Internship Report on Land and Flat Pricing

EXECUTIVE SUMMARY

In spite of noticeable fall in prices of major construction materials, the prices of apartments in the capital city did not come down to a reasonable level over the past several months. Even, many developers have increased their flat prices in recent period, citing high prices of land in the capital.

According to market sources, the prices of Mild Steel (MS) rod decreased more than Tk 10,000 per tonne, and cement by Tk 40 per 50-kg bag. Prices of other construction materials also decreased. Still, there is no standard flat now being sold in the range of Tk 4.0 million and Tk 5.0 million. The prices of flats have decreased sharply across the world, but surprisingly they are rising in Bangladesh. However, the realtors say high land price is the main reason behind high prices of flats in the city. They say the landowners demand around 70 per cent share of total flats and for this reason, the prices are not coming down.

Realtors develop lands through partnership deals, where landowners, depending on the locations, get 30 to 60 per cent of the total flats. Currently, flat prices in the city’s Gulshan and Banani areas range between Tk 10,000 and Tk 12,000 per square feet, at DhanmondhiTk 7,000 and Tk 8,000, at old parts of Dhaka Tk 4,000 and Tk 5,000, at Uttara (section 3 and 4) Tk 5,000 and Tk 6,000, and at other sectors of UttaraTk 4,000 and 4,500.

Realtors allege that the prices of rod and cement were still high in the local markets, although their prices have fallen sharply in the international markets. Prices of MS rod, a major construction material, fell to around Tk 40,000 per tonne a few weeks back, but it increased again, they said. Some cement manufacturers reduced the prices of per 50-kg bag cement by Tk 40 in recent months following decline of the clinker prices in the international market. Clinker is the major raw material for producing cement, and its prices now range between US$45 and $46 per tonne.

Experts have predicted a price hike of the steel and rod in the local markets in the near future, as the consumption of the item is not rising, as it should be. The price of iron ore is also rising in the international market. The annual demand for the rod and steel in the country is between 2.0 million and 2.5 million tonnes. Their consumption has remained almost steady over the last three years. About 40 per cent to 45 per cent supply of raw materials for production of rod and steel are available locally and the rest is imported involving higher duties. The prices of rod and cement may go high in the markets again if the US dollar appreciates against the local currency. Besides, the importers of the raw materials recently are forced to pay additional amount of surcharge and bribe at the Chittagong Port. The prices of paints have fallen by over 5.0 per cent in recent months, as prices of their raw materials had fallen in the international market. Currently, per gallon distemper ranges between Tk 270 and Tk 280, and paints between Tk 630 and Tk 650.

Around 400 REHAB (Real Estate Housing Association of Bangladesh) members along with 200 non-REHAB members are developing land and constructing apartments in the major cities of the country, and the contribution of the sector to the GDP is around 8.0 per cent. The ongoing global economic downturn has hit the local estate sector as well. Very recently, the realtors have demanded a Tk 10 billion special soft loan fund to boost up sales of flats as the housing industry has been badly affected. REHAB president TanveerulHaqProbal said sales of apartments in the country have fallen by 30 per cent between January and March and the housing industry needed a ‘package’ to face the meltdown. He said flat sales have been plunging alarmingly over the last few months. The downturn would continue unless the government comes up with a rescue act and include the housing sector in its stimulus package. The REHAB president said the industry does not require any direct cash injection like the ones announced for the export-oriented manufacturing industry. But they have demanded creation of Tk 10 billion fund through which apartment buyers would be financed on easy loan term. The fund will inject a momentum in the housing industry and make flats affordable to buyers, he said.

According to the REHAB, the housing and construction industry, which make up some 10 per cent of the country’s Gross Domestic Product (GDP), was affected by last year’s record price hike of construction materials and the anti-graft drive against flat buyers. It said the global economic crisis has compounded the problem. Buyers are hesitant than ever before due to the uncertain economic climate. The country’s real estate companies sell 7000-10,000 flats a year. But in 2007 sales halved to about 4000 flats following a nationwide anti-corruption drive that targeted some top apartment buyers. Last year, a number of companies halted construction of new apartment buildings after mild steel rod prices doubled to Tk 80,000 per tonne.

The increased demand for ready flats and residential plots has should have propelled a higher growth of the real estate sector. But, there is a problem of availability of land in the city and its adjacent areas. The land is very much scarce. The price of land in Gulshan posh area is now between Tk 6.0 million and Tk 8.0 million per katha, against Tk 3.0 million and Tk 4.0 million even a couple of years ago. Similarly, the land price at the city’s Dhanmondi and Uttara area has registered an unusual hike recently due to higher demand for both land and ready flats. Now, the question is the availability of land, not its price. The cost of construction laborers has also gone unusually higher in the city. Even many firms are unable to hire masons and workers in the industry due to acute shortage of skilled manpower. There is a huge demand for skilled masons and construction workers in the Middle East. Many skilled workers have found jobs in the Middle East following their high demand.

In fact, very often, the real estate developers miss deadline of handing over flats to the buyers. While RAJUK exists as a regulatory authority to ensure that apartment complexes meet building standards, there is no regulatory body to ensure that real estate companies meet their commitments as specified in the agreement drawn up with the buyer.

1.1 Background

In third World Counties, Urbanization is an outcome of population growth and inadequate development. Migration of the people from rural areas towards the cities also increases when their means of livelihood gradually diminishes. Bangladesh is one of the least developed countries of the world, where the basic needs of the people are not addressed effectively. At the present, with the Constitution of our country being extensively and exhaustively discussed by people at all levels, the crucial issues like shelter for all, which is one the basic rights of all citizens, still remain on the back burners. To all intent and purposes, it is not possible for the Government alone to ensure shelter for its people. Therefore, the role of the private sector developers becomes crucial. In our country real estate business started in Dhaka in late seventies. The Eastern Housing of Islam Group is the pioneer in this business. During 1970s there were fewer than 5 companies in Bangladesh engaged in this business. In 1988 there were 42 such developers working in Dhaka and now in 2005 there are about 250 companies engaged in this business. From the early 1980s the business has started to flourish and in 1990s it has reached its peak. Towards the end of year 2000 there was slight downfall in real estate sector. In 2003 this sector started showing growth again. To strengthen the role of real estate sector some pioneer real estate companies together built up an association named REHAB in 1991. At present it has 1081 members. Over the last 15 years, the real estate development sector has been made significant contribution to our economy. Since1985 this sector has created homes for over 20,000 families in the Dhaka Mega City.

1.2.1 Pros: advantages of investment properties

In general, property is considered a fairly low-risk investment, and can be less volatile than shares (although, this is not always the case). Some of the advantages of investing in property include:

• Tax benefits – a number of deductions can be claimed on your tax return, such as interest paid on the loan, repairs and maintenance, rates and taxes, insurance, agent’s fees, travel to and from the property to facilitate repairs, and buildings depreciation.
• Negative gearing – tax deductions can also be claimed as a result of negative gearing, where the costs of keeping the investment property exceed the income gained from it.
• Long-term investment – many people like the idea of an investment that can fund them in their retirement. Rental housing is one sector that rarely decreases in price, making it a good potential option for long-term investments.
• Positive asset base – there are many benefits from having an investment property when deciding to take out another loan or invest in something else. Showing your potential lender that you have the ability to maintain a loan without defaulting will be highly regarded. The property can also be useful as security when taking out another home, car or personal loan.
• Safety aspect – low-risk investments are always popular with untrained “mum and dad” investors. Property fits these criteria with returns in some country areas reaching 10% per year. Housing in metropolitan areas is constantly in demand with the high purchase price being offset by substantial rental income and a yearly return of between 4% and 8%.
• High leverage possibilities – investment properties can be purchased at 80% LVR (loan to valuation ratio), or up to 90% LVR with mortgage insurance. The LVR is calculated by taking the amount of the loan and dividing it by the value of the property, as determined by the lender. This high leverage capacity results in a higher return for the investor at a lower risk due to having less personal finances ties up in the property (80% of the purchase price was provided by the mortgagee).

·         Significant Profits-There can be a major advantage to investing in real estate if you find property at a price low enough to result in a significant profit. For example, some investors buy real estate they intend to flip. Flipping can result in huge profits for investors. The property may be in foreclosure, in danger of foreclosure or needs little or no repair. You may purchase the property for much less than its value, repair or update it, and resell or flip it at a much higher selling price. Exercise extreme caution in this kind of venture.

·         Access to Credit-Contingent on a variety of factors, additional income generated from real estate investments may give you access to more credit. Generally, lending institutions lend more money to people who make more money. The additional income made from real estate investments may open broader credit lending doors.

·         Leave a Legacy-Real estate may be willed to family members after your death. You could leave a legacy for your children by investing in real estate. By choosing a property intelligently, investors can make this form of investment work for them. However, as with all investments there are some disadvantages to be aware of.

1.2.2 Cons: disadvantages of investment properties

Some potential problems to consider:

• Liquidity – it’s true, you can sell the property if things go bad. However this can take many months unless you’re willing to accept a price less than the property is worth. Unlike the stock market, you will have to wait for any financial rewards.
• Vacancies – there will be times when mortgage payments will need to be covered out of your own pocket due to your property being untenanted. This could just be a result of a gap between tenants or because of maintenance issues.
• Bad tenants – it’s every investment property owner’s worst nightmare: problem tenants. They can significantly damage your property, refuse to pay rent and refuse to leave. Disputes can sometimes take months to resolve.
• Rising interest rates – if your investment loan has a variable interest rate, there is always the risk of economic conditions causing interest rates to rise. If not properly budgeted for, rising interest rates could cause an investor financial stress where concerns of liquidity and quickly selling the property become a reality. When interested rates are on the up, liquidity in property markets starts to dry up.
• Property oversupply – in recent years, inner-city builders have created a glut of high-rise apartment blocks, resulting in fierce competition and many units being increasingly difficult to rent out
• Ongoing costs – in addition to the standard costs associated with a property, ongoing maintenance costs, especially with an older building, can be substantial.
• Putting all your eggs in one basket – if you have all your money tied up in property, overexposure to one particular type of investment can be a dangerous thing. If the property market crashes you can stand to lose significantly.
• Capital Gains Tax – imposed by the Federal Government on the appreciation of investments and payable on disposal.
• Other costs – negative gearing may offer tax deductions each financial year, however ongoing payments to cover the shortfall need to be budgeted for every month.

1.3 Objectives of the Study

Generally every study is conducted to find one or mere findings, if the findings are predetermined they called the objectives of the study. The main purpose of my study is to evaluate the Land & Flat Pricing in Bangladesh. Thus the main objectives of the study are as follows.

• To show overall Sceneries of Real Estate Market and Opportunities in Bangladesh and the market condition.
• To analyze the Present  Real Estate Market Scenario
• To define the Pros & Cons of Real Estate in Bangladesh
• To determine the Pricing Strategy
• To identify Problems faced by the customers as well as the marketers in the market of the same.
• To Identify the Reason behind the Real Estate Boom
• To analyze the Present  Real Estate of Bangladesh & South Asian Countries
• To analyze the present flat sales decrease
• To put forward some recommendation in the light of the problems identified.

1.4 Scope of the study

The duration of the study was Three months. This is an individual study, which is worked for this particular study under my internship program supervisor. Since this is a formal study, the scope of the study was not so detail. I just tried to give an overall scenario of the Real Estate Market and Opportunities as well as an actual market image in Bangladesh. The study covers overall Real Estate scenario of Bangladesh & South Asian countries and all the data are collected from the Internet & NewVison Landmark Ltd and from other paper which are mainly secondary sources.

1.5 Importance

Human being has always been in search of new and better homes. Thus cities, towns and villages grew, flourished and wither away. In the process, societies forever demand and produce all kinds of goods and services, through, never satisfied, we ask for things more different. Real estate visibly shapes the way people live, work and innovates and therefore most strongly defines culture and civilization. Today Real state is recognized the world over as the main engine that runs the economy, creating work not only for masons and managers, accountants and architects, but also for makers and sellers of building materials. It means work for maintenances, security cleaning and other services; work for makers and sellers of appliances, furniture and vehicles; work for bankers and bureaucrats, lenders and lawyers Purpose of this study is to overall Real Estate scenario of Bangladesh & South Asian countries.

1.6 Methodology of the Study

Methodology is the process or purpose of collecting of data and information which are required in connecting with finding tools for best possible situation of problems.

1.6.1 Data Collection Methods

For data collecting I have used both primary and secondary data. At the starting point I have started by examining primary data to see whether the problem can be fully or purely solved without collecting secondary data. When the needed data did not exit, then I had gone to collect the secondary data. So, data gathered for specific purpose or a specific reason.

1.7 Limitations of the Study

It couldn’t be claimed that this study was 100% based on impractical data. Undoubtedly it has got some limitation regarding the representation of the factors which are collected from customers and people of the company. At the data collection for the study, I have been facing following problems.

1.7.1 Time Limitation

 Time limitation is one of the major problems for most researchers’ to diagnose the problem. Like the other study, it has time limitation to identify the actual problem and provide some recommendations.

1.7.2 Sample Size

 Though the sample size was fixed for the study, with this sample size it is very difficult to get good result.

1.8 Output Trend

During the peak years of the early 1990s, over 3,000 apartment units were built by developers every year. Today around 10,000 units are built, but recent time this trend has declined due to delayed delivery of apartments by an average of six months, economic downslide, global recession, and the poor law and order situation.

 1.9 Linkage contribution

 The real estate sector has also made substantial contributions to the growth of a host of backward and forward linkage sectors which include Rod, Cement, Bricks, paints, ceramics, aluminum, furniture, consultancy and many others. In this context, he provided examples of catalytic influence of the real estate and housing sector in development of linkage industries whereby the sector is immensely contributing to employment and the GDP. Those include Bangladeshi state-of-the-art ceramic industries, Thai and Kai aluminum, More than a dozen paint industries, a large number of furniture making and interior design companies, an exponentially growing cement sector, which is helping the country to attain self-sufficiency in this important input

2.1 House Prices and Housing Production

The provision of standard housing and residential infrastructure has not kept up with population increases, because of constraints in the main supply factors, such as land and finance, and severe affordability problems. Indeed, land and construction prices for new formal sector housing are high relative to incomes, particularly in urban areas. The GOB Housing Indicators Report calculated that urban households spend on average 10 to 17.5 percent on housing related expenditures (GOB, 1995).

2.1.1.1 Land.

There is an active land market that prices land according to location characteristics, distance from main centers and physical quality of the site. Because of the exponential increase in population in Dhaka, land prices have escalated during the last few decades. Trends in land prices will be included in the land study, which is simultaneously conducted by UNCHS. Prices for land and construction were only available for Dhaka since most of the formal construction activities take place in the metropolitan area. For the purpose of this study we compiled current prices for developed land within the metropolitan area of Dhaka (estimates by REHAB):

Source: REHAB

With a minimum plot area of 2100 sq.ft in urban areas, a building plot in the lowest income area would still exceed Tk.3 million. In suburban areas no minimum plot size is stipulated and land can be subdivided in small plots for single-story housing developments. Construction costs. REHAB provided the following construction costs per sq.ft. at different levels of finishes:

These figures show that the construction costs for a small 300 sq.ft house, excluding land cost, would be in the order of Tk.150, 000. Such a house would be quite affordable at a median income level of Tk.5000. The inclusion of the costs of developed land, would multiply the cost by ten, rendering such housing solutions inaccessible even for households well above the median income. These figures show that high-density multi-family developments are the only feasible alternative in Dhaka.

2.2.1 Area:

It is a crucial variable for pricing a property. In our country its significance is more important than any other country. Depending on the area price fluctuate incredibly.

Source: REHAB

2.2.2 Plot location:

This variable affects the pricing decision of New Vision developers to a great extent. Within a particular area based on the road number or sector price of flat building varies accordingly.

Dhanmondi

Road No.Price (taka per square foot)3/A (old)80003/A (new)900010/A     7000

2.2.3 Size:

As the norms depending on the size, price of apartments varies by a direct proportion. In some cases this proportion does not remain constant.

2.2.4 Facing:

Facing of the apartments is also an important variable in the pricing pattern of those apartments.  Like south facing or north facing flat of a particular apartment building differs hugely in price:

2.2.5 View:

 Depending on the view of flats price can also vary.

2.2.6 Flat Feature:

Flat feature of the apartments is also an important variable in the pricing pattern of apartments. It consists of the interior design and fittings. The mentioned factors affect the pricing of the apartments.

2.2.7 Floor:

It is also a prominent factor that heavily induces the pricing of flat. The price decreases as the number of story increases.

 2.3 Construction Quality:

This includes materials used for construction, roof design, column design etc.  As the buyers are becoming sophisticated day by day this variable becomes important to the developers at the time of pricing.

2.4 Land Owner’s Share:

Nowadays most of the apartments are developed by various real estate firms in the form of joint venture.

In this venture land owners and developers share total number of flats in a particular apartment. In the most of the cases the ratio of sharing flats is 40:60. In case of lucrative areas this ratio is often 50:50. Besides these landowners also demands a certain amount of cash benefit for staying away from their own home at the time of construction.

2.5 Existence of Amusement Place:

Existence and non existence of amusement place also affects the pricing of flat building.

2.5.1 Pricing of Car Parking:

Car parking is fully independent with the overall price of any apartment. It is priced as per the current market price. Nowadays it ranges from 2 to 3 lakh.  Any apartment holder wishing to purchase more than one car parking space has to pay a higher amount than the normal range. It varies according to the variation of area.

2.5.2 Maintenance & Security:

 After the hand over of an apartment, its maintenance is no more a responsibility of a developer. The same is applicable for the security purpose. These two responsibilities are handed over to the buyers association of a particular apartment with a hand over of flats to them.

3.0 Pricing Strategy

Generally price is the amount of money charged for a product or service, or sum of the value that consumers exchange for the benefits of having or using the product or service. Again pricing policy is the course of action or guiding philosophy that helps a business firm to pricing decisions smoothly and perfectly. It also guides the firm to achieve its goals. It is an important element of the entire marketing strategy of a firm. A firm can easily manipulate the demand of the target market by handling its price carefully. At the present time, the market is highly segmented, primarily based on location, price of the land and size of the apartments.

3.1 Maximum Current Profit:

 It estimates its demand and costs associated with alternative prices and choose the price that produces the maximum current profit, cash flow and rate of return on investment.

3.2 Maximum sales Growth:

Real estate Company’s sets a reasonable price for its products (lands and apartments) considering the competitors prices. The company wants to maximize unit sales and thus profit.

3.3 Pricing methods

 There are a number of price setting approaches, these are- markup pricing, target return pricing; buyer based pricing, going rate pricing, sealed bid pricing approach. At the present time, most of the company’s adopts going rate pricing method for its products. In going rate pricing the firm bases its price largely on the competitor’s prices with less attention paid to its own costs and demands. The study shows the pricing of the real estate depends on certain factors such as location, square feet, quality of construction, construction cost, and amenities, markup policy, competitors’ price and demand for the product.

3.4 Promotion Strategy

Promotion mix is composed of four tools of communications- advertising, personal selling, sales promotion, and publicity. In the face of today’s competitive business environment, most of the companies develops and retains high achieves and a motivated workforce.

3.4.1 Advertising

Here most of the importance is given to the advertisement and on creating customer faith and also to the after sales services. Most of the real estate companies spends the biggest portion of its total promotion budget for advertising. When we look at the company, we can easily realize that the company could successfully anticipate the effectiveness of advertising. Here some of vehicles used as media for the advertisement of the real estate companies products.

3.4.1.1 Newspaper

Advertisements are published frequently on the most of the national dailies citing feasibility, opportunities, advances etc along with attractive photograph of the projects.

3.4.1.2 Neon Sign Billboard

Lots of billboard and neon sign are established at the different places of the city. Generally these places are selected according to the commercial importance.

4.4.1.3 Television

Advertisement is also frequently shown on the national and private channeling order to attract the potential customers and also to get the people to know about the projects.

3.4.2 Personal Selling

Company maintains good relationship with the customers. Generally, the company follows two mode of personal selling for maintaining long term relationship with their target customers.

3.4.2.1 Field force employees

A number of employees are engaged in door to door marketing. They go to the customer’s houses, explain them about projects and request them to come to the office about the real condition of the projects. Generally this is the task of influencing the people to make a purchase decision.

3.4.2.2 In House Marketing Team

In house marketing team is the part of the marketing department of the company. Usually they work with the direct customers who come to the office directly for land and office purpose. Different personnel of the in house marketing team co-ordinates with the customers. The personnel explain explain different aspects of the projects to the customers and also give them answer of questions. However their main motto is to sell their products by giving service.

3.4.3 Sales Promotion

Sales promotion is another essential ingredient in marketing campaign. Advertisement offers a reason to buy, whereas sales promotion offers an incentive to buy. The companies offers the following – discounts, gifts, low cost services price off, cost free services etc. Company maintains good relationship with the customers. Generally, the company follows two mode of personal selling for maintaining long term relationship with their target customers.

 3.4.3.1 Sales policy of the Companies:

Most of the company in this industry develops sales policy based on in house in house sales personnel. The outside sales forces are generally used to create customers. In case of purchasing a plot or a flat the first task a customer has to do is booking the plot or flat with a specified amount of money. After the booking rest of the are done by sales and credit realization personnel.

3.4.3.2 Sales at a time with cash payment

In this case at first the customer pays the booking money and after one month of booking pays the rest of amount.

3.4.3.3 Sales on installment

 This is comparatively relaxed policy. There are several installment schemes. In this case the purchaser can pays a specified amount either in 12 or 24 or36 or 60 or 72 installments.

4.1 Current Scenario of the Real Estate Market in India

The Indian economy has witnessed robust growth in the last few years and is expected to be one of the fastest growing economies in the coming years. Demand for commercial property is being driven by India’s economic growth. Real estate in India contributes about 5 per cent to India’s gross domestic product (GDP). The total revenue generated in 2010-11 stood at US$ 66.8 billion.

Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014—Tier 1 metropolitan cities are projected to account for about 40 per cent of this. Growing requirements of space from sectors such as education, healthcare and tourism provide opportunities in the real estate sector. FDI of more than US$ 9 billion was infused in real estate in the last decade.

In 2010, over 11 per cent of total FDI in India was in the real estate sector. There have been 110 deals in this sector during the period 2001 to the first half of 2011.

Urban population has been increasing and is expected to cross 590 million by 2030. Urbanisation and growing household income are some of the major factors that influence demand for residential real estate and growth in the retail sector.

Commercial real estate sector is in boom in India.  In the last fifteen years, post liberalization of the economy, Indian real estate business has taken an upturn and is expected to grow from the current USD 14 billion to a USD 102 billion in the next 10 years. This growth can be attributed to favorable demographics, increasing purchasing power, existence of customer friendly banks & housing finance companies, professionalism in real estate and favorable reforms initiated by the government to attract global investors.

Mumbai

30500

49260

Delhi

16890

27284

Chennai

10533

17015

Bangalore

11840

19126

Hyderabad

5500

8885

Kolkata

6750

10904

Pune

6750

10904

 

4.1.1 Driving Forces

Stated below are the reasons that have led to the real estate boom in the country.

• Booming economy; accelerated GDP to 8% p.a.

• India’s emergence as an attractive offshoring destination and availability of pool of highly skilled technicians and engineers ; Development of large captive units of major players include GE, Prudential, HSBC, Bank of America, Standard Chartered and American Express

•Rise in disposable income and growing middle class, increasing the demand for quality residential real estate and real estate as an investment option.

• Entry of professional players equipped with expertise in real estate development;

•Relaxation of legal rulings and processes by the governing bodies encouraging investments in real estate

•Improvement in infrastructure facilities

4.1.2 Investments

Real estate emerged as the popular sector for private equity funds who invested US$1,700 million in this sector during 2011. Private equity in real estate projects will fetch considerable returns by next year-end or early 2013, as per Vikram Hosangady, Partner, KPMG.

Some of the recent investments in this sector are mentioned below:

• Sahara India has joined hands with the US-based Turner Construction Company. The JV, Sahara Turner Construction, will build integrated townships called Sahara City Homes and other Sahara India projects in India worth US$ 25 billion over the next 20 years
• DLF acquired the additional 26 per cent stake in its joint venture company—DLF Hotels & Hospitality Ltd (DHHL)—from Aro Participation Ltd and Splendid Property Company Ltd, affiliates of Hilton International. At present, the company holds 74 per cent equity in DHHL
• Pride Group of Hotels, which owns a chain of upscale mid-market and business hotels is planning to set up a series of new properties and this will involve an investment of Rs 1,000 crore (US$ 203.18 million) over the next few years. The company plans to have a mix of owned and managed properties having 3,500 rooms by 2015-16

4.1.3 Government Initiatives

• The foreign direct investment (FDI) up to 100 per cent is allowed with Government’s permission for developing townships and settlements
• New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs 14,865 (US$ 302) as interest subsidy from the Government, on the condition that the cost of the house should not exceed Rs 2.5 million (US$ 50,798)
• Allowing 100 per cent FDI under the automatic route in development of Special Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce.

In the Union Budget 2011-12, Mr Pranab Mukherjee, Union Finance Minister presented various initiatives for the real estate sector, especially focussing on affordable housing. Some of these initiatives are listed below:

• Increasing the limit on housing loans eligible for a 1 per cent subsidy in interest rates
• Widening the scope for housing under “priority-sector lending” for banks, making interest rates cheaper on them
• Allocating substantial amount to the Urban Development Ministry for spending on extension of Metro networks in Delhi, Bangalore and Chennai
• Earmarking US$ 20.03 million for the urban infrastructure development project. The Urban Development Ministry received US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal 2010-11

4.1.4 Road Ahead

Real estate plays an important role in the Indian economy. This sector happens to be the second largest employer after agriculture and is expected to grow at the rate of 30 per cent over the next decade. The size of the Indian real estate market is expected to touch US$ 180 billion by 2020.

The housing sector alone contributes to 5-6 per cent of the India’s GDP. Retail, hospitality and commercial real estate are also growing considerably, providing the much-awaited infrastructure towards India’s growing needs.

According to a study by ICRA, the construction industry in India ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit rise in construction spending generates five times the income, having a multiplier effect across the board. With backward and forward linkages to over 250 ancillary industries, the positive effects of real estate growth spread far and wide. Therefore, real estate acts as a catalyst for adding momentum to growth of the Indian economy.

4.2 An overview of housing in Pakistan

Pakistan witnessed a real estate boom after the 9/11 and war on terror. Property prices skyrocketed across the country and to buy a home resembled something beyond the bounds of possibility for an ordinary Pakistani. The expatriate Pakistanis invested their money in the real estate and the continuous flow of dollars swelled the volume of market. According to modest estimates during past four to five years the money invested into the real estate market was nearly equal to Rs.250 billion rupees and this resulted into an upward and sharp increase in the prices which produced a hyper effect on the market. But now market analysts are of the view that the real estate bubble had come to an end and market is going through a slump. What really happened is that a conventionally unorganized and unnoticed sector at once recorded such an amazing potential which was unsustainable and slowing of massive money influx can’t be termed as a crash.

At the same time the country’s housing situation is aggravating with each passing day. Our bourgeoning population, its stunning 2.4 annual growth rate and strong inward migration (rural-urban migration) trends are compounding the problem. The decrease in the average household size or the nuclear family notion is also gaining popularity in the urban centers. It is also resulting into more houses for small number of people. There are nearly 19 million houses in the country against the population of 149 million and the required number of housing units for the population is 25.83 millions. Thus we are falling short of nearly more than 6 millions. This is huge number if seen against the backdrop of the housing units being built annually.

At present the urban housing demand stands at 8 percent per annum. In addition to this rural- urban migration is also gaining momentum. Although Urban- rural population migration is a global phenomenon and mega cities are facing the challenges caused by the deluge of the rural migrants and Pakistan is no exception to this rule. Only Karachi is attracting more than 250,000 to 300,000 people annually.

This is adding to already tightly crowded population and scarce resources of the cities and in case of Karachi it deprives nearly1/3rd of population of the potable water.As cities are already over populated, so, these peoples are inhibiting in the squatter settlement or shanties called katchi abadis in the local jargon. According to the reports there are nearly “539 squatter settlements across Karachi” and nearly 49 percent of the city population lives in these squatter settlements.

We have to construct more than 500,000 housing units annually to meet the backlog in 20 years. We have not taken the factors of population growth and stock depletion into account, only what I have tried to show is current backlog.

 At present he number of housing units being constructed is only 300,000 which is really a fraction of the gigantic demand. The demand and supply gap is resulting into serious repercussions for the society as it had changed the more than half of Pakistan urban land into squatter settlements and is eating away the agricultural land of the country. What is the need of the hour is that to exploit the hidden potentials of the housing sector. It is a two prong strategy to fight against poverty and raise the standards of public living.

As in the first place this strategy provides public with house which is a basic necessity and in the second revive the industrial sector. As more than 40 industries are directly related to the construction industry. The growth of housing industry is a sure recipe for the economic growth. As it also entails the growth of construction and allied sectors which includes, “ceramics, cement, paints, electrical goods, floorings, carpets, tiles and marbles, stone crushing etc….”

Moreover it will boost the banking sector by utilizing the mortgage facility that banks provide. At present the mortgage finance was 18 billion rupees for 2005 and it has growth potential of Rs. 135 billion at 35 percent urban housing needs. In addition to this many foreign real estate investors has announced heavy investment in the residential sector including the Dubai’s construction giant Emaar which is going to construct housing projects worth US$2.4 billion in Islamabad and Karachi, Diamond Bar Island City Karachi will obviously help in restoring the confidence of local investors.

4.2.1 Property boom emerging again in Pakistan

The property markets of Karachi, Lahore & Islamabad is once again attracting a lot of money these days due to stable stock, gold and currency markets. Particularly in Karachi, a large number of new schemes of plots as well as flats near the Northern Bypass have been announced (and also extensively advertised), which are drawing a number of buyers.

A luxury flat of 180 square yards in a recently announced project, 10 kilometres from Sohrab Goth, is priced at no less than Rs4 million. This gives an idea of how expensive the houses are, even if located in the outskirts of the city. A residential plot of 80 square yards in a project near the Northern Bypass is available at Rs249,000, although it is as far as 35 kilometres from Sohrab Goth. In the same scheme, a residential plot of 120 square yards costs Rs379,000.

Builders say Pakistanis working in Arab countries and the US are the most attractive clients for them because they are able to make timely payments. It is for them that most of the builders announce and advertise their projects around Eid days.

Builders say usually they experience difficulties in obtaining agreed money from buyers residing locally, but those working abroad are their ideal buyers.

Similarly, in a much advertised scheme, which is located far away from the main city, a 200 square yard plot is being offered at a price of Rs695,000 and 400 square yard plot for Rs1,395,000. The commercial plots in such schemes are even more expensive. A 400 square yard plot is priced at Rs2,995,000. In another scheme, a 100 square yard commercial plot is being offered at Rs700,000 and 200 square yard plot for Rs1,800,000.

The projects being built in the main city are certainly more expensive. On average, flats in Clifton and Defense areas are priced at Rs5,000 per sq ft, in Bahadurabad at Rs6,000 per sq ft and in PECHS Rs6,000 per sq ft. In Gulistan-e-Jauhar, which is an area of lower middle and middle income groups, flats are available at Rs2, 500 per sq ft on average.

Table IX: Flat price in Pakistan
Sl.	Location	Price per sq ft(PKR)	Price per sq ft(BDT)

1 PKR = 0.9074 BDT1Islamabad55004990.72Karachi62005625.883Lahore40003629.964Rawalpindi500045375 Bahadurabad6,0005444.46In Gulistan-e-Jauhar2,5002268.5

Besides, the financing facilities being offered by banks and other institutions are also a factor behind this activity in the construction industry, as now people can obtain loans from more sources. In recent years, the monetary authorities of the country have encouraged banks to lend money for housing, giving impetus to this industry.

4.3 Real Estate Business in Nepal

  Real estate refers to the immovable property such as land, land and house or any type of building or infrastructure used for either residential or business or any other purposes. Until recently, investment in real estate sector was increasing in Nepal due to lack of alternative investment opportunity in the country. The increase in the demand for land, especially in urban areas, is attributed to the inelastic supply of land and absence of viable investment opportunity. The speculative assumption of people that price of real estate will never decline and it is the safest sector to invest, has played an instrumental role in increasing in the real estate price.

1Nrs = 1.0002 BDT1Merocity ApartmentHattiban51155116.0232Estern ApartmentKaushaltar36083608.7223The sun cityGothatar39383938.7884City ScapeHattiban52005201.045Down TownKhumaltar40404040.8086Sunshine ApartmentSukedhara62036204.2417Park View HorizonDhapasi76507651.538Chacrapath HeightChacrapath49574957.999Imperial courtSanepa95809581.92

Since the past few years, remittances have become the most important source of financing economic activities in Nepal. Lack of employment opportunities accompanied by political instability and delayed peace process in the country pushed thousands of Nepalese workers abroad for employment. This resulted into massive inflows of remittances accounting for about 20 percent of GDP. With accelerating growth of remittances and lack of alternative investment opportunities, huge amount of money has gone into land and housing business that created a real estate boom.

The proliferation of financial institutions together with an excess liquidity situation in the past also fueled the real estate boom, especially in the urban areas.  According to the IMF (2010a)  “the land transactions in the  urban area almost doubled in 2009 alone compared to the previous year and the prices in the Kathmandu valley were reported to have quintupled in some areas in the recent years. However, in response to the corrective measures undertaken by the NRB, these trends have started reversing in the recent months.” The tendency of migrating from rural areas to urban has fueled the real estate business in Nepal. Basically people are purchasing real estate (land or land with house) for two general motives:  first, for self residence and second, for business purpose.

The first motive has boosted up the second one. There are different views pertaining to the extent the motive of self residence has shaped the business scenario in Nepal.

The banks and financial institutions are financing in real estate sector as one of the important sector for lending. In the loan portfolio of banks and financial institutions the real estate lending has a significant share. Similarly, in the composition of collateral types, house and land holds 61 percent of share (NRB, 2010).  According to the IMF (2010a) “Although banks’ direct exposure to real estate and housing loans is not particularly high at about  20 percent of the total loan portfolio, the actual exposure could be higher due to loan misclassification problems.

In addition, total exposure, including loans collateralized with real estate properties, account for 70 percent of total.” Due to upsurge in loan in real estate, the NRB has issued some regulatory directives to banks and financial institutions to limit the loan flow in real estate.  The Monetary Policy of 2010/11 has provided some guidelines for real estate financing. Paragraph 59 of the policy urges bank and financial institutions to curb down the real estate and housing loan to a specified limit. This is to reduce the risk associated with the high concentration of loan in a single sector. Similarly, paragraph 98 of the policy has reduced the limit in housing and residential lending.  It has also restricted lending to 10 percent limit in land purchase and plotting (NRB, 2010).  The real estate business is being done largely in the unorganized sector that purchases large area of land and do plotting with or without developing residential facility.

 However, there is a growing trend to develop land and construct residential housing by organized real estate developers. The organized sectors are those which are formally registered institutions for the real estate business that are involved in developing mass residential infrastructures. They are basically involved in purchase of large area of land and developing  the land with proper  planning along with various residential facilities. They can often  sell the plotted land with basic infrastructures. The organized sector comes under the government law and regulations, but the unorganized sector generally does not come under the law and regulation of government.

4.3.1 Nepal real estate is in Progress

Real estate marketing Nepal has flourished more from the last two decades specifically in large municipalities and fringe areas. Almost all economic activities in these areas depend on lands and so it is the pivotal for economic development. Although unsystematic and unhealthy real estate market does exist, most of the remittances and local savings are invested in the real estate because of the lack of other investment sectors. The buyers and sellers of land have to search the parties through unreliable or unprofessional brokers which would result in land disputes and many fraud cases. The land price sometime has huge difference from the market value and the utility services are also very poor in the developmental areas due to lack of land development planning.

4.4 Real Estate Sector of Srilanka

Banking and non-banking institutions provide housing finance in Sri Lanka. There are three specialized housing banks in the country. Two of them are government-owned: the State Mortgage and Investment Bank (SMIB) and the Housing Development Finance Corporation (HDFC). The only private sector housing finance institution is Housing Bank, a new entrant that was established in 2001. In addition, the National Savings Bank (NSB), which again is a government-owned entity, is a significant contributor to the housing finance market. These institutions are the main players in housing finance among the specialized banks.

They account for a significant volume of the housing finance business in the country (Piyasiri, 2006). Practically all the domestic commercial banks currently provide housing finance. All advertise and promote housing finance aggressively. Special housing product brands are available in the market. Among the foreign banks, and more recently, the Hong Kong and Shanghai Banking Corporation (HSBC) has become a very aggressive player in the market, with variable interest rate.  These would fall into the category of specialized banks. Smaller volumes of housing finance are provided by rural development banks as well.

A number of micro-finance institutions seem to be providing limited housing finance to the low-income segment of the population. Most of these institutions have the objective of uplifting the quality of life through income-generating activities. In that process, they find that one aspect of uplifting involves improving housing conditions as well. Another group that contributes to the housing sector is the finance companies. One of the key asset products of these institutions is real estate development. Most of these institutions specialize in land development only. However, a few have also been involved in construction as well.  Housing development lacks Government funding due to budgetary constraints.

Consequently, activities of institutions such as the National Housing Development Authority are confined to recoveries only. Other state-owned institutions such as SMIB and HDFC depend on deposit mobilization and funds borrowed from the debt market for their mortgage market activities.

In contrast, the NSB funds its housing finance operations by deploying 100% of its own mobilized funds. NSB’s current strategy of enlarging its retail portfolio has helped its housing finance operations immensely. Most commercial banks deploy their own mobilized funds for housing finance operations (Piyasiri, 2006).  Housing finance has grown significantly in the last few years. Most commercial banks have housing finance in their product range. The estimated housing portfolio of commercial banks stands at around Rs. 55-60 billion.

The specialized banks, including three specialized housing banks, have an estimated portfolio of around  Rs 25  billion. Rural development banks and a number of micro-finance institutions are also involved in housing finance. The total estimated housing finance portfolio in the country may be in the region of Rs 80-85 billion. A large variety of housing products/brands and competitive options are available in the market. However, rate volatility would always be a challenge and hurdle for sustained growth.  As per the 2001 survey, there were 4.7million housing units in the country.

The Central Bank annual report of 2003 estimated the housing shortage in the country at 400,000 units. The report also stated that the shortage is expected to increase to 600,000 units by 2010. This means that the annual demand for new housing is not being met by new construction. In addition, the above shortfall is prior to the December 2004 tsunami. The housing need of the war-affected regions of the Northeast of the country is also acute. Moreover, analysis of the quality of housing reveals that significant upgrading of existing housing can be effected. Therefore, the need for new housing and for financing is very significant.

4.4.1 Sri Lanka’s property prices continue to rise!

Property prices continue to rise in Sri Lanka, as the security situation stabilizes. There’s no official house price data in Sri Lanka, but developers and homebuyers confirm there have been double-digit property price rises in recent years. The value of apartments in the secondary market has risen more than 100% in the past 3 to 4 years, say local real estate analysts.  Land prices in residential areas of Colombo, the capital, have gone through the roof. However, a period of high inflation and higher construction costs mean that the real rise in property values is less than appears.

The long run of price increases dates back to the 2001 ceasefire, which led to a surge in investments by overseas Sri Lankans – working in the US, Australia, Canada, UK, and the Middle East. More than 50% of Colombo’s condominium buyers are overseas Sri Lankans. The housing boom has of course excluded foreigners, who since 2004 have been required to pay a 100% tax on landed properties purchased in Sri Lanka. The 100% surcharge is also imposed on apartments below the 4th floor.

In March 2010:

• The average sale price of houses in Sri Lanka was LKR13.8 million (US$124,026), according to Lanka Property Web, one of the country’s leading property portals.
• The average price of apartments (1400 sq ft) is LKR12.5 million (BDT per sq ft 5528)

5 Concluding Remarks

There is no question that real estate industry is one of the most potential industries in Bangladesh. The industry has been witnessing an investment boom for the last couple of years.