Division of Building and Real Estate Economics Department of Real Estate and Construction Management...

8/2/2019 Division of Building and Real Estate Economics Department of Real Estate and Construction Management KTH

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Division of Building and Real EstateEconomics Department of Real Estate and ConstructionManagement KTH, The Royal Institute of TechnologyStockholm, Sweden

Master of Science Thesis Number: 428Real Estate Market in Bangladesh:

Development

and Current Practice

Author SupervisorMd. Tarikul Islam Mr. Hans Lind


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Stockholm, April 2008Master of Science Thesis

Title Real Estate Market In Bangladesh: Development andCurrent Practice

Author Md. Tarikul IslamDepartmentMaster ThesisNo

Department of Real Estate and ConstructionManagement Division of Building and Real EstateEconomics The Royal Institute of Technology,Sweden 428

SupervisorKeywords

Professor Hans Lind Bangladesh, Real Estate Market,Porter Model, Value Chain, Decision Making,Regulation, Segregation

Abstract

Bangladesh is a small but one of the most densely populatedcountries in the world with quite a small and poor economy. Majorityof its population fall in the low income bracket and therefore basicneeds fulfillment is the main concern for them. One of the five basicneeds is shelter and state is supposed to ensure that. But state cantdo that due to resources scarcity and this is the point in which mostexperts stick on for the development of the real estate sector inBangladesh. The sector is dominated by the private investors, thoughthe government is present in the market through some housing

projects. These private investors are widely treated as profitconcerns, but they are working hard to meet the rising housingdemand in the country too.

Though the pace of growth in real estate business in Bangladesh is abit slow now, it has been experiencing an increasing pace throughoutthe whole period since its birth in late 70s. In late 90s the sector gotthe highest pace since its origin and lots of real estate developerscame to the market to invest. Current low pace can be explained bythe irregular political practice in the country as there is a non political

interim government in power right now. Its widely argued that thesituation will change once the political government comes back inpower.

Initially though real estate business was limited to the Dhaka city,now the sector expands its reach to the outskirts of Dhaka city,surrounding districts of Dhaka district, and other divisional cities. ButDhaka is still paying for its indiscipline and random constructions inthe city. Traffic system and the environmental condition of Dhaka cityare miserable in most cases. Therefore experts and mass people are

pretty much worried about the growing constructions activities in thecountry.


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Concerns go for different issues like decrease in agricultural landsbecause of rapid urbanization, developers care only profits andinvolved in random constructions, environmental degradation, andlack of affordability of poor people to access housing etc. More andmore arguments come in favor of setting a framework by government

for the industry with regulations if necessary. People dont want otherareas of the country to be like Dhaka city due to unplannedurbanization.

Though currently more than 320 companies are operating in the realestate market, top 15 companies hold 95% of the total market shareaccording to the opinions of experts and available quantitativeinformation. So one might argue that the market is ratherconcentrated. But there is no entry barrier to the market and themarket is open to anyone to invest. Its not an oligopoly too. Above all

there is a large market segment remaining yet to penetrate followedby ample opportunities for the potential investors to invest in themarket. By Real estate market the author means constructing andselling new houses or flats, developing lands and selling them asplots, and buying and selling old houses or lands.

Currently real estate firms are acting mainly in the divisional citiesand some neighboring districts of Dhaka. In fact the sector has beendeveloped thinking Dhaka as the target market. But in course of timewhen lots of investors came into the market, firms had to expand the

market for their own survival at least. At the same time highpopulation density increased the demand of housing while the landwas decreasing. These two factors together helped real estate sectora lot to expand.

Land scarcity and the lack of social security are the two majorreasons people think lie behind the development of the real estatesector in Bangladesh. There are other important factors too forexample price of houses, rapid growth in population, rapidurbanization, and complexities in buying lands to build houses etc.

Though there are varied opinions for what the sector has beendeveloped in Bangladesh, almost all the respondents and real estateexperts think that the development of the real estate sector wasobvious in Bangladesh mainly to meet the rising demands for housesacross the country. Public sectors failure to ensure the housing forthe total population enhanced the development.

Majority of the population is not satisfied about the current practice ofthe sector. They think companies are mainly profits concern anddont care about the quality of their services.


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III

Foreword

Assistance and cooperation of different people in different stages of

my thesis preparation helped me to add more beauties to the report.At the event of the report submission I sincerely remember all ofthem and express my gratitude to them.

At the very beginning I would like remember all the blue collar jobholders in different real estate companies in Dhaka, Bangladesh fortheir valuable time to me. Discussions with them provided me a lot ofqualitative inputs that has been added in the report. I am alsosincerely grateful to my friends who helped me to collect the primarydata in Bangladesh.

Credit also goes to my peers and teachers at real estate departmentat KTH. They always extended their big hands to me in my journey tostudy in KTH. They also helped me to be introduced with lots of newaspects of real estate business operations.

Finally I express my deep gratitude to my supervisor, Mr. Hans Lindfor his patience and flexible thinking. Without the flexibility that hehas given me it would not be possible for me to finish my researchworks.

Md. TarikulIslamStockholm,Sweden April12, 2008Table of Contents

Sequence Number Topic Page Abstract

1.0. Introduction

1.1. Background and relevance of the research: The Context 011.2. Problem definition, aim, and the added value of the 01

research

1.3. Research Question & the scope of the research 02

1.4. Theoretical frameworks and the structure of the research 031.5. Methodology 031.6. Chapter Summary 04

2.0. This is Bangladesh


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2.1. History of Bangladesh 05

2.2. Geography of Bangladesh 06

2.3. Demographical data of Bangladesh 07

2.4. Economy of Bangladesh 092.5. Chapter Summary 12

3.0. Introduction to the Real Estate Business in Bangladesh3.1. Real Estate Business in Bangladesh: A brief Overview 13

3.2. Real Estate Markets in Bangladesh 16

3.2.1. Barisal: The newest city of Bangladesh 163.2.2. Rajshahi: The education city of Bangladesh 17

3.2.3. Sylhet: The London of Bangladesh 19

3.2.4. Khulna: Industrial Zone of Bangladesh 20

3.2.5. Chittagong: The largest industrial zone of 21Bangladesh

3.2.6. Dhaka: The Capital of Bangladesh 23

3.2.6.1. Brief History of Dhaka 233.2.6.2. Demographics of Dhaka 23

3.2.6.3. Real Estate Business in Dhaka 243.2.6.4. Products of real estate firms in 27

Dhaka

3.2.6.5. Market Segmentations 283.3. Real Estate Business in the Outskirts of Dhaka City 30

3.4. Chapter Summary 34

4.0. Actors Analysis4.1. Major Actors in the real estate industry in Bangladesh 35

4.2. Summary of Actors Analysis 38

5.0. Analyzing the Decision Making Process5.1. Decision Making Process 39

5.2. Fitting theory into the reality (Bangladesh scenario) 41

5.2.1. Problem Defining 41

5.2.2. Developing Alternatives 43

5.2.3. Developing Criteria 43

5.2.4. Looking at Alternatives 43

5.2.5. Evaluating Alternatives 44

5.2.6. Selecting the Alternative 455.2.7. Implementation 45

5.3. Summary of the analysis (Decision Making Process) 46

6.0. Market Analysis6.1. Introduction to the five forces model of Porter 47

6.1.1. Bargaining power of suppliers (Real Estate 48Firms)

6.1.2. Bargaining power of buyers 496.1.3. Threat of new entrants 506.1.4. Threat of substitutes 52

6.1.5. Rivalry among existing firms 526.2. Applying Porters Model to the Real Estate Market in 53


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Bangladesh6.2.1. Bargaining power of suppliers (Real Estate 53

Firms)6.2.2. Bargaining power of buyers 566.2.3. Threat of new entrants 59

6.2.4. Threat of substitutes 606.2.5. Rivalry among existing firms 62

6.3. Introducing government in the Porter model 646.4. Summary of Market Analysis 65

7.0. Vale Chain Analysis7.1. Concept of Value Chain 677.2. Applying the concept to the reality 687.3. Chapter Summary 69

8.0. Effects Analysis8.1. Different Types of effects 70

8.1.1. Direct effects 708.1.2. Indirect effects 718.1.3. External effects 71

8.2. Summary of effects analysis 72

9.0. Segregation Analysis9.1. Defining Segregation 739.2. Reasons of Housing Segregation 739.3. Types of segregations in Bangladesh 74

9.4. Consequences of segregation 779.5. Summary of Segregation analysis 79

10.0. Primary Data Analysis8081838485

11.0. Concluded Part11.1. Conclusion 8611.2. Recommendations 8811.3. Future Research 89

12.0. Appended Part12.1. References12.2. Appendix

Table of figures

No Title Page2.1. Bangladesh in the Indian Sub Continent 05


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2.2. Districts Of Bangladesh 062.3. Divisional Cities & City Corporations 07

2.4. Population at different ages 082.5. Sector Wise Contributions to GDP 10

3.1. Divisional Cities & City Corporations 13

3.2. Location of Barisal in Bangladesh map 163.3. Rajshahi in the map of Bangladesh 183.4. Sylhet in the map of Bangladesh 193.5. Khulna in the map of Bangladesh 20

3.6. Chittagong in the map of Bangladesh 213.7. Dhaka in the map of Bangladesh 23

3.8. Dhaka City Map Showing Different Market Segments 293.9. Dhaka city and its outskirts 31

3.10. Neighbouring Districts of Dhaka 335.1. Decision Making Process 40

6.1. Porters Five Forces Model 486.2. Porter Model Including Government as the sixth factor 65

7.1. Porter Value Chain Model 6710.1. Sampling of Population 80

10.2. House Ownerships in Bangladesh 8110.3. Stages of real estate business in Bangladesh 82

10.4. Most valued attributes 83

Table of Tables

No Title Page

2.1. Religion Statistics in Bangladesh 092.2. Sector wise employment 10

2.3. Remittance flow to Bangladesh 112.4. Major economic data of Bangladesh 12

3.1. Total population in different city corporations 2510.1. Factors affecting real estate business in Bangladesh 82

10.2. Customers satisfaction of real estate products 841.0. Introduction

This chapter starts with a discussion on the relevance andbackground of the research (1.1) to provide a clear understandingabout the research. After the background an elaboration is given onthe problem definition, the aim and the added value of the research(1.2). The research question and the scope of the research that setsthe boundary of the research are discussed too (1.3). Then after thata brief discussion is given on the theoretical framework and theapproach to the research (1.4). Finally there is a summary for thispart (1.6).

1.1. Background and relevance of the research: The Context

Bangladesh is a small country with a very low per capita income.Here people still struggle for the basic needs fulfillment. When still


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lots of people struggle to have a minimum shelter, real estateproducts that is assumed to be very expensive, is kind of extra luxuryto the majority of the mass population. However, real estate sectorhas been developed and it is growing with a good pace along with agradual increase of its contribution in total GDP. Investments in this

sector have been increasing over time and competition has becomingsharper because of the increased number of firms as well asstakeholders awareness. Government is trying to build a properframework for this business sector.

People who are in the high income brackets are the main customersof these real estate products. But day by day involvements of themiddle class in the society is increasing. In this circumstance,government is trying to involve low income people too by suggestingthe real estate companies to plan for housing for these people. As the

involvement increases question of quality and satisfaction also comesto the scenario.

The background of this research is those factors which lead thedevelopment of the real estate business in Bangladesh along with ananalysis of the market. At the same time how people think about thequality of the real estate products are also considered.

1.2. Problem definition, aim, and the added value of theresearch

This research is basically a descriptive one with some characteristicsof normative research focusing on the development of the real estatesector in Bangladesh. At the same time current business conditionhas been covered too along with a presentation of customersviewpoints on real estate business in Bangladesh i.e. what customersthink about different aspects like quality of real estate products.Therefore the research is aimed at discussing the factors thatcontributed to the development of the real estate business inBangladesh and how the market is performing now. It also focuses on

various affects of the real estate business in Bangladesh along withan economic explanation of real estate sector in Bangladesh.

Major values of the research come from its contribution in theknowledge spillovers system especially in the area of real estatebusiness in Bangladesh. However the research works finally producea report which is an academic requirement. At the same time theresearch also generates building blocks for further studies on thesubject matter, as it can be a good starting point from where policymakers can start to go ahead.

1.3. Research Question & the scope of the research


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This part talks about the main research question along with subquestions that might arise to study the major research question. Themajor research question is,

Why real estate market has been developed in Bangladesh

and how the business is going on?

To answer this central research question, the following related issuesget importance.

Demographic information of population in Bangladesh

Decision making process of buyers

Real estate market in Bangladesh and the real estate products

Who are the major players in the real estate market inBangladesh i.e. actors analysis

Direct and indirect affects analysis in case of real estatebusiness

Value chain and segregation analysis

Consumers satisfaction of real estate products

Real estate market is linked with the whole economy. It can affect theeconomy to some extent while economic ups & downs also affect it.At the same time government plays an important role by differentpolicies and regulations. So its a large area to cover. But in thisresearch the author does not cover all. Therefore the scope of the

research is the following.

Included are:

Economic conditions of Bangladeshi people

Decision making process in real estate buying

Effects of the real estate business in Bangladesh

Mainly residential real estate is covered as commercial realestate is a not that common in Bangladesh

Dhaka city and its outskirts get the most importance, as this is

the main area where real estate firms are acting.

Excluded are:

Political change in the country.

Land law.

Other businesses affected by the real estate business i.e.portfolio diversification.

1.4. Theoretical frameworks and the structure of the research

This section talks about the organization of the report. In brief, the


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contents of the next chapters are mentioned here.

In the following chapters, overview of Bangladesh & Bangladesheconomy, demographical description of Bangladesh, and real estatemarket in Bangladesh are discussed. Finally there are couples of

analysis on the issues like

Market functioning based on the Porter model.

Decision making process of buyers.

Segregation in real estate sector in Bangladesh.

Value chain analysis.

Customers opinions.

Two models of Michael Porter have been used as the theoreticalframework to build up a bridge in between theory and practice. First

model is Porters five factors model which has been used here todescribe the real estate industry of Bangladesh. However in thismodel Porter did not include government. But the author foundgovernment as a very big factor in this kind of industry. Thereforeauthor added government as the sixth factor in Porters model to givean idea how government can influence the whole industry. Portersvalue chain model is the second theory that has been used to look atthe value creation process in the real estate industry in Bangladesh.

The report follows inductive reasoning as the structure. It means that

facts are described first to reach to a conclusion later on. The authorselects this reasoning for better understanding of the market firstrather than reaching to the endpoint first.

1.5. Methodology

Research Design: As mentioned earlier the research is a descriptiveone along with some characteristics of normative research. Thereport mainly focuses on the development of the real estate marketin Bangladesh while it also talks about the current market functions

and the affects of the real estate business in Bangladesh. Also it talksabout the possibilities about the times to come.

Sources of Data: Both primary and secondary have been used toprepare the report.

Primary Data: Primary data comes from the interviewing peoplethrough questionnaire and the informal interviews with the realestate professionals and experts in Bangladesh. The author is fromBangladesh and his personal observation, living, and discussion withthe professionals are other main sources of primary data.

Secondary Data: Secondary data comes from differentpublished sources like research reports, Bangladesh Bureau of


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Statistics, real estate publications, and different literatures on realestate business etc.

Data Collection: Formal questionnaire (added in the appendix) isused to collect data from the consumers through face to face

interview with a simple random sampling. In case of experts and realestate employees the medium is informal interview.

Data Analysis: Data is analyzed from different perspectives likeactors perspective, markets perspective, perspectives of effects etc.These analyzed data will be disseminated among the related partiesi.e. real estate firms, real estate economists, universities etc., to havea knowledge spillovers affect.

1.6. Chapter Summary

The research is based on both primary and secondary data where theresearcher tried to explore the Bangladesh market of real estate.Mainly residential properties in Dhaka and its outskirts have beentalked about. But orientation goes to the macro level too. The mainaim of the research is to prepare a report to meet the academicrequirements and the reports major influence comes from theknowledge spillovers mechanism.2.0. This is Bangladesh

In this chapter different aspects of Bangladesh will be described.Section2.1 discusses the history of Bangladesh while geography ofBangladesh has been described in section 2.2. Demographicalinformation of Bangladesh has been put in the section 2.3 and section2.4 focuses on the Bangladesh economy. The chapter is summarizedin section 2.5.

2.1. History of Bangladesh

Bangladesh is a small but one of the most densely populatedcountries in the world. It accommodates 140 millions (BBS, 2007)people in about 147570 square kilometers (BBS, 2007) areas. Thecountry is surrounded by India from three sides and in the south partof the country it has the ocean Bay of Bengal. In this part the countryhas the worlds largest beach named Coxs Bazaar Beach.Bangladesh also shares a small border with Myanmar in the southeastcorner of the country.


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Figure-2.1: Bangladesh in the Indian Sub ContinentBangladesh was colonized by British when it was a part of India. Butin 1947 when British had to leave Indian sub continent, Bangladesh

become integrated with Pakistan as East Pakistan. But this integrationdid not continue much. In 1971 through an independence war againstWest Pakistan, East Pakistan becomes Bangladesh as a newindependent country.

2.2. Geography of Bangladesh

In Bangladesh there are six divisions under which there are 64districts. Under these 64 districts there are 481 upazila (policestations/sub districts) and 4498 unions. There are six city

corporations in six divisions of the country. Dhaka as the capital cityof Bangladesh is the most important city while Chittagong is the mainindustrial area where Bangladesh has all the major seaports.


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Figure-2.2: Districts Of BangladeshIn fact six divisional cities got the status of the city corporations andbased on these cities urbanizations is growing up in Bangladesh.People like to move to the city areas from the rural areas due to themore facilities in daily life in the city areas. These facilities includeavailability of better transportations, access to gas & electricity,

access to better accommodations, job opportunities etc.


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Figure-2.3: Divisional Cities & City Corporations

These divisional cities are important because they represent theurbanization in Bangladesh. They also represent the level ofdevelopment in a particular division. Normally all the administrative

offices related to the division are situated in the city.

2.3. Demographical data of Bangladesh

Demography of Bangladesh mainly includes the populationdemography which has lots of different attributes. Some of thoseattributes are analyzed here.

0 Total population: Bangladesh is one of the mostdensely populated countries in the world and the rate of population

growth could not be controlled until the last couples of years. Arecent estimate shows (July 2007) that the total population in thecountry is around 150 million while the total amount was 124.3million in the latest census in 2001. The figure for total populationwas 136.71 & 138.6 million in 2004 & 2005 respectively. The annual growthrate was 1.42% (BBS, 2007) in both 2004 and 2005.

Age:The average life expectancy in Bangladesh is 65. 01 year(BBS 2007) while the expectancy is 64.5 & 65.7 for male & femalerespectively. Among the total population 32.9% falls in 0-14 yearsage group, 63.6% falls in 14-64 years age group, and 3.5% falls in the

65 years and over age group. The median age is 22.2 years for bothmale and female.


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80+ 75 -79 70 -74 65 -69 60 -64 55 -59 50 -54 45 -49 40 -44 35 -39 30 -34 25 -29 20 -24 15 -19 10 -14 05 -09 00 -04

14 12 10 8 6 42 24 6 810 12 14

Figure-2.4: Population at different ages (Source: BBS 2006)

Male/Female ratio: An estimate in 2006 shows that the ratiovaries in different times.

a o At birth the ratio is 1.06b o Under age 15: The ratio is 1.06c o 15-64 years: The ratio is 1.04d o Above 65 years: The ratio is 1.16

In 2004 & 2005 this ratio was 105.2 & 105.0 respectively while theexpectation for 2006-20011 is 106.0 (BBS 2007).

Language:Though there are some dialects in differentregions, about 98% of the total population speak in Bangla inBangladesh. English is widely spoken too specially in the urban areas.Students learn English in schools as their second language. In thecorporate area most of the communications are in English now adays. Dialects are found in Sylhet, Chittagong, Hill Tracts, Noakhali,Rangpur, and some parts of Barisal.

Religion: Bangladesh is a Muslim majority country and almost

89.58% of the total populations are Muslims. Hindu is the secondmajority having 9.34% of the total populations. In addition to thesethree other major groups are Buddhists (0.62%), Christians

(0.31%), and Animists (0.15%). In spite of this variety, people livecoherently in the society and thats why UN declared Bangladesh aModerate Muslim Democratic Country.

Table-2.1: Religion Statistics in Bangladesh (in %)

Religion Census 81 Census 91 Census 01


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Muslim 86.65 88.31 89.58Hindu 12.13 10.52 9.34

Buddhists 0.62 0.58 0.62Christian 0.31 0.33 0.31Others 0.29 0.26 0.15

Sources: Population Statistics, BBS, 2006

Ethnicity:Though there are some ethnic groups, Bengali is thedominating ethnic group. 98% of the total population is Bengali.Other ethnic groups are Chakma, Marma, Garos, Biharis, Oraons andMundas.

Education: In case of education in fact Bangladesh is still inthe development stage. Latest data shows that the literacy rate was51.6% & 47.5% in 2004 & 2001 respectively (BBS 2007). Though

male has the higher literacy rate (57.2% in 2004) than female (45.8%in 2004), in the last decade female populations made hugeimprovements. It might be due to the fact that government now has alot of assistance programs to encourage female education in thecountry. Currently there are 78 public & private universities includingengineering universities and 42 medical colleges also both private &public in Bangladesh.

2.4. Economy of Bangladesh

Bangladesh is a small country with quite a small and poor economy.Since its independence the country has been administered by lots ofundisciplined administrations that could not ensure the maximumutilization of the available resources let alone finding the new sourcesof resources. As a result the country is still a developing country.

Bangladesh is basically an agrarian country. Majority of thepopulation is involved with agriculture either directly or indirectly. Butthe contribution of agriculture in total GDP has been decreasing in thelast few years and currently service is the dominating sector in theBangladesh economy.

Figure-2.5: Sector Wise Contributions to GDP (Source: BBS,2006)


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But from the labor involvement perspective still agriculture sector hasthe dominance in the economy. This sector has the highest level ofdirect labor involvement and one of the major findings is that thoughthe contribution of agriculture in GDP is decreasing, laborinvolvement is not decreasing. Rather more and more labor force is

being involved in the agriculture sector. It might happen due to thehigh level of unemployment in the country. Service sector involvesthe second highest amount of labors. The labor involvement inconstruction sector is increasing year to year. It well explains that thesector is a growing sector.

Table-2.2: Sector wise employment (in million)1

Sectors 1995-96 1999-00 2002-03

Agriculture, forestry, and fisheries 17.0 19.8 22.9Trade, hotel & restaurant 6.0 6.1 6.7

Manufacturing 3.5 3.7 4.3Transport, storage, andcommunication

2.2 2.5 3.0

Community and personal services 4.8 5.1 2.7

Construction 1.0 1.1 1.5

Source: Statistics Bangladesh, BBS, 2006

Bangladesh imports more than it exports and therefore it always havea negative trade balance over the years. It also has huge trade gapswith different countries including neighboring India and Pakistan.

Item Years

200001 200102 200203 200304 200405 200506

Trade Balance($m)

-2011 -1768 -2215 -2319 -3297 -2879

Table shows the employment by major industries thats is not necessarily the totallabor force.

Still the export amount is increasing over the years. In 2006,countrys total export was 10.5 billion US$ which is 21.6% higher thanprevious year. The main item of export is readymade garments,which contributes 75.0% of the total export earnings. EU, USA andCanada are the major markets for the exporting products. EarlierBangladesh could export jute & jute made products and tea to somecountries in a large quantity. But gradually garments sector weregetting more and more attention and for the last couple of years this

sector dominates the scenario.


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Another most important aspect of Bangladesh economy is remittance.Lots of Bangladeshi people working abroad send money to theirbelongings in the country that with the multiplier affects help thetotal economy in greater details. At the same time total amount ofremittances is also increasing day by day for which now a day its

commonly believed that remittance is the backbone of theBangladesh economy.

Table-2.3: Remittance flow to Bangladesh

Year Number of EmployedPersons

Remittance (Million USD)

2002-03 241425 3061.97

2003-04 272633 337.97

2004-05 251699 3848.292005-06 286381 4801.88

Source: BBS, 2006

In addition to these, there are other sectors like fishing, forestry,mining, constructions, electricity & gas, foreign direct investments,and real estate with different contribution ratios to the total economy.

Real estate sector is one of the newest sectors in Bangladesh. Until

the last couples of years this sector was not that attractive. Butcurrently the sector has a great investment potential. It happenedmainly due to the growing pace of urbanization and the scarcity oflands in the urban areas. One study on labor force in 2002-03 fiscalyear shows that about 1.94 millions of the total 46.3 millions2 laborforce (labor force survey 2003) are directly involved with the realestate sector in Bangladesh. In 2005-06 fiscal year the sectoral shareof real estate in the total GDP was 8.04% at current price while theshare for 2004-05 fiscal year was 8.36% (BBS 2006). The followingtable represents an overall picture of the total economy ofBangladesh.

2 46.3 millions are the available total labor force while the total employed labor force is44.3 millions.

Table-2.4: Major economic data of Bangladesh

Item 2003-04 2004-05 200506

GDP (in Billion TK) 3329.73 3707.07 4157.28


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GDP Growth Rate (%) 6.27 5.96 6.63Per capita GDP (in TK) 24628 27061 29995

Per Capita GDP (in US$) 418 441 447

Sectoral Share of GDP

Agriculture (%) 21.04 20.14 19.61Industry (%) 26.60 27.22 27.91

Service (%) 52.36 52.63 52.48Real estate (%) 8.36 8.04

Inflation (CPI, National) 5.83% 6.48% 7.17%

Source: BBS, 2006

2.5. Chapter Summary

Bangladesh, the small but densely populated country that gotindependence in 1971, could not create its own base for economy inthe last 36 years. It still has deficit budget and the country almost alltime have trade deficits with other countries including neighboringcountries like India and Pakistan. Though agriculture employs most ofthe countrys labor forces, service sector is the leading contributor inGDP. The country is not pretty much industrialized though the pace ofindustrialization is increasing over times. Real estate sector is theresult of that increasing pace of industrialization. Though the sector is

less attractive right now, some people argue that the sector is beingsettled in fact and there are still a huge market remaining topenetrate. In their opinion the initial abnormal profits in the sector isdecreasing and thats why some people say that the sector is loosingattractiveness. In fact the sector is getting the real shape with theoffers of ample opportunities in coming times. Another argument isthat due to the economic bad times currently the sector is little bitfade, but it will get its real face once the economy gets its real trackback.3.0. Introduction to the Real Estate Business in Bangladesh

Real estate business in Bangladesh started in the late 70s. But thebusiness got the main attention in late 90s and in the mean time itexperienced a boom too. In the following sections real estatebusiness in Bangladesh (3.1) and the real estate market (3.2) inBangladesh are described. Then after that real estate business in theoutskirts of Dhaka city is described in section 3.3 followed by thechapter summary in section 3.4.

3.1. Real Estate Business in Bangladesh: A brief Overview

Real estate business in Bangladesh is limited to some designated city


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areas till now. These cities are the six divisional cities which also gotthe status of city corporations. They represent the level ofurbanization in Bangladesh too. In reality not all the cities have thesame level of real estate business activities. Even some cities do nothave it at all. So one might argue that the real estate sector in

Bangladesh has a great potential in coming days considering the factthat there is still a large market segment remaining to penetrate.

Now question might arise why there are no real estate activities inthe rural areas. The answer is that in rural areas people build theirhouses by own efforts and sometimes with the help of constructionworkers especially in case of buildings. There are no architects todesign houses in rural areas because they are not really neededthere. Most of the houses in the rural areas are not buildings. Evenwhen there are buildings they dont employ any architects or

construction firms to build the houses. Rather they hire constructionworkers and discuss their preferences with them and finally reach adecision how to build the house. The same pattern is present in thesmall towns in different regions of the country.

Figure-3.1: Divisional Cities & City Corporations

The major part of the preference of rural people comes from theirobservation of the houses in neighborhood and in the city areas.When they visit the city areas they get new ideas about housing andtry to implement those ideas in their own house building activities.

Another question might arise about the differences among the citiesbased on real estate firming activities-Why there are differencesamong cities? In fact development of the real estate businessactivities in a particular area depends on a lots of things and thewhole process is much more complex in a country like Bangladesh

where


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The level of education is variable across the country

People have the differing views on the use of their lands

Affordability and the housing requirements are different

Government dont yet have a housing policy formally

Financial sector is less oriented to the real estate businessdevelopment

Preferences for housing is different than that in other countries

Difference in between rich and poor is significant and middleclass diminishes

Like all other developing countries, in Bangladesh land is one of thecrucial factors for a lot of other products which means that there isalways a trade off in case of land use. These trade offs sometimeslimit the use of lands toward the maximum possible welfare for boththe landowners and the country in a macro level. In Bangladesh land

can be used in any of the followings.

As input of agriculture: Bangladesh is an agrarian country andmajority of the total population is involved with agriculture eitherdirectly or indirectly. In most cases agriculture is almost the solesource of incomes for this large part of the population.

As factor of production: For business firms especially for theSmall and Medium Enterprises (SME), land is one of the mostimportant factors. In fact costs of the lands are sometimes the largestor the second largest costs for these firms.

As input in Business Model: This is especially relevant for thereal estate business firms. Land is the most basic factor on which areal estate firms business model is developed. So it carries an extraweight when one decides on the business model.

As a result, when a farmer decides about the use of his/her lands,he/she has to think a lot because of the potential losses arising fromthe opportunity costs. But the reality is little bit more difficult inBangladesh. Here some people have lands as the only source ofincome. So when they decide upon the use of lands they cant think it

much really because this is the only option they have.Educational level is highly variable across the country. So there is asignificant difference in thinking on housing among the people wholive in urban areas and the people who live in rural areas. Thereforethere is a direct link in between educational level and the preferencesfor housings. In urban areas the rate of educated people is higherthan that of rural areas. Therefore these urban people are familiarwith the newness in livelihood arising from the technologicaldevelopment in course of times. It affects their thinking of housingarrangements. But in rural areas the situation is reverse and theperception is different.

Some people like to have house with large surroundings while some


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people think they dont need large surroundings as it hinders themaximum gains from the land use. In Bangladesh people like to havea house which might not be a building, but it should have thesurrounding with lots of open spaces, trees, ponds, and tube wells. Itrequires large amount of lands as well as large amount of monetary

investments which put the questions on the affordability. Thereforethere is a gap in between the preference and the affordability leadingthe people to adaptation. Moreover, now a days one cant even thinkof this kind of houses in some city areas like Dhaka due to thescarcity of lands.

Shelter is one of the five fundamental rights of Bangladeshis. But thisis only in constitution and in real life the practice of this part ofconstitution is absent in most cases. It happens due to theunavailability of resources from the part of government followed by

lots of slums in Bangladesh especially in city areas. Until recentlyBangladesh government could not focus on the facts that

There are frauds in the real estate business in Bangladesh

The gap in between rich and poor is widening gradually andtherefore middle class and poor people are facing difficulties to affordhousing

Its surprising but true. However the good thing is that Governmenthave started to think about the issues and they are focusing on a

formal policy about the real estate business in Bangladesh. At thefirst step few weeks back Bangladesh government suggested the realestate firms to think about the housing for middle class and poorpeople considering their affordability. Bangladesh Bank, the centralbank of Bangladesh, also declared a decrease in the interest rate onhousing loans. It also said that gradually it will make the housingfinance related issues more flexible.

Availability of relevant financial services as well as access to thosefinancial services by the mass people is one of the most important

issues in case of real estate business development in Bangladesh.Banks, except a couple of banks, dont provide housing loans andthose which provide housing loans have strict conditions. Thesebanks charge higher interest rates for housing loans and theysometimes want the loan backed by something i.e. property asmortgage, which is difficult for a good number of people. Banks try toexplain the situation saying that the scope of real estate activities ispretty narrow in Bangladesh and they always carry the potentialcredit risks coming from the borrowers.

In addition to that there are other factors which we might saycommon factors around the world that can affect the real estateactivities in a particular region. These factors includes but not limited


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to the followings.

Population density of the region.

Rate of urbanization.

Land availability and land use pattern.

Land price.

Income of the people.

Cultural phenomenon.

3.2. Real Estate Markets in Bangladesh

It was mentioned earlier that the real estate sector in Bangladesh isyet to penetrate all the city areas. So when one talks about the realestate markets in Bangladesh its a good start to talk about the realestates markets that are already in presence or expected to be in

presence in those city areas. The following sections describe the realestate activities in six divisional cities in Bangladesh.

3.2.1 Barisal: The newest city of Bangladesh

Barisal is the newest division of Bangladesh and the main town of thedivision, Barisal, got the status of City Corporation. The division hassix districts under its supervision and the city corporation has thelowest amount of population among all divisional cities.

Figure-3.2: Location of Barisal in Bangladesh map

In this city and its surroundings, real estate activities have not yetbeen started. It might happen due to the different reasons. Forexample,

The population density is not high here.

The level of urbanization is very low here. One still can feel therhythm of rural life in Barisal.

The scarcity of lands to build house in the city and itssurrounding areas is still low. Thats why people are not yet thinking

of efficient use of the lands they do have. They rather build house in away to put as much luxury as they can. But as the city might turn into


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the main gathering centre for the people coming from differentdistricts in near future, there is a chance that lands will be scarce andreal estate business will be started here too.

Though the land price is growing day by day, its still not beyondones means.

One of the major characteristics of the Barisal city is that there arelots of students staying in this city. It has the best and most famousuniversity college of the southern region of Bangladesh named B. M.College. Almost thirty thousands students study in this college. Inaddition to that the city has six other colleges and one medicalcollege along with lots of other educational institutions like TextileCollege, polytechnic institutions etc. A large number of studentscome from outside of the Barisal city and the educational institutionscant provide accommodation to all students. Therefore students stay

in mess or rented apartments. But the condition of messes are notreally good and its pretty difficult to rent apartments as the landlordsdont like to rent their houses to students. So there is always a needof new apartments for students and it could be one of the bestopportunities for the real estate business firms to penetrate in nearfuture.

3.2.2. Rajshahi: The education city of Bangladesh

Rajshahi division includes sixteen districts of the northern region of

Bangladesh. In addition to the Rajshahi city corporation, Rangpur andBogra are another two mentionable towns from this division. Thesetwo towns get attraction due to the bulky development activities inthese towns in different times. Rangpur came to focus for the hugeinfrastructure development by that time government in 80s to 90sand Bogra had lots of development activities in the last couples ofyears. Both cities have lots of educational institutions includingmedical colleges.

The total population of Rajshahi city is 447031 (BBS, 2006) that arepretty much low compared to other densely populated cities in thecountry. But this city is pretty much important for the countrybecause of the following two roles.

Rajshahi is the education city of Bangladesh. It has a largenumber of educational institutions including universities, medicalcolleges, engineering universities, polytechnic institutions etc.

The division produces a substantial part of the total agriculturalproducts in Bangladesh.


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Figure-3.3: Rajshahi in the map of Bangladesh

Rangpur and Bogra towns have the more or less same characteristics.Both areas have their major orientation to the agricultural products

though in Bogra industrialization has got a new pace in recent years.

No one of the above mentioned regions has real estate activities. Ithappens due to the following regions.

The population density is not that high and therefore land is notyet scarce.

Most of the lands are being used as the input of agriculture. Sopeople live in self made houses normally.

The growth of urbanization is very low in these areas.

Majority of the population are poor in these regions and theydont afford the expensive houses. As a result real estate businessfirms are not pretty much interested in those areas.

But there are great potential for the real estate business in theseareas especially in Rajshahi city. This could be a great market for thefirms which can offer houses for middle and low income people.

As mentioned earlier, Rajshahi is the education city of Bangladesh. Sothere are lots of students coming from all over the country stay here

for educational and job purposes. They require houses, but they dontafford expensive housing. So if any company can offer housing formedium income and low income people, it might gain from themarket substantially. Students especially can be a very good targetmarket and it should be profitable business venture. Students arepretty large in numbers and they come each year. Another fact toconsider is the time period. A company even can think relatively longterm. A student in a university stays minimum five years in the cityfor completing graduation only. If he goes for master or PhD then ittakes much longer time.3.2.3. Sylhet: The London of Bangladesh

Sylhet is another new division in Bangladesh. The city, Sylhet, has the


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second lowest population among all the cities. But still the city hasthe great potential for the real estate business. The major factorbehind this is the income level of people. People are pretty much richin this area and can be the potential target market even for theluxury real estate products.

The city has couple of universities and a medical college andtherefore a medium amount of students study here. The only publicuniversity here in Sylhet along with the medical college is the mainattraction to the students. But these institutions admit a smallamount of students per year. So students here cant be a logicaltarget market because it might not provide the expected return onthe investments for the firms.

A small scale real estate business activities have been started in this

area already and the area is getting greater attentions from theinvestors day by day. But there are some problems to do business inthe Sylhet region mainly due to the cultural differences.

Figure-3.4: Sylhet in the map of Bangladesh

This region has some different cultures in addition to the mainstreamBangladeshi culture. They have their own dialect to speak andsometimes a lot of people cant speak in Bengali clearly. The level of

education is also low in this region, but the situation is improving.Another significant characteristic is that at least one member ofalmost every family from the greater Sylhet region live in foreigncountries (mainly England). Thats why Sylhet is sometimes called theLondon of Bangladesh. These migrated people send money to theirfamilies and families spend quite a large amount of money onhousing. The people have some kind of ego that they are from Sylhetand they seem to be united throughout the world. Its widely believedthat they dont like people from other regions. Therefore its verydifficult to do business in Sylhet region if one is not from Sylhet

region. One has to be able to speak in Sylheti, the dialect in Sylhet.


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Most of the developers and builders who are doing real estatebusiness here are from Sylhet which limits the scope for others toenter into this area. At the same time some migrated Bangladeshisfrom London invest in the real estate sector in this market and theyare pretty much favored by the local people. So this market has

narrow offers for the firms not owned by the people of Sylhet or notoriginated from Sylhet.

3.2.4. Khulna: Industrial Zone of Bangladesh

Khulna is the second most important industrial zone of Bangladeshand it is situated in the south west part of the country. The city hasthe third largest amount of population among the cities and there arelots of industrial units in this area. People from Khulna sometimesclaim that they have a kind of multicultural environment in the city as

people from different parts of the country came and settled here. Butthey still have their own cultures.

The city has large amounts of educational institutions includingcouples of universities, medical colleges, engineering universities,polytechnic college etc. But except the public university, engineeringuniversity, and the medical college no other educational instituteattracts students those are not from Khulna region. So there are notthat much students looking for housing here. At the same timeuniversities offer large scale accommodations for the students. So

though there are lots of educational institutes in the city, studentscant be a logical target market.

Figure-3.5: Khulna in the map of Bangladesh

The level of education in this area is medium and in an averagemajority of the people are of medium income. But still there are somereal estate activities are found in this area. The reasons are in point.

Due to the high population density the market is attractive to

the real estate firms. Though the city is expanding in almost all directions, the level


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of land scarcity is increasing gradually.

People have money to spend on luxury housings also.

The growth of urbanization is pretty high which motivated thereal estate firms.

Most importantly universities in this area have some special

courses on real state developments and architecture. It means thatreal estate firms have some readily available local resources to starttheir venture. It works as an added advantage for the firms, as theselocal graduates know the market well than others.

Its worthy to mention here that all the real estate firms that functionhere are of small and medium size. They normally operate outside ofthe city corporation. Therefore now-a-days experts put the questionon whether or not these small and medium firms will be able to meetthe increasing housing demand in Khulna city arising from rapid

urbanizations.

3.2.5. Chittagong: The largest industrial zone of Bangladesh

Chittagong is the main industrial city of Bangladesh and its in thesecond position among cities based on total population. In Chittagongpeople speak in a different dialect and they have their own culture.The level of education was not much good until the last couple ofyears. Though the city has the second largest population, real estatebusiness is not yet seen that much in this region. It might happen as

because the level of land scarcity is low till now.

Figure-3.6: Chittagong in the map of Bangladesh

At the same time the city expands in all directions it can which allowspeople to live in the outskirts of the city while doing jobs or businessin the city centre. In fact as the number of industries increase cityalso expands.

One of the mentionable characteristics of the population inChittagong is that it is comprised of lots of labor class people whocome to the city for jobs from different other regions of Bangladesh.


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These jobs are mostly low paid jobs like jobs in the garments sector.As a result people always look for the cheaper houses and they goout of the city area to live. But its also true that there is a significantamount of population in the city who has above average annualincome and affords luxury houses. These people are the basic target

here in Chittagong market for the real estate firms and thereforethere are couples of companies are working here in the real estatesector. Initially there were some small and medium size firms, butnow almost all the big firms that mainly operates in Dhaka region,focus on Chittagong market. Some have already started housingprojects here.

In Chittagong division, Bangladesh has two beaches among whichone is Coxs Bazaar, the largest beach in the world. Coxs Bazaar ispretty much attractive for the real estate companies especially for

the commercial real estate developers because of the large scaletourism activities in this area around the year. In peak season thedemand for residence becomes so high that one has to book hotel orrest house well before one plan to go there. At that time price is alsovery high i.e. almost double or triple of that in off peak season.

Some large real estate firms operate in this area mainly to buildhotels, restaurants, and rest houses. There are also demand forresidential houses as some rich people of the country like to havehouses here in case they want to visit the city & beach sometimes.

Recent data shows that some five stars and four stars hotels havealready been built in Coxs bazaar and these are near to the beach.But the demand for residence is still increasing which means that thismarket still have large potential. In reality the market now looks forthe quality services and therefore it provides ample opportunities tothem who can build the houses or restaurants or hotels with qualitythrough maintaining some pre-defined standards.

Another unique characteristic of this division is that one significantpart of the division is hilly. Normally tribal people live in these hilly

areas and they build their own houses though the houses are not ofquality at all. In fact one might argue that they live in hills not inhouses.

Therefore chances for the real estate companies in this region aremainly oriented to the high income people. Thats what happeninghere in reality too. Some small scale real estate firming is seen in thearea named Khulshi, an area that is pretty close to the city centre. Itssaid that elites of the city has moved to this area in course of time.One of the major features of this area is that it has beautifullandscapes and proper arrangement of security, a primary concernfor the people in this area.In future it is hoped that real estate firms attention will be moved


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from Dhaka to Chittagong to meet the rising demand of housing inthis area. It should be mentioned here that the demand risesnormally because of the high pace of industrialization in this area.

3.2.6. Dhaka: The Capital of Bangladesh

Dhaka city, the capital city of Bangladesh from Dhaka division, is themain area of real estate business in Bangladesh till now. The city isexpanding day by day in every direction it can and this expansiongenerates the opportunities for the real estate business sector. InDhaka the population density is pretty high and its still increasing.People from rural areas and the outskirts of Dhaka city come to thecity everyday which makes an enormous traffic in the city per day. Allthe major government offices and diplomatic offices are also in Dhakathat made the country centrally administered followed by an increase

in the daily traffic to the city.

3.2.6.1. Brief History of Dhaka

The city which was born during the Moghul Empire and grown withthe British rule, has experienced a lots of ups and downs of history.But after the expiry of British rule in 1947, when Bangladesh hasbeen separated from Pakistan in 1971, Dhaka city got the mostattentions as the powerhouse of the country. Rapid development andgrowth was found in every sector. But gradually the city was lacking

proper management and from the late 90s of 20th Century its growthand latter development is marked with sheer lack of proper and far-reaching planning.

Figure-3.7: Dhaka in the map of Bangladesh

3.2.6.2. Demographics of Dhaka

With 816 square kilometres areas Dhaka is the largest and the mostpopulous city of Bangladesh. This is also the capital city of


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Bangladesh. Currently the city has around 6.5 million populations(BBS, 2006) and the amount is increasing day by day. The rate ofgrowth of population is 4.2% per year, which is one of the highestamounts among the Asian cities. In reality the population is muchmore which amounts to 11.9 millions when all the localities in the

wider metropolitan areas are included. The city has the largestnumbers of educational institutions among any city of Bangladeshand it also has the highest literacy rate in the country which amountsto 62.3% (BBS, 2006).

There are several reasons why populations are increasing in the cityamong which some are

Dhaka provides the best possible living standard in Bangladesh.Also this is the most urbanized area of Bangladesh. So people move

to this city to have the better life standards. Almost all the government offices and diplomatic missions arein Dhaka for which lots of people move to the city either to work or tomeet their demand.

Enormous amounts of universities, engineering universities,university colleges, colleges, schools, vocational training centres,medical colleges are situated in Dhaka city and its outskirts.Therefore huge amounts of students and officials including teachersmove to the city.

In Bangladesh Dhaka provides the largest amount of jobs and

almost all the head offices of different companies are in Dhaka. Thisalso attracts people to move to Dhaka.

Unavailability of jobs in the rural areas motivates people tomove to Dhaka.

In brief one can explain the high density of population in Dhaka cityby the availability of jobs and educational institutions because thesetwo are widely claimed reasons of migrations to Dhaka.

This huge population in Dhaka city is the triggering point for the realestate developers. They could combine the two major factors whichare land scarcity and the bulky growth rate of population in Dhakacity. This combination has become the blessing for most of them atleast at the initial time of real estate business in Bangladesh. Table3.1 shows the population scenario in different divisional cities ofBangladesh.

3.2.6.3. Real Estate Business in Dhaka

While there are so many real estate developers in the market, thereare also very few of them who have maintained the quality, safety

and customer preferences. It is customary in the country that the firstday quality and impression is lost after a while when people start


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getting a bit of familiarity. This happens due mainly to lack ofprofessionalism.Sometimes the consumers here are in a fix to choose a particularbrand out of many.

A good number of real estate companies are working under oneumbrella association named 'Real Estate and Housing Association ofBangladesh' (REHAB). It has been formed in 1991 with eleven (11)initial members in order to strengthen the role of real estate sector ineconomy. Currently 321 real estate developers are affiliated with thisassociation.

Table-3.1: Total population in different city corporations

City 2001 2006

Dhaka 5333571 6479751

Chittagong 2023489 2438403Khulna 770498 830454

Rajshahi 388811 447031Sylhet 263197 394119Barisal 192810 205166

Source: BBS (Bangladesh Bureau of Statistics), 2006

Real estate business has been started in Bangladesh at late 70s. Atthat time only five (05) developers were engaged in this business. In1988 the number was increased to 42. Then after that the sectorexperiences a boom and in 2004 the total number of real estatedevelopers has been increased to 250. Right now in 2008, the totalnumber of REHAB affiliated developers is 321 while there are lot ofother developers who operate individually. However, its widelyargued that almost 90% of the total business is dominated by top 10-15 companies. Therefore market is pretty much concentrated.

There are lots of discussions about the booming period of the realestate business in Dhaka-why did it happen? Suddenly the demand ofreal estate products has been increasing too much that lots ofdevelopers came to the market to invest. Discussions with theexperts, customers, and other relevant persons produce the followinglist.

0 Land Scarcity: Due to the large number of migrants andindustrial activities, total amount of available land have beendecreasing over time. At a certain point in time Dhaka become too

crowded and some people argued that this city is not eligible to livein. In reality Dhaka city has not been properly managed when it


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started to expand. In a modern city there should be at least 15%spaces allotted to the transportation system. Dhaka does not havethat amount and the transportation system suffers. There are terrifictraffic jams in the city along with the pollution.1 However random constructions in the city have not been

stopped. Though there were regulations about the constructionactivities, they have not been followed properly. As a result efficiencyof land use could not be gained followed by the scarcity of lands.Lands scarcity helped booming of the real estate sectors becausepeople wanted to secure the living place anyhow.

Hazards in purchasing land: Bureaucratic process of landpurchasing motivated people not to buy lands. Therefore they startedto depend on the developers who manage everything including landacquisition.

Hazards in construction of building:To construct a house

one has to deal with all the stakeholders including engineers,financing institutions, architects, construction workers, brickcompanies, cement companies, municipal corporations, tax authorityetc. This brings lots of complexities to ones life and to get rid of thatone does not do by oneself. Rather one like to depend upon thedevelopers.

Security:This is one of the most important reasons for whichpeople used to depend on the developers rather than constructing bythemselves. Well this is a socio cultural phenomenon. One could notbe sure that one can construct the building even though one has landand all other relevant stuffs to build the house. One had to satisfy

some other parties to get the final green signal. These partiesincludes some corrupted officials from different administrativesections like tax department, municipal office, local loafers etc. Localloafers could be so dangerous sometimes that people had to thinkabout the total loss. To get rid of this insecurity people started todepend on the developers. Developers have power and capacity tomanage all these parties and the risk becomes low. Above all in thepost construction periods developers help in arranging the bettersecurity system in the buildings.

Public Sector Failure:Though according to Bangladesh

constitution and United Nations resolution shelter is the fundamentalright of any citizen of the country. But due to the resources scarcityBangladesh government could not meet the growing demand ofhouses let alone houses for the people who lack affordability. Soalternatives came out from the private sectors and there is now aformal real estate sector in the country. Almost all the firms areprivate in this sector and they are trying to meet the growing demandof housings. But not necessarily they try to meet the demand ofhouses for the people who lack affordability.

Price: Prices of land and apartments were increasing rapidlyday by day. So people wanted to ensure their living place as soon as

possible which puts a pressure in the supply side. Decrease in bank interest rate: Decrease in the bank


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interest rate has an inverse relationship with the real estate activities.So when rate was decreasing demand for the houses were increasing.Decreasing bank interest rate is pretty much helpful for the peoplewho have the access to the financing system of the country.

Increased population: Dhaka as one of the major suppliers of

jobs and educational services among others attracted lots of peoplefrom the rural areas and the migration rate was very high. Increasedpopulation puts a pressure on the demand side and developersincreased the supply. New investors also took this chance to get intothe market.

Rent variation:To meet the growing demand for housesdevelopers developed lots of houses because rent in apartments iscomparatively higher than the rent of privately constructed flats. Itworked as a motivating factor.

Complimentary services: Complimentary service facilities

such as garbage disposal, central satellite TV connection, apartmentsservices, roof top facilities, lift and so on are well managed by thedevelopers. It reduces the complexity of the daily life and peopleliked it much.

3.2.6.4. Products of real estate firms in Dhaka

In Dhaka real estate firms operate in both fields-residential andcommercial. But the main attention goes to the residential realestate. Within these two broad categories there are variety ofproducts too. For example, residential real estate products range

from Duplex Home, Triplex Home, Penthouse, Luxury Home,Furnished Apartment, Unfurnished Apartment, to Condominium andVacation-Resort etc. On the other hand commercial real estateproducts include Industrial Shed, Agro Farm House, Warehouse /Godown, Commercial Space, Industrial space, Office Building, OfficeSuite, Furnished Office, Commercial Showroom, Exquisite Office,Industrial Park, Factory, Lofts, Shopping centres etc.3.2.6.5. Market Segmentations

The market of real estate business is highly segmented. This

segmentation is mainly based on location, price of the land, size ofthe apartments, and the amenity. Following is a general way ofsegmentation.

Segmentation-01:This includes Baridhara, Gulshan, Banani,DOHS, and Uttara. Gulshan, Banani, and Baridhara are three mostexpensive zones of Dhaka city. Majority of the diplomatic offices aresituated in these three zones especially in Gulshan. In Uttara andDOHS both expensive and inexpensive houses are available. Middleclass people also afford housing there. Some industrial units are also

found in these areas. Segmentation-02: Dhanmondi is in segmentation two. This is


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a big area and it becomes famous as a residential area since the timefirst president of Bangladesh after independence has been livinghere. There are lots of universities and colleges mostly private in thisarea. The average income level of people is pretty high in this area.But now-a-days this area is loosing some of its reputation as a

gorgeous residential area because of the introduction of someindustrial activities in this area. At the same time lots of mediumincome people could access the housing in this area because of theintroduction of large scale real estate activities in this area. This issomething high income people treat as degradation of the area. Sosome high income people moved to Gulshan or Banani fromDhanmondi. One of the special features of this area is DhanmondiLake which is pretty long and covers almost all sections ofDhanmondi. Therefore there are some amazing & very expensivehousing projects around the lake where houses have lake view.

Segmentation-03:This segment includes Segunbagicha,Shantinagar, Kakrail, Malibagh, and Kalabagan regions. All of theseregions are semi residential and semi industrial. But regions likeSegunbagicha and Kakrail are famous for government officesincluding secretariats. However generally both high and mediumincome people can afford housing in these areas.

Segmentation-04:This segment is bit away of the CBD(central business districts). It includes all the sections of Mirpur. Thisarea mainly for low and medium income people. But the scarcity ofland moves high income people too in this segment for housing. Lotsof industrial activities are found in this area among which garments

industries are mentionable. In fact majority of the garmentsindustries in Dhaka city are situated in different sections of Mirpur.


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Figure-3.8: Dhaka City Map Showing Different MarketSegments (Source: Banglapedia)

Segmentation-05: It includes the old Town of Dhaka City.Well there are not much real estate activities in the original old town.But when one includes the expanded old town area then there arelots of real estate activities are found now a days. Mostly mediumincome people are moving to these areas. Once again land scarcitypushes the high income families too to buy houses in these areas.

Segmentation-06: Motijheel, Dilkusha, Fakirapool DITExtension Road, RK Mission Road, Shahidbagh, Kawran Bazar, Pantha


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Path etc. comprise the segment six. This segment is the main targetmarket for the developers who develop commercial real estateproducts like office buildings. But due to the land scarcity, the scopeof new construction activities is pretty much narrow in these areas.

3.3. Real Estate Business in the Outskirts of Dhaka City

As mentioned earlier that the land scarcity is pretty intense in Dhakacity and the city is expanding in all directions it can. As a result thevolume of metro area is also increasing in courses of time. Thereforereal estate developers get the chances to expand their markets in theoutskirts of the city too.

In south part, the city expands towards Keraniganj, the police stationin the border of Dhaka and Munshiganj district. Currently there are

lots of real estate developers working in this area with differentprojects targeting different income level people. One good thing forthe developers is that people are now unhappy with the livingconditions in Dhaka city due to traffic jam, crowds, pollution etc. andat the later stage of life especially when one retires from ones job,one wants to get out of this city to live a peaceful and smooth lifewith fresh air. So these areas gets an enormous amount of attentionfrom those people who are going to retire in the next five to tenyears. Therefore pension funds enter into the market as investmentin real estate sector.

The same pattern is visible in other directions of the city too. In northpart of the city, it expands towards Savar, the police station in theborder of Dhaka and Manikganj districts. In fact Savar region got themost attention in the last couples of years from the real estatedevelopers. The reason is the dramatic development in thecommunication system in between Dhaka and Savar in the lastcouples of years. Savar is only few kilometres away from the lastpoint of metro area in Dhaka and the transportation system got arevolutionary improvement after the construction of Dhaka-Arichahighway in 2000. This is one of the very few busiest highways inBangladesh.


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Figure-3.9: Dhaka city and its outskirts (Source: Banglapedia)

Right now real estate firms not only covers Savar but also theManikganj district. Its pretty rational because people who are aboutto retire or who plan their future well before are buying houses orlands in these areas. In fact very few people could predict that afterthe Dhaka-Aricha highway construction, there would be so rapidurbanization in those areas followed by the rapid movement of people

from Dhaka city to its outskirts.Another very important place under Savar police station is Ashulia.


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This is a place where people come to spend some of their free timeswhen they become bored in Dhaka city. This is kind of recreationalspot in the vicinity of Dhaka city for the people in Dhaka and itsoutskirts. There are two amusement parks here and the spot is veryclose to the Dhaka airport and another famous residential area

Uttara. Also its very close to the Dhaka Export Processing Zone(DEPZ), the industrial park where lots of people works in differentforeign companies. So the place holds a strategic importance forwhich it has been targeted by the real estate developers in the lastcouples of years. But as there were some conflicts on the issues likereal estate firms are not considering the importance of recreation forthe urban people, the construction activities have not been starteduntil the last two years. Now there are lots of construction activitiesare found here and the areas close to the airport. These constructionsincludes a range of housing projects starting from houses for medium

income people to houses for the highest income level people in thecountry.

Close to Ashulia there is another place which is called Tongi under thedistrict of Gazipur. But now its difficult to understand whether its apart of Dhaka city or a part of Gazipur district because of rapidurbanization in this area. There are lots of real estate activities in thisarea and real estate developers are already pretty much inside of theGazipur district. The main reason of this large scale real estateactivities is once again the improvement of the communication

systems in between the districts. People now can come to Dhakafrom Gazipur very easily for jobs and can go back after the job period.The same holds for the people in Dhaka who go to Gazipur for jobs.

In the east part of the city all the areas got huge pace of urbanizationin the last couples of years and lots of real estate firms are workingthere to meet the rising demand for houses in the areas like Demra,Jatrabari etc. The focus of the real estate firms is no more limited inthese areas; rather they are already inside of the border districts likeNarayanganj and Munshiganj. Though in Munshiganj they started

newly, the town areas of Narayanganaj is almost like another regionof Dhaka with lots of real estate activities. This happened once againdue to the rapid urbanizations and developments of communicationsystems in between the districts. Narayanganj is only 30-40 minutesaway by bus or 20-25 minutes away by train. Therefore jobholderscome to Dhaka in the morning and get back home in the eveningvery easily.


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Figure-3.10: Neighbouring Districts of Dhaka

Therefore in brief one can say that the real estate developers arecreating new markets not only in the outskirts of the city but also inthe neighbouring districts of Dhaka. Developers think that once the

market in Dhaka region becomes saturated these markets will workfor them. So its better to be present in those areas well before for thecompetitive and strategic advantages.3.4. Chapter Summary

Real estate activities in Bangladesh are mainly oriented to the cityareas where the pace of urbanization is pretty much high comparedto the other parts of the country. But not all the cities are penetratedfully till now while some districts that share borders with Dhaka cityhas been penetrated pretty well by the developers. Improvedcommunication systems with Dhaka and the pace of urbanization arethe two major reasons behind this. At the same time attention of thereal estate firms are getting out of Dhaka as they predict that the real


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estate market in Dhaka will be saturated in near future. In theiropinions scarcity of land and the wish of people to have a smootherlife outside of Dhaka city are two main causes for which they shouldfocus on the markets other than Dhaka.

The good thing is that developers have a significant market tocapture in reality. So its a logical move considering the survival ofthe developers as well as economic consequences.4.0. Actors Analysis

Due to the lengthy production period, the amount of actors andstakeholders of real estate business is pretty high compared to someother industries. In reality lots of different actors come from differentindustries banks and cement factories for examples. Section 4.1 talksabout the major actors in the real estate industry in Bangladesh while

in section 4.2 there is a summary for actors analysis.

4.1. Major Actors in the real estate industry in Bangladesh

Though from the broader view one can argue that all the stakeholderscan be treated as actors, in this paper the author limits the numberonly to those who can play crucial role in the real estate business inBangladesh.

REHAB: REHAB goes for Real Estate and Housing Association of

Bangladesh. Its an association that has been introduced in 1991 witheleven (11) members only. Currently the total affiliated members ofREHAB are 321. This association works as the spokesperson for thereal estate sector in Bangladesh. It also arranges REHAB housing fairsboth in Bangladesh and abroad like New York, Rome, and London etc.in a regular basis. In these fairs especially in the fairs in foreigncountries real estate firms get lots of new orders which helps thecountrys economy as foreign currencies are getting in.

Individual Firms: They are involved directly through investments

and the production of real estate products. The main aim of them isearning profits as much as possible. The majority of the firms aresolely involved in real estate business. But there are some firms whoare basically sister concern of some well known companies inBangladesh. These large companies invest in the real estate businessmainly to diversify their portfolio and to gain from the currentbusiness opportunities. The interesting thing is that these companieshave some advantages over the small firms who are involved in realestate business only. Advantages come from

Costs because of their higher efficiency level compared to thesmall firms and


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Economies of scale and scope issues

Therefore in bad time of real estate business when small firms weregetting out of the scenario, large firms survive and they lead themarket eventually.

Again individual real estate firms are in the supply side and havelarge influence on demand/supply mechanism in the market todetermine the price of the real estate products. But pricing dependson lots of other factors too like land price, land value, interest rateetc.

Customers: Customers are on the remaining side i.e. demand side ofthe market. Customers preferences, affordability, income range,tastes etc. influence the demand and supply of the real estate

products in the market. The main aim of the customers is to buyhouses with the highest possible quality at a given budget.

How customers can influence the market is somehow limited to thedifferent aspects like available substitutes, emergency etc.

Architects: These are the professionals who transfer lots ofimaginations in reality for both developers and customers. They playa crucial role in designing and construction phases of houses. To getpermission from the government authority to construct buildings,

firms have to submit the design done by architects. The aim ofarchitects is to secure job and earn money from designing andconsultancy.

The influence of architects is limited by their goodwill, experiences,success stories, educational background etc. More and morearchitects are being produced in the country and they enter in the jobmarket. But the major problem is the work field for them is limited tothe situations where the laws are strict. Therefore one might arguethat architects are not the critical factor in case of real estate

business in Bangladesh.

Financial Intermediaries: This group includes mainly banks. Butthere are some other sources also. For example, pension funds,insurance companies, individual savers etc. Though almost all bankshave some offers for the customers in case of real estate buying,there are some specialized banks for the financing of real estateproducts. But its claimed that the offers from other banks are notlucrative as they dont finance the big purchase and the offers fromthe specialized banks are pretty much expensive due to the highinterest of the banks.

Central bank also plays a crucial role here. It controls the ups and


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downs of interest rate in the market and therefore due to thenegative price elasticity, demand for the real estate products goesdown.

One of the major concerns in finance is the accessibility of mass

population in house financing services provided by the banks or otherinstitutions. In Bangladesh this is really a big problem because

Banks put some difficult conditions on lending such as propertyas mortgage

Credit risk of borrowers is high because of the low income level

Therefore these are some issues that central bank cant control andits a continuous drawback for the growth of the real estate businessin Bangladesh.

Government & Government Units: Government is the ultimaterole player in any kind of business in Bangladesh through laws andregulations. Though government interference is considered as anunfair event in terms of free market economy concept, some marketsrequire government hand for the proper functioning. Real estatebusiness in Bangladesh is one like that.

However, in this sector there is not yet any regulatory framework.Therefore builders do whatever they find good for them. It continued

for the long time and now all are in a mess. Though government iswilling to fix the problems, its pretty difficult and in some cases theyare too late to react. For example, due to the random constructionthe traffic system of Dhaka city has been broken down since the lastcouples of years. Initially government was not careful. Now thoughthey are caring for it, fixing the whole issue is beyond their meansdue to high level of costs.

In addition to government there are various units of government whoplays crucial role in the real estate business.

Ministry of Housing: This is the ministry responsible for theproper housing policy design in order to ensure this fundamental rightof people across the whole country. But housing for all is still a dreamfor the ministry. The ministry works with other ministries like Ministryof local governance to improve the housing conditions of the ruralpeople.

City corporations: They provide the permission for theconstruction activities

Tax authority: They can influence though tax quotadetermination

4.2. Summary of Actors Analysis


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Real Estate firms, customers, banks, and government are the majorrole players in the real estate industry in Bangladesh. Real estatefirms control the supply of housing units in the market, but they aredependent on the demand which is basically controlled by thecustomers among other factors like price, needs, quality, and income

etc. On the other hand as majority of the population in Bangladeshare of low income level, financial services from different banks arenot accessible by them unless banks and other financial institutionsrelax their conditions on financing. Therefore these financialinstitutions have a big say in the development of real estate businessin Bangladesh. Central bank plays the role by deciding interest rateand the flow of money to a certain sector in a particular time period.

Finally as the chief administrator of the country, government issupposed to do a

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