High construction costs, elevated interest rates, weak demand for flats and high registration expenses have brought Bangladesh’s housing sector to a near standstill, slowing property sales and forcing some developers to suspend projects.

The downturn is also affecting related industries, including steel, cement, ceramics and furniture, putting millions of jobs at risk.

To revive the sector, Dr Ali Afzal, president of the Real Estate and Housing Association of Bangladesh (REHAB), has proposed cutting home loan interest rates to 5%, offering developers loans at single-digit interest rates, reducing property registration costs and expanding affordable housing through public-private partnerships.

Afzal is also managing director of Krishibid Group and chairman of Glorious Lands and Developments Ltd.

He said rising construction costs had put developers under severe financial pressure, as they could not increase flat prices in line with the higher costs.

According to him, construction material prices rose by around 31% amid the war-related situation and increased by a further 12% afterwards, bringing the total rise in costs to about 43%. However, many developers are incurring losses as they remain bound by prices agreed with buyers earlier.

He said housing projects often take several years to complete, with buyers paying in instalments under agreements signed well in advance. During this period, construction costs can rise significantly, but revising the agreed prices is difficult.

While large developers may have some capacity to absorb the additional costs, small and medium-sized firms are struggling to cope. Several projects have already been suspended, while companies have reduced their workforces, he added.

Buyers struggle to afford flats

Afzal identified declining purchasing power and uncertainty over investment as the main reasons for falling demand for flats.

He said the problem was not that people no longer wanted to buy flats, but that many could not afford them at current prices. High interest rates on home loans had also made property purchases increasingly difficult for middle-income households.

The housing sector’s difficulties began to intensify during the Covid-19 pandemic and worsened amid subsequent political and economic uncertainty, affecting investment decisions, he said.

He added that foreign investors were also concerned about the certainty of repatriating their invested capital and profits.

270 linked industries affected

Around 270 industries, including steel, cement, ceramics and furniture, are linked to the housing sector, Afzal said.

The real estate industry is a major source of demand for these businesses. As construction and flat sales decline, the impact spreads across the supply chain, weakening sales in related industries and increasing the risk of difficulties in repaying bank loans.

Afzal said around five million people work in the housing sector. The suspension of projects has led to staff cuts at various companies, although he did not have specific figures on the number of jobs lost.

REHAB seeks lower registration costs

Afzal stressed the need to reduce property registration costs to make flats more affordable.

Registration expenses, including related taxes and fees, can account for around 11% to 16% of a flat’s price, placing an additional burden on buyers. As a result, many postpone registration, he said.

He proposed basing registration on actual market values and bringing the associated costs down to a more affordable level. Such measures would benefit buyers and could also increase government revenue by encouraging more registrations, he added.

He also called for the full digitisation of government services, including approvals for land and building plans. Delays and irregularities in the approval process increase project timelines and costs, ultimately passing the burden on to buyers, he said.

5% interest rate proposed for home loans

To help middle-income families secure housing, Afzal proposed long-term home loans at 5% interest for individual borrowers.

He suggested differentiated rates based on location, with relatively higher rates in Dhaka, lower rates in district towns and interest rates of around 1% in upazilas and rural areas. Such a system could ease pressure on the capital by making housing more accessible outside Dhaka, he said.

He also called for loans at single-digit interest rates for real estate developers.

Housing should not be treated merely as a commercial sector but as part of meeting a basic human need, Afzal said. Policy support could help reduce construction costs and expand access to affordable homes.

Public-private partnership for affordable housing

Afzal proposed a long-term affordable housing programme using unused government land and involving private developers.

Planned housing could be developed on underutilised public land without converting agricultural land, he said. He also stressed the need to improve road connectivity between Dhaka and surrounding districts and upazilas to make commuting to the capital easier.

He further called for the effective implementation of government policy support to help financially distressed businesses resume operations.

Measures such as loan rescheduling, interest waivers and low-interest financing must deliver tangible benefits to businesses, he said.

Afzal said coordinated efforts by the government, banks and real estate developers to reduce construction costs, home loan interest rates and registration expenses could restore momentum to the housing sector.

Such a recovery would benefit not only the flat market but also related industries, employment and the wider economy, he added.

Source: Bangladesh Pratidin