in determination of outstanding
loan etc. In such cases, the bank or NBFI has to go through a very long and expensive legal process to
repossess the property. As a result, the process becomes cost-inefficient for financial service
providers. It is very difficult to indicate how long it takes to complete the auction procedure. On an
average if no challenge is made on the proceedings, then it generally takes 1-2 years to complete the
auction process. Alternatively, when a party challenges the auction procedure before any Court, the
timeline may exceed well beyond five years. The key challenges are litigations filed against the auction
procedure before the Courts, challenge of mortgage documents including signature, compliance of
mandatory provisions on auction notice, timeline and proceedings, issues with possession of the
property, i.e. third party occupying the property etc.

Finally, even when the housing unit is registered properly (without evading registration taxes) and the
bank or NBFI gets to auction the repossessed property, it usually has to sell the housing unit at a price
significantly lower than the market rate. In general, customers are not willing to buy a repossessed
property and certain syndicates are active in the market to procure repossessed housing units at lower
prices (and they bar access of general customers).

General Lack of Fund

Bangladesh’s economy as a whole is growing at a very fast rate. There is demand for credit from all
sectors. As a result, banks and NBFIs have very limited scope of increasing supply of credit to the
housing sector. It is particularly difficult for the banks as there are strict directives from the financial
sector regulator (Bangladesh Bank) to the commercial banks to ensure that certain share of the credit
disbursed go to sectors like agriculture, SMEs, and women entrepreneurs.

Banks also face the problem of tenor mismatch. They have to take short-term deposits from the
depositors and provide long-term credit for the different sectors. Housing loans for individuals are
also long-term loans (repayment period of 20 years on average). Thus, banks usually are not too
inclined to increase flow of credit to the housing sector. The NBFIs however, mobilize long-term
deposits. Hence, specialized housing finance institutions can provide more housing loans.

Specialized housing finance institutions are most often pressurized by the sector regulator
(Bangladesh Bank) to move in to provide credit for other sectors which curtails supply of home loans.
Many NBFIs in Bangladesh that initially began operations as specialized housing finance institutions
eventually moved in to finance other sectors.

Other Challenges
Banks and NBFIs provide home loans on the basis of tripartite agreements (TPAs) signed by the bank
or NBFI, the housing developer, and the aspiring home buyer (the debtor). Generally, the debtor pays

[50]
30 percent of the price of the housing unit to the developer. The other 70 percent is paid to the
developer by the bank or NBFI. The debtor then has to repay the bank or NBFI in EMIs over a period
of 20 years (on an average). Sometimes, the developer fails to deliver the housing unit in time. And
then (in many cases) the debtor refuses to pay the EMIs to the bank or NBFIs. This naturally creates
problems for the bank or NBFI.

SUMMARY
This chapter has revealed that despite having better performance in terms of loan recovery, the
housing sector of the country is receiving a relatively smaller share of total loans disbursed. It has also
revealed that on average, financial service providers (banks, NBFIs and specialized housing finance
providers) are channeling housing loans at 10 percent interest rate to households with an average
monthly income of around BDT 40,000 (USD 480) (average period of loan repayment is 20 years).

Supply of home loans has been found to be quite inadequate, compared with the growing size of the
country’s urban population. All households belonging to the Type A category (that is households with
average monthly income equal or above BDT 40,000 (USD 480) and belonging to the top 4 income
deciles) have been found to be eligible for housing loans in the existing market conditions.

Finally, the major constraints faced by housing finance providers in Bangladesh have been identified
as informality of the economy, aspiring home buyers not having enough savings to pay the booking
money to buy apartments, challenging foreclosure process, general lack of supply of credit, etc.

[51]
7. Urban Housing & Externalities
The previous chapters of this report have presented contribution of the housing sector in macro-
economy, current and future demand for urban housing, analysis of the urban housing supply side,
and finally, housing finance scenario. There are numerous other factors (apart from the ones
mentioned so far) that affect housing markets, for example access to land, sustainable development
concerns related to housing, growing income of the households and rapid urbanization etc. are closely
linked to housing development. This section presents an overview of the effect of these factors in
urban housing market of Bangladesh.

ACCESS TO LAND
Discussions with the housing developer companies as well as with the sector experts have revealed
that access to land is a major hurdle on the way of increasing supply of housing units in urban areas.
Both the private companies and the sector regulators have formally acknowledged high prices of land
to be a major challenge for the housing sector in Bangladesh (Ovi, 2019). Two major issues related to
access to land have been identified, namely- quality and efficiency of service from the land
administration, and sky rocketing prices of land in urban areas of Bangladesh.

As discussed before (in chapter 05), a housing developer generally does not buy the entire piece of
land from the land owner(s). Instead, it buys a share of the land. And the housing units (usually
apartments) developed on that piece of land is shared by the housing developer and the land owner(s)
accordingly. For example, if there is an agreement between the two parties to share the housing units
produced equally (i.e. 50 percent of the apartments will be owned by the land owner(s) and the
remaining will be sold by developer company for profit), then the housing developer company will
first have to become owner of 50 percent of the land (i.e. buy 50 percent share of the land from the
owner(s)). This is where the quality and efficiency of service from the land administration offices
become important for housing developers. Because they have to register their ownership over the
land with the public offices. The next table (Table 7-1) shows the four broad steps a housing developer
has to follow in Dhaka city, to register their land ownership, the public offices they have to interact to
go through these steps, and the time required to complete those.

Table 7-1: Interactions with land administration related offices to get a land registered for
development of housing (for Dhaka city)
Agencies
Sl. Days
Step (Public offices Brief details
No. required
involved)
The developer
Verifying record of land rights Directorate of Land
company verifies
01 and obtaining the proof of land Records and 40 to 60
ownership of the
ownership Surveys (DLRS)
seller(s)

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 Agencies
Sl. Days
Step (Public offices Brief details
No. required
involved)
Obtaining the updated record of
Office of the Record of rights at
land rights after inspection by
Assistant the AC Land office
02 Assistant Commissioner of Land 80 to 100
Commissioner of updated according
(AC Land) and conducting the
Land (AC Land) to that at the DLRS
first mutation

Obtaining the ‘Non-Encumbrance Land Registration Legal status of land

03 20 to 30
Certificate’ Directorate (LRD) checked
Ownership of the
Conducting the second mutation Office of AC Land
04 developer 200 to 250
and getting the land registered* and LRD
established
*Developer Company has to draft a deed, finalize that, get it signed by all parties involved and pay all taxes, fees
etc. before starting activities of step 4. Time required for these activities depend on the developer and the
seller(s), not on the public offices.
Source: Survey findings

Step 01: Proof of land ownership by seller(s)

The housing developer company has to verify the proof of land ownership titles (called Khatian). This
proof has to be obtained from the Directorate of Land Records and Surveys (BLRS). In case of
ownership by more than one person, this proof contains names of all the owners, and their share in
the piece of land. As per the survey findings, the entire process requires 40 to 60 days. The point to
be noted here is that the Khatian obtained is not considered as conclusive proof of ownership. This is
because record of rights (Khatian) kept at the DLRS may not be up to date. For an up to date version,
the developer company has to go to the office of the designated (for a particular area) Assistant
Commissioner of Lands (AC Land).

Step 02: Obtaining updated record of rights

The housing developer company verifies whether history of ownership recorded by the AC Land office
matches with that at the BLRS. Because if these two do not match then the land cannot be registered.
In that case the first mutation has to be completed before proceeding any further. Mutation is the
process of updating the ownership of land (e.g. if a piece of land is inherited by multiple persons, then
the land has to be mutated to establish legal ownership of all of the persons). Respondents of the
survey reported that in many cases this first mutation becomes very challenges, as getting all the
persons (inheriting the same piece of land) together to sign application documents is very difficult
(one or more of them may even be staying abroad). Moreover, AC Land carries out a physical
inspection of the piece of land before formally updating the record of rights. This also takes a lot of
time. Altogether, the entire process is said to take 80 to 100 days.

Step 03: Obtaining ‘Non-Encumbrance Certificate’

This certificate establishes free title/ownership, i.e. it is proof that the piece of land to be bought by
the housing developer company is not mortgaged, or leased etc. This certificate is provided by a
designated (for a particular area) Sub-Registry office under the Land Registration Directorate. Survey

[53]
respondents pointed out that- while the process should not take more than a week, in practice it may
take as many as 30 days to get a ‘non-encumbrance certificate’.

Step 04: Getting the Land registered

Before the housing developer moves to register the newly bought land at the Land Registration
Directorate, it has to draft a deed, finalize that deed and get that signed by the all the parties involved.
And pay the duties and taxes via any of the designated banks. The developer company must also get
the second mutation conducted by the AC Land. This second mutation updates the land records under
the name of the buyer (the developer company). From application for registration to finally getting
the registration completed may take as many as 250 days.

As per the discussions above, it takes well over a year to formalize ownership of land by a housing
developer company. It must also be noted here that around 8 months are required to get the Land
Use Clearance Certificate and the building design approved by RAJUK. This implies that a housing
developer company has to spend more than one and half year to get necessary verifications, approvals
and certificates from public offices. Certain survey respondents have reported that sometimes to
speed up the processes or to start working on the project before getting the due approvals, housing
developers need to pay additional unofficial gratuity to public offices to expedite their services. Survey
respondents in general have reported that these altogether constitute as much as 20 percent of the
project cost.

Findings from the survey are in coherence (at least to a significant extent) with the latest Doing
Business Report (2019) by the World Bank Group. The report states that in Dhaka registering property
takes up 7 percent of the property value. And the ratio for Chittagong is slightly higher (7.2 percent).
These have significantly affected the score of these two cities of Bangladesh in terms of ‘Registering
Property Score’ in the doing business index. Figure 7-1 shows that the largest cities of Bangladesh,
Dhaka and Chittagong, are lagging significantly behind compared to neighboring South Asian countries
(India, Pakistan and Sri Lanka).

Figure 7-1: Registering property score of Dhaka and Chittagong and other neighboring
countries (as per the Doing Business Report 2019 by the World Bank Group)

Sri Lanka 51.87

Pakistan 45.63

India 43.55

Chittagong 28.86

Dhaka 28.93

0 10 20 30 40 50 60

Dhaka Chittagong India Pakistan Sri Lanka

Source: Doing Business 2019, Economy Profile Bangladesh

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This implies that there is scope of significant improvement in terms of easing the property registration
process in Bangladesh, and consequently decreasing project costs (and hence possible decline in price
of housing units produced by private developers). In fact, survey respondents claimed that project
costs could be reduced by up to 10 percent by ensuring one-stop service for land registration by the
housing developers. For example, due to lack of coordination between the AC Land office and DLRS,
a housing developer company has to go to two public offices to get proof of ownership (by the seller).
The latest Doing Business Report (2019) also points out that, in Dhaka land rights records kept at the
AC Land offices do not match that of the DLRS in at least 50 percent cases.

While land prices in urban areas are expected to increase with growth of the economy, stakeholders
perceive that land prices in urban areas of Bangladesh are increasing in an unrealistic pace, making
access to land challenging for housing developers and amking affordable housing more difficult.
Substantial increase in land values have resulted in land speculation among the housing developers as
well as the land owners (especially in the large cities such as Dhaka and Chittagong).

Land prices in Dhaka have been reported to increase by 22.26 percent per year between 1990 and
2000, and by 74 percent per year between 2000 and 2010 (Alam, 2018). This implies rapid increase in
prices of the housing units produced by the private housing developers. The housing developers
participating in the survey claimed that the market prices of the housing units have not increased
proportionately with the increase in land prices. This means decreasing profit margins for the housing
developers. REHAB (2012) published a report pointing out the trends in increase in both land prices
and housing unit prices between 1990 and 2010. The table below (Table 7-2) shows the percentage
increase in land prices in Dhaka from 1990 to 2000 and from 1999 to 2010. It also shows the same for
housing unit prices increase.

Table 7-2: Increase in land prices and housing prices in Dhaka from 1990 to 2000 and from
1990 to 2010

Increase (%) from Increase (%) from

1990 to 2000 1990 to 2010

Land Prices (average) in

220% 625%
Dhaka
Housing Prices
16% 174%
(average) in Dhaka
Source: REHAB (2012)

Housing unit prices increased at a much slower rate compared to land price increases possibly due to
the rapid increase in number of housing suppliers during this 20 year period. On the one hand, land
prices were increasing at a very fast rate, and on the other hand, more housing suppliers were entering
the market. Hence, to remain competitive, companies most probably chose not to increase the selling
price of the housing units proportionately with the increase in land prices. But still housing unit prices
increased and it can be safely assumed that land price increase contributed to increase in housing
prices significantly.

[55]
Alam (2018) identified the factors driving sky rocketing of land prices in Dhaka to be- 1) land constraint
because of industrialization and rapid increase in urban population, and 2) speculation (by land owners
and developers) because of lack of investment opportunities, increased competition among the
housing suppliers etc. Industrialization (and subsequent commercialization) has been taking up
significant amount of land (industrial units being built around major cities mostly in the peripheral
areas and commercial buildings being built mostly in the urban centers). Industrialization has been
inducing large number of households to migrate to urban areas resulting in increase in urban
population. Apart from industrialization in the urban areas other factors (e.g. quality of life, climate
change etc.) have also induced significant rural to urban migration. Industrialization and growth of
urban population intensifies the land constraint.

Prevailing land constraint creates scope of speculation about land prices in urban areas of Bangladesh.
There are other driving factors for land speculation.

As discussed earlier, land prices have increased significantly (on an average more than 7 times
between 1990 and 2010). Whereas, a household cannot enjoy such income from saving money in the
banks or NBFIs. Hence households, whenever possible (i.e. if they can afford it) has been trying to
invest in land. Alam (2018) suggests that this is especially true for households that receive remittance
from members working abroad.

Survey respondents pointed out that in many (if not most) cases there remains a difference between
the price a land buyer actually pays to the land seller, and the transfer price registered at the public
offices. The registered price is much lower than the actual transfer price. Hence, buying land has been
preferred by households with untaxed income as an avenue for investment.

The 1982 Land Reforms Committee report recommended setting ceilings for land holding in urban
areas. It suggested ceiling of maximum 5 kathas in the four metropolitan cities during that period
(Dhaka, Chittagong, Khulna and Rajshahi) and 3 kathas in other urban areas. Yet the 1984 Land Reform
Ordinance has not set any such ceiling of land holding (Alam 2018). While land holding data
disaggregated by income group has not been available, it may be inferred that because of absence of
land holding ceiling in urban areas, land distribution in urban areas is skewed in favor of higher income
group households.

All these factors combined with competition among the private housing developers have contributed
to speculation about the land prices in Dhaka as well as in other urban areas of the country. And
consequently the land prices in these areas have skyrocketed over the last two or three decades.

CARBON FOOT PRINT OF HOUSING SECTOR AND GREEN BUILDING

Real estate sector supplying housing units in urban areas involve construction and hence, this sector
is expected to have a significant carbon footprint25. Discussions in the previous chapters have pointed
out the need for significantly increasing the supply of housing units by suppliers (be it private real
estate developers or the public sector bodies such as the NHA and RAJUK). This necessitates estimating
the possible impact of increased supply of housing on the atmosphere (in terms of carbon dioxide
released due to construction of housing units in the coming years).

25
Carbon footprint is the amount of carbon dioxide released into the atmosphere as a result of the activities of a particular individual,
organization, community or a sector of economy.

[56]
Contribution of the real estate, renting and other business in the overall GDP of Bangladesh (% share)
is available from the World Development Indicator data. Carbon dioxide emission per unit of GDP is
also available from the same source. Using these two, annual carbon dioxide emission by this sector
in Bangladesh can be calculated for the years from 2000 to 2014. And based on this the emission for
the years from 2015 to 2018 can be forecasted. These are shown in Figure 7-2. The figure shows that
carbon dioxide emission by this sector has increased at a rate of 206 kiloton per year (from 2000 to
2018).

Figure 7-2: Carbon dioxide released by Real Estate, Renting and Other Businesses (in kiloton)
7,000

6,000

5,000

4,000

3,000

2,000

1,000

-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Calculated using World Development Indicator data of the World Bank (figures for years from 2025 to
2018 are forecasted).

A cross country comparison of carbon dioxide emission by real estate, renting and other business in a
given year will further pinpoint current situation of Bangladesh housing sector. The next figure (Figure
7-3) compares the amount of carbon dioxide released in the atmosphere in 2017 by Bangladesh and
four other countries (India, Vietnam, Philippines, and Ethiopia). As shown in the figure, carbon dioxide
released by real estate, renting and other businesses in Bangladesh is much lower compared to India
(only 1.5 percent of India’s emission).

Figure 7-3: Carbon dioxide emission by real estate, renting and related business sector in
2017
400,000 391,207
CO2 emission (in kiloton)

350,000
300,000
250,000
200,000
150,000
100,000
50,000 5,949 4,747 13,366 1,815
-
Bangladesh India Vietnam Philippines Ethiopia

Source: Calculated using carbon dioxide emission per unit of GDP (available from World Development Indicator
data of the World Bank) and the shares of the real estate sector in the total GDP for different countries
(collected from different sources26)

26
Real Estate sector share in GDP for Bangladesh is collected from Bangladesh Economic Review 2019

[57]
Bangladesh having a much lower carbon dioxide emission (from real estate activities) compared to
India may be considered natural as India has a much larger population as well as larger economy.
However, annual carbon dioxide emission per year is showing an increasing trend. To meet just over
one-fifth of the demand for average size housing units by Type A and Type B households by 2030, the
private housing developers will have to triple their annual supply of housing units. Meaning, three
times the annual carbon dioxide emission by these housing suppliers. This implies that the carbon foot
print of the housing sector of Bangladesh will increase significantly by 2030 if it manages to meet a
significant share of the demand for average size urban housing units.

However, promotion of green building (sustainable housing) can offset, at least to a significant extent,
the affects carbon dioxide emission due to construction. Because, green buildings have proven to yield
energy savings of 40 to 50 percent, and water savings of 20 to 30 percent (IDCOL, 2019). The green
building market, while not fully established, grew considerably in 2015 and is making significant strides
mostly attributed to the industrial sector (ibid). The Green Building Information Gateway 27 (GBIG)
reports- so far there have been 121 LEED 28 certification activities in Bangladesh and the total floor
space covered by LEED certification in the country stands to be 26.05 million square feet.

While the green building movement is currently being led by the industrial sector of the country, the
housing sector also has a huge potential here. As per estimates by the IFC, green building market in
Bangladesh will be worth BDT 271 billion (USD 3.3 billion) and of this 69 percent, will belong to the
green residential buildings by 2025 (IFC). This implies that residential buildings will be in the forefront
of green building movement by 2025.

In alignment with this potential, Bangladesh is demonstrating strong regulatory intent to abide by a
green development philosophy. Formulation of the Building Energy and Environment Rating for Design
and Construction of Buildings (Draft) in 2018 has been a significant stride in the green building space.
Moreover, Ministry of Housing and Public Works of the Government of the People’s Republic of
Bangladesh is currently in the process of preparing the Green Building Guidelines (IDCOL, 2019).

Despite significant policy attention and growing awareness among the supply side stakeholders, in
Bangladesh, like most other developing countries, green building is yet to gain its due prominence
(Ahmed, 2019). Stakeholder consultation for the purpose of this study have revealed that there exists
a common perception that green building is more expensive than conventional building. Certain
stakeholders have also suggested that since green building technologies are relatively new and not
widely available in Bangladesh and since architects who specializes in sustainable design are few,
green building may appear to be more expensive at the moment. Moreover many decision-makers
may also be reacting first to the capital cost without taking into account energy efficiency and other
benefits of green building. As a result, in most cases people perceives the ‘added cost’ of green
building to be much higher than it actually is. U.S. Green Building Council (USGBC) also agrees with
this and infers that “public dramatically overestimates the marginal cost of green building” without

The same for India is collected from http://statisticstimes.com/economy/sectorwise-gdp-contribution-of-india.php, for Vietnam is collected
from https://www.statista.com/statistics/1047758/vietnam-gdp-contribution-of-real-estate-sector/ , for Philippines is collected from
https://psa.gov.ph/products-and-services/publications/philippine-statistical-yearbook , for Ethiopia is collected from
https://metropolitanaddis.com/2018/02/15/how-far-we-have-come-in-ethiopian-real-restate/
27
Official website of GBIG http://www.gbig.org/places/77
28
Leadership in Energy and Environmental Design (LEED), is the most widely used green building rating system in the world. This provides a
framework to create healthy, highly efficient, and cost-saving green buildings. Further information available at: https://new.usgbc.org/leed

[58]
considering the energy improvement part of the overall process which continue to pay back over time
and balances the added cost by long-term savings (Knox, 2015). It also cites a public opinion survey
conducted in 2007 which shows that while people reported green features added 17 percent to the
cost of building, the actual average marginal cost was less than 2 percent.

Nalewaik and Venters (2008) pointed out that the cost differential between traditional construction
and green building varies significantly depending on information. But they also inferred that in the
decades following the introduction of LEED certification manufactured costs for components installed
in green buildings reduced gradually, continuous progress in terms of technology, improving product
quality etc. led to decrease in market price of green buildings. Based on this it may be asserted that,
in case of Bangladesh the cost of green building will gradually come down significantly as the concept
gains further prominence.

CONNECTIVITY
As per the latest traffic index published by NUMBEO 29, Dhaka is the fourth worst city in terms of long
traffic congestions (see Figure 7-4). This index is developed based on time consumed in traffic while
commuting to working places, estimation of time consumption dissatisfaction, carbon dioxide
emission etc.

Figure 7-4 shows that the traffic index for Dhaka is significantly higher than the global average. This
implies that it takes relatively longer time for people to go their work places from where they leave.
And this means people mostly prefer living as close to the city centers as possible.

Figure 7-4: Traffic index (2019) for Dhaka and some other cities across the world

Traffic Index Average

350
300
250
200
150
100
50
0
Colombo, Delhi, India Manila, Dhaka, Jakarta, Istanbul, Bangkok, Kuala Beijing,
Sri Lanka Philippines Bangladesh Indonesia Turkey Thailand Lumpur, China
Malaysia

Source: Source: https://www.numbeo.com/traffic

As per estimates by the World Bank, in a given day, Dhaka alone wastes 3.2 million working hours due
to traffic congestions (Fan, 2017). More importantly, the trend shows that the situation is
deteriorating over the years. As shown in Figure 7-5 , average driving speed in Dhaka was 26 kilometers
per hour in 2009 and it came down by over 70 percent to only 6 kilometers per hour in 2017. And if
necessary measures are not taken to reduce traffic congestions, the average driving speed in the city
will further decline to 4 kilometers per hour by 2035.

29
Details about the traffic index may be accessed at https://www.numbeo.com/traffic/rankings.jsp

[59]
 Figure 7-5: Average driving speed in Dhaka (kilometers per hour)

Source: Fan, 2017

Hence, even if affordable housing projects are developed around the city (in peri-urban areas), people
would not be inclined to procure homes in those projects due to the distance factor. On the other
hand, flat/apartment prices within the city will also keep increasing at a very fast rate (as urban
population grows). This problem can be dealt with by effective decentralization.

Promoting Decentralization to Improve Connectivity

In Mumbai, India only a few years ago average prices of apartments were 120 times higher than the
disposable income (global standard is 48-60 times). This has been brought down to 54 times through
effective decentralization and through development of small unit private community housing projects (Daily
Star, 13 October 2019).

Fan (2017) presents an overview about how effective planning for decentralization and enhanced
connectivity can improve quality of life in urban areas despite rapid growth in population. He pointed out
that Shanghai population quadrupled between 1980 and 2017 (from 6 million to 24 million). In the 1980s
the eastern part of the city was significantly underdeveloped. As a result, people travelling daily from that
part to the economically more vibrant western part of the city would have to cross the river using a ferry.
This used to take as many as three hours. However, the authorities gradually enhanced connectivity through
establishing one of the longest subway systems in the world and linking the two parts of the city with over
20 bridges. As a result, not only connectivity has improved but also facilities in the previously
underdeveloped part has increased to a great extent. The eastern part of the city now has a major
international airport, stock exchange and headquarters of many major companies. In fact, the Pudong area
in the eastern part of the city has become an international business hub (ibid).

Similarly, urban growth of Dhaka city has been skewed. Survey respondents pointed out that the eastern
part of the city remains significantly underdeveloped compared to the rest of the city. People residing in
those areas have to travel long distances not only to go to work places, but also for other basic services such
as education and healthcare. Hence, efficient and planned development of the eastern part of the city can
relieve traffic congestions to a significant extent. Of course, it must also be acknowledged that traffic
congestions in Dhaka is most likely to decrease significantly after completion of the currently on going metro
rail project. Yet lessons need to be learnt from experiences of other countries regarding decentralization
policies and timely action.

[60]
GENDER DIMENSIONS
In general, the real estate developers surveyed reported that majority of the flats/apartments they
sell usually get registered to women owners. While none of these respondents were willing and/or
able to provide any evidence to support this, six mentioned specific ratios. Figure 7-6 shows the ratio
(%) of apartments registered to women owners during the last year by these six real estate developers.

The survey respondents also reported that while the overwhelming majority of the newly developed
flats/apartments are being registered to women owners, this does not at all mean that women are
procuring a larger share of apartments from real estate developers in urban areas of Bangladesh. In
fact, it is (in most cases) a male member of the family who buys the flat/apartment and gets it
registered under the name of a female member of the family (usually the wife). Respondents have
opined that it is most probably done to evade taxes and/or to avoid any inquiry about the source of
fund by the Anti-Corruption Commission. Some respondents revealed during FGD that women buyers
find it more difficult to access the real estate developer office while the apartment (for which she has
already paid the down payment and paying the EMIs regularly) is being constructed. And as a result
most often a woman buyer may receive her flat/apartment from the developer later than her male
counterparts. This delay may certainly have gender implications.

Figure 7-6: Ratio (%) of housing units registered to women owners during last 12 months

70% 70%
65% 65%
60%
55%

Amin Mohammad Toma Properties Sky View Dom-inno Rupayan Assurance

Source: Survey finding

SUMMARY
Discussions in this chapter have revealed that registering land is a relatively complex process in
Bangladesh and stakeholders perceive that through streamlining the services of the land related public
offices the cost of housing development by private developers can be reduced by as much as 10
percent. It has also pointed out that higher price of housing units have been largely induced by rapidly
increasing land prices in urban areas of Bangladesh. And the major factors working behind this are- 1)
land constraint because of industrialization and rapid increase in urban population, and 2) speculation
(by land owners and developers) because of lack of investment opportunities, increased competition
among the housing suppliers etc.

This chapter has also pointed out that carbon footprint of Bangladesh housing sector is relatively lower
at the moment. However, it is likely to increase significantly if the demand for better housing in urban
areas is to be met. Promotion of green building has the potential to (at least largely) offset the increase
in carbon dioxide emission due to increase in supply of better housing. While the policy level is
currently showing strong intents to promote the green building movement, at present the industrial

[61]
sector is leading in terms of green building promotion. There exist lack of awareness among the
stakeholders about the potential of green building and hence there is a general perception about cost
of green building being higher than it actually is.

Traffic congestions in Dhaka and other major cities of the country hinders potential of developing low
cost housing projects in the peripheral areas. Efficient and planned development and decentralization
can ensure better quality of life in those areas and hence making low cost housing projects developed
there more viable.

[62]
8. Policy Environment
The above discussions reveal that significant gap exists between demand and supply of housing in
urban areas, and housing finance is also not getting adequate priority from the financial service
providers. Key policy documents of the Government of Bangladesh, such as the 7th Five Year Plan and
the National Housing Policy have also highlighted these issues. This section discusses the major policy
challenges identified in these documents, the policy directives presented and the gaps in
implementation of these policies.

MAPPING THE POLICY CHALLENGES

The 7th Five Year Plan of Bangladesh identifies two major policy challenges for housing sector in
Bangladesh. These are: 01) lack of quality as well as quantity of urban housing that matches the growth
in urban population; and 02) financial system playing a limited role in financing of housing investments
(as a result cash economy remaining as the larger driver of real estate investment in the country).

The plan suggests “better targeted subsidies and stronger fundamentals and efficiency/productivity”
as the core strategy to overcome the said challenges. It also projects the hurdles on the way of
operationalizing this broad strategy. These hurdles are:

a. Viably expanding access of the middle- and lower-income groups to affordable housing loans.

b. Ensuring adequate finance for housing developers (in the context of finance providers being
conservative due to the underlying risks in financing real estate development).

Figure 8-1: Policy challenges for growth of housing in Bangladesh, the strategy to address
those challenges, and hurdles on the way of operationalizing the strategy as per 7th FYP of
GoB

Challenges Strategy Action

Inadequate Targeted Access to
supply of quality subsidies for housing finance
housing and housing for lower- &
affordable development. middle-income
housing finance housholds and
the housing
Enhanced developers
efficiency of the
housing (ensuring long-
devleopers. term finance)
Enhanced
digitization to
step-up one stop
solution for
housing related
services.

[63]
While the 7th Five Year Plan primarily focuses on enhancing role of the financial sector (housing loans)
so that more households (especially the lower- and middle-income ones) can avail finance to procure
quality housing units. Simultaneously it identifies other non-financial challenges on the way of
enhancing access to housing. These are discussed below:

▪ Absence of a functional mortgage market and inefficient enforcement of mortgage rights

▪ Sky rocketing land price and non-transparent land market (land speculation)
▪ Rising cost of building materials and challenges relating to trade and investment policies
▪ Lack of coordination between various government departments related to housing
development
▪ Lack of one stop digital solution for housing related services

MAPPING THE GAPS

While stakeholders consulted for the survey have almost unanimously asked for a new “integrated”
national housing policy, review of the National Housing Policy 2016 has revealed that it indeed has
acknowledged some of the challenges discussed and presented specific policy directives to overcome
those challenges. However, almost none of those policy directives have been translated into action by
the government. More importantly, the policy does not address and/or acknowledge many of the
challenges pointed out in previous chapters.

Many of the hurdles on the way of enhancing supply of housing units for different income groups in
urban Bangladesh remain unaddressed or inadequately addressed in the national policy. Solution to
these problems in many cases require changes in the acts/rules/regulations or introduction of new
ones. And in many cases despite being addressed in the policy and having the right set of
acts/rules/regulations problems, remain because of lags in practice. The next table presents these
gaps along with- required shift in policy, changes in acts/rules/regulation, and improvements needed
in practice.

Table 8-1: Challenges for urban housing sector, required policy changes, need for change in
acts/rules/regulations, and necessary improvements in practices

Acts/Rules/Regulations Expected Outcome once

Challenge/Gap Relevant Policy
needed implemented

01) There is no Not addressed by the Policy would set a There will be better
minimum quality policy at all minimum standard of quality housing units for
standards for the quality of housing the target market.
urban housing units
02) Projecting demand Policy does not take Developers could be Developers will be
for housing into account growth in directed to supply inclined develop
demand for housing housing units of varying affordable housing units
(segregated by different quality/size to serve for target group
income groups) customers belonging to
different income
groups.

03) Majority of the Not addressed in the Policy to discourage Financial service
workforce policy at all. cash based transactions providers will be further

[64]
 Acts/Rules/Regulations Expected Outcome once
Challenge/Gap Relevant Policy
needed implemented

engaged in (significant share of the able credit worthiness

informal economy target group cannot of the applicants
procure housing loans
because of being
engaged in informal
economy)

04) Most of the target Not addressed Government or the There will be adequate
group not having adequately Central Bank could roll supply of affordable
adequate savings out re-finance schemes housing for target
or other sources of and partner with market
income private financial service
providers to supply low
cost home loans

05) Re-development Not mentioned in the Specific Land price related

and/or re- policy (RAJUK reports rules/regulations about speculation will be
generation in 80% of the buildings in re-development and re- controlled
urban areas Dhaka could be re- generation (making re-
developed and/or re- development and/or re-
generated) generation mandatory
after a certain period)

Owners and/or
developers could be
incentivized for re-
development and/or re-
generation

06) Poor regulatory Not addressed in the Digitization and Improved service
delivery (by the policy at all streamlining of services delivery will result in
land significant cost
administration) reducation

07) Lack of finance for Policy mentions about Developing rules and Access to housing
housing resource mobilization regulations in finance for target
developers from the capital accordance with the market will improve
market, promoting PPP, policy commitment significantly
and Universal Pension
Scheme.

But no visible initiative

to translate the
commitment into
actions

08) Complexities Policy does not Rationalizing Land price related

regarding acknowledge this at all registration taxes so speculation will be
foreclosure that home buyers do controlled.
not opt for misleading
valuation of the housing
units to avoid taxes

[65]
 Acts/Rules/Regulations Expected Outcome once
Challenge/Gap Relevant Policy
needed implemented

Making the foreclosure

process further cost
efficient for the
Banks/NBFIs through
pacing up legal
processes

09) Green Building Policy does not Ministry of Housing and Improved access to
acknowledge this at all Public Works is sustainable housing for
currently in the process target market
of preparing the Green
Building Guidelines

10) Gender Policy does not Directives from central Improved access to
dimensions acknowledge this at all bank to housing finance housing finance for
providers to ensure a women
certain minimum share
of home loans go to
women

[66]
9. Ways Forward
This chapter presents recommendations based on the discussions in the previous chapter. Firstly, it discusses specific steps to be taken to address the urban
housing challenge in Bangladesh and implications of the recommended steps for the stakeholders. This is then followed by a broad set of recommendations
to address the market bottlenecks.

FILLING THE GAPS: ACTION PLAN

The following matrix (Table 9-1) shows the specific short-term actions to be taken in the next one to two years to address the urban housing challenge, details
of those actions, implications for the policy makers, and effects on the stakeholders (i.e. housing developers, financial service providers, and aspiring home
buyers from the target groups).

Table 9-1: Action plan for addressing the urban housing challenge in Bangladesh
Actions Details of actions Implications for Implications for Implications for the
housing developers financial service customers (target
provider groups)
Formulating - Setting standards for urban housing Developers will have a Banks/NBFIs will be Lower income
Integrated National - Projections of urban housing demand by income groups nationally set standard able to serve newer households will be
Housing Policy - Outlining strategies to enhance finance for housing to follow, enjoy and larger section of able to access better
- Detailing the land management plan for the medium- to long- improved access to home loan seekers quality housing and
term land, access incentives (thus enhancing their affordable housing
- Provisioning incentives for private sector actors supplying for developing customer base) loans
affordable housing affordable housing
- Recommending improvement in regulatory delivery (by the
land administration and other housing related public offices)
Addressing the - Survey to determine nature and extent of engagement of the More households Banks/NBFIs will be Lower income
informality problem workforce in informal activities to come up with income flow relying on informal able to serve newer households will be
(aspiring home statistics (CIB could play a pivotal role here). economy getting and larger section of able to access better
buyers not being - Survey report could work as a basis for home loan providers to access to home loans home loan seekers quality housing and
able to access home assess credit worthiness of informal workers applying for loans means- higher (thus enhancing their affordable housing
loans due to - Ensuring all transfers (remunerations, wages etc.) are done demand for housing customer base) loans
engagement in through banks or other formal channels (mobile financial
informal sector) service, agent banking etc.). Then even those engaged in

[67]
 Actions Details of actions Implications for Implications for Implications for the
housing developers financial service customers (target
provider groups)
informal economy will have cash flow footprints recorded in
the formal financial system.
- This can be ensured (at least to a significant extent) through
providing incentives (e.g. interest on money kept in formal
financial system)
Ensuring supply of - Bangladesh Bank could roll out refinance schemes offering Developers will be Refinance schemes Target group
low-cost housing refinance facilities to Banks and NBFIs specifically for housing encouraged to build will ensure viable households will be
finance for target finance low-cost (and most business for able to access better
group households - A Credit Guarantee Scheme for housing finance could be likely smaller) housing Banks/NBFIs when quality housing and
launched where Bangladesh Bank could provide third-party units as more they cater to the affordable housing
credit risk mitigation to lenders providing finance for customers gain access demand for low-cost loans
affordable housing finance projects and/or lenders providing to low-cost housing home loans. Fiscal
individual home loans to aspiring home owners from target finance incentives will
groups encourage them as
- Bangladesh Bank could direct Banks and NBFIs to ensure that a well.
certain share (e.g. 10 percent) of the total loan disbursed by
these financiers go to the housing sector.
- The above necessitates efficient monitoring and evaluation to
avoid leakage and ensure maximum efficiency
- Additionally, financial service providers could be incentivized
(tax exemptions, better CAMEL ratings) for ensuring a certain
share of total loans go for individual home loans
Enhancing supply of - Mandatory provision for housing developers to ensure that a Incentives will Increased demand for Lower income
low-cost housing certain share of the housing units they develop are low-cost encourage developers financial service (and households will be
units for middle and housing (e.g. smaller in size and affordable for the lower to supply low cost hence increased able to access better
lower-middle income groups) housing. They will also business) as more quality housing and
income households - Ensuring privileged access to low-cost construction credit (e.g. have a larger customer people will be seeking affordable housing
from a refinance scheme) for projects that aim to supply base (and hence lesser home loans loans
housing for lower income groups competition)
- Fiscal incentives (e.g. tax exemptions) for housing developers
developing low-cost housing.

[68]
 Actions Details of actions Implications for Implications for Implications for the
housing developers financial service customers (target
provider groups)
Improving - Streamlining land registration process. Developers will have Not applicable Customers will also
regulatory delivery - Currently the records kept at DLRS and that kept at AC Land lower project benefit as lower
office vary significantly. Effective and efficient inter-agency development costs production cost means
data sharing can solve this problem. (due to time and lower price of housing
- The developers have to get ‘Non-Encumbrance Certificates’ money saved) units in the market
from the Land Registration Directorate (LRD). Syncing
information available at this directorate with those at the
DLRS and/or AC Land office could reduce time required
significantly.
- Developing and managing a central data base of land rights
information could solve the above mentioned problems.
- Developing an urban land bank as suggested in the National
Housing Policy would also facilitate the enhanced regulatory
delivery
Channeling long- - Rolling out Universal Pension Schemes and ensuring priority Financial service Banks/NBFIs having Increase in supply of
term finance to access to that fund for housing developers (to ensure supply providers having better access to long- home loans means
housing developers of long-term finance) better access to long- term finance means reduction in cost of
- Specialized housing finance institutions are NBFIs that source term finance means they will be able to credit (home loans)
credit primarily from long-term deposits. Whereas Banks have housing developers channel more credit to
to rely on a different ‘deposit mix’ (comprised of both short- are likely to have the housing sector (a
and long-term deposits). Hence bringing in more specialized access to cheaper sector with huge
housing finance institutions could result in enhanced supply of construction loans. growth potential)
credit to housing construction. There will also be
- Introducing housing bonds can also ensure long-term finance higher demand for
for housing construction. Such bonds are likely to be housing units due to
considered lucrative by investors (provided they are made availability of home
aware about the potential of urban housing sector of loans
Bangladesh)
Dealing with - Making the foreclosure process further cost efficient for the Better protection for Financial service Overall supply of
foreclosure related Banks/NBFIs through pacing up legal processes will ensure financial service provider will be more housing is likely to
complexities protection for the financial service provider provider means them interested in investing increase. This means
being more interested in housing sector as lower prices

[69]
 Actions Details of actions Implications for Implications for Implications for the
housing developers financial service customers (target
provider groups)
to finance housing. protection for them
Which means increase increases
supply of housing
construction loans and
home loans
Controlling land - Setting ceiling on urban land holding Developer will enjoy Not applicable Lowered production
prices - Land administration has to be improved to ensure that there is better access to land cost means cheaper
no difference between actual price (selling price) of land and (in the absence of housing units
the price registered at public offices (Digitization of land speculation)
records system could help here). This would curtail the scope
of investing untaxed income in land.
- Promoting urban re-development and re-generation. This can
be done through providing fiscal incentives for home owners
and/or developers opting for re-developments in the relatively
underdeveloped parts of the larger cities (e.g. privileged
access to credit, tax exemptions etc.)
Promotion of Green - Finalizing the Green Guidelines Sustainable business Ensuring sustainable Improved quality of
building - Ensuring operationalization of the said guidelines in for the developers and growth of housing and life and lower cost of
collaboration with all the stakeholders increased value to the housing finance living
- Sensitizing the market (both demand and supply side) about customer
the potential of green building
- Developing a green building policy with provisions for
incentives for green building
Addressing the - Conducting comprehensive assessment of gender dimensions Market intelligence Market intelligence Improved gender parity
gender dimensions of the urban housing problem (about women (about women
- Developing directives based on the comprehensive customers) customers)
assessment for the sector actors (Banks/NBFIs and developers)
to provide gender sensitive services.

[70]
Access to Long-term Fund for Housing Financiers

Financiers not having adequate access to long-term funds (and hence facing the ‘tenor mismatch’
challenge) is a key barrier to overcome liquidity challenge to ensure a sufficient flow of credit to
housing sector of the country. These housing loans are usually long-term (on an average 20 years).
However, the depositors do not put money in their saving accounts for that long. Bangladesh has not
tried earnestly to develop institutions for mobilizing long-term savings either. Hence, there is ample
scope of initiating smart reforms to mobilize long-term savings to address the existing tenor-mismatch
challenge. Following steps (some more long-term than others) can be taken to address this challenge.

▪ Introduction of housing bonds can be a good source of long-term funds for private housing
developers in Bangladesh. For this, financial institutions can raise fund through issuing bonds
to facilitate long-term access to finance to the housing developers (the private companies).
And any individual can buy those bonds and ensure a steady income (fixed interest payments
at periodic intervals). These can be special housing bonds issued by financial institutions only
for non-resident Bangladeshis who are entitled to get cash incentives if they remit money
from abroad for this purposes. These financial bonds should have repayment period of at
least 20 years. This can be a good way of dealing with the problem of ‘tenor mismatch’ faced
by the housing financers. For example, let us say the government will allow the financial
institutions to issue housing bonds especially targeted for NRBs. The House Building Finance
Corporation (HBFC) can certainly take the lead with necessary support from the Ministry of
Finance. This public financial institution will be selling these housing bonds to these NRBs and
commit to pay them, say for example, a 4 to 5 percent (say) fixed interest at periodic intervals
against the procured bond. The fiscal authority can chip in and provide another 2 percent
interest payment as an incentive to the NRBs who procure housing bonds as part of the cash
incentive policy introduced recently. This proposed initiative on the one hand, will ensure
additional capital flow (long-term) for the housing sector of the country, and on the other
hand, government will be contributing here without channeling any money directly to the
private housing developers. If this works other financial institutions can replicate the model.
The developers will then have robust access to this low cost fund from the financial institutions
for a longer period.
▪ The government of Bangladesh is planning to launch a Universal Pension Scheme for all
government and non-government employees of the country. Once launched, this can be a
most reliable source of long-term funding for housing financers. With proper policy support,
the housing sector may get the desired level of priority in getting access to this fund (taking
into consideration the urgency of solving the urban housing problem). Giving the housing
sector priority when channeling fund from the universal pension scheme may have some
additional advantages. Employees (be government or private) would prefer their savings (the
portion of their monthly income given to the pension funds) going to the housing sector if the
sector prioritizes developing affordable housing for middle and lower-income group
households instead of developing luxury apartments for relatively well-off households. Hence,
this may in fact contribute in ensuring the necessary ‘buy in’ of the employees themselves.

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Fiscal Measures to Promote “Affordable Housing”

Investigation has revealed urban families in Bangladesh usually prefer buying larger apartments.
However, very few of these households (less than one-fifth) can afford to buy such larger apartments
even under the most favorable conditions (low interest rate and very long repayment periods).
Changing this mind-set (a socio-cultural challenge) requires long-term interventions, and perhaps it is
best to leave this to the market (supply as per demand). But still, at least some households could be
“nudged” to buy smaller apartments through some fiscal incentives. Following strategies may be
considered.

▪ Currently a buyer of an apartment has to pay registration fee to the government equal to 13
percent of the price of the apartment s/he has bought. This ratio is same regardless of the size
of the apartment. To induce households to buy smaller apartments, the government may
consider introducing different rates of registration fees for different sizes of flat. For
example, in case of buying an apartment sized 800 square feet or smaller the registration fee
could be set to 8 percent of the total price. For apartments sized between 800 and 1,200
square feet the ratio could be 13 percent. And for even larger apartments it could be set even
higher (20 percent or more).
▪ The government (National Board of Revenue, NBR) could create provision of income tax
rebates for individuals who buy smaller apartments. This is most likely to ‘regulate’ the
demand for larger apartments to a significant extent. Income tax rebates could also be there
for real estate developer companies if a certain share of the apartments they supply annually
are smaller in size. This will ‘regulate’ to some extent the supply of larger apartments.
▪ Housing suppliers in Bangladesh at the moment are mostly supplying for the high-income
households (belonging to the top income decile). And most often a single high-income
household buys more than one apartment. As a result, there is always incentive for real estate
developers to produce larger apartments for high-income households. The government could
set up tax dis-incentives to stop (or at least reduce) this by imposing higher rate of tax in case
of a second apartment being bought by the same buyer. This has to be monitored and
regulated strictly by developing a digital platform so that the owners are easily identified using
necessary identity tools like NID.

Ensuring Coherence with the National Growth Trajectory

Housing sector in Bangladesh is not a ‘nurtured one’, rather the growth of this sector has been more
reactive (spontaneous). Considering the growing demand for urban housing and considering the
importance of addressing this demand to attain national macro-economic objectives, it is high time
for the policy makers as well as other stakeholders to come up with strategies that will ensure proper
oversight and prudent planning for this sector. It is quite clear that urban housing demand from all
over the country cannot be met at once. Hence, the stakeholders need to prioritize in a manner that
ensures maximum coherence with national growth strategy. For example, the government is setting
up 100 Special Economic Zones. Hence it is most likely that the government will do what is necessary
to bring about necessary foreign investment in those sectors. Consequently, population density is
likely to increase rapidly in the urban centers that are close to those SEZs. Hence, public and private
housing suppliers need to prioritize implementing housing projects in those areas as part of forward
and backward linkages with theses specially designed infrastructures.

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Promoting Innovation: Learning from Global Experiences
The urban housing challenge for Bangladesh is quite unique in nature. And hence it definitely requires
‘out of the box’ thinking and practices (pilot initiatives) to come up with viable solutions for the long
run. The world today is looking for more viable and more sustainable solutions to every problem. The
housing sector is no different. A comprehensive mapping of global best practices for affordable and
sustainable housing is required, so that stakeholders in Bangladesh (from both public and private end)
can select from those best practices and implement (after proper contextualization if needed) these
on a pilot basis in Bangladesh. Lessons learnt from such pilot initiatives may be replicated at a larger
scale later. Learning by doing is definitely a better option for any innovative initiative.

For example, using of block type bricks instead of conventional bricks (made of soil) has already been
proven to decrease production costs by 10 percent. Thorough investigation (technical as well as socio-
economic) into the viability of wide-spread use of this technology could decrease production cost in
Bangladesh as well. Also, this will support the green growth strategy towards which the world is
moving forward.

FDI and PPP

Bangladesh right now is a foreign investment hotspot. Investment from foreign direct investors have
increased significantly over the last decade and the future prospect seems even brighter. The fast pace
of growth is providing space for higher level of consumption. Housing is definitely a well-sought after
consumer good for this type of consumers. Policy makers as well as other stakeholders must especially
emphasize on channeling a significant share of FDIs coming into the country to the development of
affordable housing. Investors are most likely to find opportunity to invest in urban housing in the
context of rapid urbanization of Bangladesh (in alignment with its macroeconomic growth prospect).

Public Private Partnerships (PPPs) can prove to be especially useful in this regard. Public entity (be it
NHA or HBFC or Rajuk) could ensure access to suitable land and the rest can be left to foreign
companies. This model is very likely to ensure further ‘ease of doing businesses’ for the foreign
investment. This at the same time will ensure a ‘healthy competition’ for the domestic providers
(REHAB and others) and consequently they will have further incentive to serve the community better.
For that matter, there has to be better coordination between various government agencies. Use of
ICT based one stop solutions (OSS) could be introduced for sharing service related information to ease
business for foreign and domestic investor. BIDA and BEZA have already started this business-friendly
service delivery platform which can as well be replicated by the housing regulator.

Government as the Guarantor for the Lower Income Households

It has to be acknowledged that a completely market-led solution to the housing finance problem is
highly unlikely. No matter what there will always be some households who will appear to be ‘too risky’
to provide credit. Financiers would require additional collateral to provide housing loans to such
households. In particular, women will continue to face more of this challenge than men. Government
(or an agency of the government) can play the role of the guarantor here. A government body could
be set up with a sufficient fund allocated to it so that it may act as a guarantor for low-income
households seeking housing loans from private credit providers. The Central Bank can play an interim
role as well to initiate this housing credit risk guarantee scheme. The example of the ‘Credit Risk
Guarantee Fund Trust for Low Income Households’ in India may be followed for this. There is already
an experimentation in motion on credit guarantee scheme for SMEs in Bangladesh with funding

73
support from UNCDF. A number of financial institutions are participating in this pilot project. The
policy makers can as well as learn from this experiments.

CONCLUDING REMARKS
In the context of steady economic growth and consequent rapid urbanization, this report has
attempted to present a comprehensive assessment of the urban housing market of Bangladesh
through presentation of baseline information, development of extensive set of current data and
analytics, mapping market bottlenecks and policy gaps, and finally, presenting recommendations with
necessary action plans for implementations to improve access to housing.

This study being (perhaps) the first of its kind in Bangladesh has faced numerous challenges. These
include- availability of comprehensive data, private housing developers being reluctant to share
information (especially about the number of housing units developed by respective companies),
severe time constraint, comparable experiences of other countries etc. Due to resource and time
constraint the study covered only three of the largest cities of Bangladesh, namely- Dhaka, Chittagong
and Rajshahi. Given further time and resources other cities could have been covered resulting in
further precision of the estimates.

However, despite these challenges the study team followed appropriate methodology and made best
use of the information available and utilized up do date analytical tools to draw estimates and
inferences. The study has revealed that even if organized private sector developers triple their annual
supply of housing units to 51,000 units per year, they will only be able to serve just over 20 percent of
the demand from the target households by 2030. And housing developers face many constraints.
Discussions with housing developers indicate several key constraints they face when developing
housing which also has an impact on why developers are not motivated in affordable housing
development projects.

Bangladesh also has a very low housing loan penetration ratio. Among every 100 adult persons, only
three have an outstanding loan to purchase a home. Supply of loans to individuals for affordable
homes is inadequate compared to the potential demand. This report assesses that Type A households
are eligible for home loans in the existing market situation. However, to ensure that they receive home
loans to procure an affordable housing unit by 2030, home loans worth USD 2.52 billion will have to
be disbursed annually. Currently, while home loans worth USD 1.15 billion are being annually added
to the overall portfolio of the financial service providers, only a very small share of these loans is given
for affordable housing units.

The report identified the key challenges of urban housing to be (i) the significant gap in the supply of
housing units available for purchase that are affordable for most of the urban population and (ii) the
lack of access to financing that would enable the urban population to purchase their own homes.
Several recommendations at the national policy level as well as on policies related to the supply side
namely the developers and financial institutions to ensure an adequate supply of affordable housing
for the target market are proposed.

74
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