Financing Real Estate Development in Bangladesh: A Study of the Housing Schemes of Some Selected Hbfis
Jahur, Mohammed Saleh, Sultana, Roushan Ara, Shahidullah, Mohammad, Journal of Services Research
Real Estate Development has got a momentum in the recent years in Bangladesh. During the Eighties, HBFC (House Building Finance Corporation) was the only HBFI (House Building Financing Institution) that financed the real estate development in Bangladesh. To meet the growing demand for financing real estate development, a good number of HBFIs emerged in the area of financial services. They have come out with different financing schemes for financing real estate development in Bangladesh. It is also observed that real estate developing institutions are also facing a severe financial crisis. The present study has found that housing sectors are facing different financing problems such as, lack of adequate funds at reasonable interest rate, non-existence of level-playing field, inefficient debt market, higher default risk, huge amount of classified housing loan, legal flaws, access to housing credit, hesitance of HFIs (Housing Financial Institutions) to provide long-term loan etc. To eliminate these problems of housing sector, the study has suggested some policy measures such as expansion of financial resources to the private HFIs, broaden the scope of housing finance etc.
Housing has now become an issue of global concern. The share of urban population in Asia is 37% at present and is projected to be 45% by 2015. In Bangladesh, 25% of the population now lives in urban areas. This portion will be 34% by the year 2015. Bangladesh is the eighth largest populous country with respect to the share of world increase in population in urban areas (3%) between 2000-2030 (UN, 2001). With the continued growth of population, land for human settlement will shrink in tandem. The area occupied by human settlements and supportive infrastructure in Bangladesh is quite high at 30 percent (CPD, 2003).
Bangladesh faces a major housing problem (ADB, 1995). With a very low GNP per capita ($ 260); very high population densities (over 750 persons per square kilometer in urban areas); and a higher population growth rate in urban areas (4.50 percent per year), the standard of shelter is correspondingly low. About 50 percent of our people are landless or owners of less than one acre of land per family from which one just cannot make a livelihood. Approximately 77% of urban dwellings and over 98% of rural dwellings are not permanent. The influx of large numbers of people into urban centres over the years has created an acute shortage of housing which is a major problem in Urban City. According to Housing Census Report 1973, there existed a backlog of 47,195 housing units in Dhaka, 4607 in Chittagong and 9500 in Khulna (Planning Commission, 1980-1985).
Financial Support Services for real estate development in Bangladesh are found to be an acute problem. This is because of lack of adequate institutional finance at the reasonable rate of interest, poor saving rate, affordability of households, asset-liability mismatch, etc. The residential housing sector of Bangladesh is characterized by a three-tier market. First group represents less than 3% of the housing market. It has the highest disposable income and is able to afford high-quality housing in fully service neighborhoods and able to utilize institutional financing.
The second tier is the stratum of middle-income households, main users of institutional finance for housing. This group is composed of public servants and wage/salary earners of large private companies and public sector corporations predominantly. This represents 12-15% of housing market. The third and largest of the tier is the low-income households for which housing is provided largely by the private sector, often under illegal and unsatisfactory site conditions. Access of large population group to and servicing of loans, regardless of debt servicing is not possible. Along with individual efforts for housing, a good number of real estate developers have emerged in the housing market. They are found to have been engaged in developing real estate and building flats mostly for upper class and higher middle class of the society. …