Housing sector heading for stagflation?
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Loading... - Nikhil Jha
- 13 Jun 2022
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What happens when the housing market heads for stagflation? Prices soar as inventory remains stagnant. This is the situation prevailing in Bangladesh's housing market, leading to headaches for both builders and buyers of apartments.
Prices of building materials have been rising since March last year after global supply disruptions caused by the Covid-19 pandemic.
Now the Russia-Ukraine war has made steel rods, cement and tiles even more costly.
As a result, completion and handover of apartments have almost stopped, new sales slowed and real estate companies are getting ready to hike rates – as much as 30% – to make up for the rising costs.
On 1 March, Jams Developments Ltd (JDL), one of the leading housing companies in the country, increased the price of per square foot of flats in its various apartment projects by Tk1,000 to Tk1,500.
JDL Chairman Md Shahadat Hossain Dabi said, "The rate at which the market price of housing materials has risen since the war started last month left us with no alternative but to raise prices."
"A key cost component is steel rods and the war has pushed up prices of rods by 10% a tonne. In the past two weeks, the prices of all kinds of building materials have gone up by 10% to 25%."
He said the cost hikes had led to a rise in the price per square foot of flats – an increase ranging from Tk800 to Tk1,000 for ordinary flats and from Tk2,000 to Tk3,000 for luxury flats.
Shahadat also said several projects are ongoing in different areas of Dhaka city including Gulshan, adding that the rate hike was determined by the quality of the flats and the location.
He said although work on three new apartment projects has been put on hold for the time being.
The company did not see any sales in March. According to the real estate trader, flats worth Tk100 crore were sold in January and February last year.
Manohar Hossain, president of the Bangladesh Auto Re-Rolling and Steel Mills Association, backed up Shahadat's concerns, saying the cost of importing scrap iron, the main raw material for steel rod, was earlier $435 per tonne, but since the war the price rose to $500.
Manohar Hossain said that if the war continued, prices may go up further.
Around the same time, Sheltech (Pvt) Ltd, the country's leading real estate business, also decided to increase the price of its flats.
Tanvir Ahmed, managing director, Sheltech (Pvt) Ltd, told The Business Standard that the market price of construction materials had risen by 35%-40% so far, alongside corporate costs so flat prices could also be increased.
Sheltech has already increased the price of flats in some areas, he said. Again, prices have not been increased depending on the quality of some areas and projects.
Tanvir Ahmed said construction work will be carried out in the new projects keeping in view the situation of international and domestic markets.
Economist Ahsan H Mansoor said due to the increase in the price of materials, the price of buildings will also go up. However, the flats that have been contracted earlier have to be handed over in time.
He also said if the situation continued, some 3.5 million construction workers risk losing their jobs.
In addition, new small and medium-sized residential establishments outside the capital will also be jeopardised.
Alamgir Shamsul Alamin, president of the Real Estate & Housing Association of Bangladesh (REHAB), told TBS that there was no alternative to raising the price of flats. The increase would, however, depend on the quality of the flat and the location.
"Housing companies have been advised to increase prices at a reasonable rate keeping in mind the customers," he said.
He said housing companies in the capital sold ordinary and luxury flats worth Tk5,000 crore on average per month last year and the year before. But in March, the sale had almost stopped. He mentioned that some companies had sold fewer flats.
No handover, little sales
In the Kalachandpur area of ​​Gulshan, Comfort Housing Apartment project sold 18 apartments between June to December 2020.
By June last year, all the apartment owners had a transfer agreement. So far, however, no apartment owner has received their apartment.
Imroz Habib Russell, who works for a multinational company, bought an apartment in the Comfort housing project.
Speaking to The Business Standard, he said, "I made an agreement in November 2020 to buy a 1,550 square foot apartment for Tk1.3 crore. I paid Tk60 lakh as advance, the remaining to be paid by December last year." Read More...
