REF Housing Industry P&P

8/8/2019 REF Housing Industry P&P

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Real Estate Finance (F-409)


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We are..

S.M. Ahasan Ikbal [10-020]

Mohteshamul Haque [10-103]

Jannatul Kusum [10-146] Rajib Kumar Das [10-158]

Sonchoy KumerSaha [10-162]

YasirMd. Fazle Amin [10-263]


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HOUSING INDUSTRY OF BANGLADESH

Declared as an industry in 1991

15% contribution to the GDP

Directly employs about 1 million people

Key stakeholders ofthis industry are:y Suppliers ofconstruction materials: HOLCIM CEMENT, STEEL

y Developerfirms: ASSET PROPERTIES, REHAB

y Financial institutions: DBH, BRAC BANK, IDLC

y Customers: PROPERTY BUYERS, LAND OWNERS

y Government: NHA, NBR, RAJUK


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DeveloperFirms

Buyers/Customers

Installment payment

Bank and Non-

bank institutions

Loan arrangement Loan Sanction

Sanitary

items

LaborWood

Cement

Steel &

Rod

Brick &

Sand

Land

Production input

Government Intervention

y Price of materialsy Import duty

y Minimum wage

y Land ownership Law

y Regulationsy Firm tax

y Certifications

y Limit of credity collaterals

y rate of interest

y Registration feey VAT

y Ownership

transfer

HOUSING INDUSTRY OF BANGLADESH


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SWOTANALYSIS

Strength Thrust industry (contribution to GDP)

Large numberofdevelopers

Large numberofcustomers

Weakness

Inefficient market pricing Regulatory loopholes

High financing cost for customers


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SWOTANALYSIS

Opportunity High growth prospects

Related business fields for investors

Better regulatoryframework

Threat

Slowdown in growth potentials Volatile price ofraw materials

Civic crisis for next generation


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Production Input Uses

Land platform ofconstruction

Labor input transformation

Steel & rod building structure

Tiles & sanitary items forfloor and sanitation

Lift & escalator for communication

wood building framework

Paints for covering walls

Brick & sand building material

Cement forfoundation

Electricity, gas, water utility purpose

CONSTRUCTION MATERIALS


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Cost constraints: Land Price

Land price in Dhanmondi has shown 12,000per cent rise since the early 70s

Land prices at Motijheel increased by 9,900per cent before independence and by 2,400per cent after independence

Source: Land Price in Dhaka City Distribution

Characteristics and TrendofChanges


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Historical Trend in Steel & Iron Ore Price in World Market

Cost Constraints: Steel & Iron Price


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Trends in Prices of Steel Inputs


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Steel Price Projection

Average Official & Settlement Prices, US $ per ton

Mediterranean Far East

August September October August September October

Cash buyer 944.78 640.5 356.57 754.5 574.09 339.13

Cash seller 958.28 650.86 370.87 770.5 589.55 353.26

Cash mean 951.53 645.68 363.72 762.5 581.82 346.2

3-months buyer 848.25 576.82 343.48 754.5 574.09 339.13

3-months seller 861.75 592.95 356.96 770.5 589.77 353.26

3-months mean 855.00 584.89 350.22 762.5 581.93 346.215-months buyer 847.5 617.95 398.48 754.5 574.09 339.13

15-months seller 861 634.09 412.61 770.5 589.77 353.48

15-months mean 854.25 626.02 405.54 762.5 581.93 346.3

Futures Contract Settlement Price


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Implication for Real Estate Sector in

Bangladesh

The duration ofthe halt ofprice rally is very uncertaindepending on the USA real estate market

These falling prices can be disastrous for the millers whohave stocked huge amounts ofsteel products.

on an average it can be concluded that prices offlats shouldfall in the nearfuture


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Cost Constraints:

Cement Price & the Cement Industry


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Cement Price & the Cement

Industry (contd)

Two important aspects ofthis industry

Excess Capacity & Industry Fragmentation

Rising Input Prices

y 5-6 million tons ofclinker are imported annuallyfrom Thailand,Indonesia, Malaysia, and the Philippines

y Clinker grew by 10 dollars a ton to 64-67 dollars early

Novemberfrom 54-57 dollars in Januaryy Gypsum is now selling at $42-43 per ton as opposed to

$32- 35 in 2007


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Implication for Real Estate Sector

in Bangladesh

Rising prices ofcement due to high Clinker price would raisethe prices offlats andother real estate products.

Lafarge Surma Cement Ltd, a France-Bangladesh joint venturecompany had commenced trial production ofclinkerfollowingsuccessful operation of its kiln at its plant at Chhatak inSunamgonj.

The Nitol group has also ventured into clinker processingindustry, to be the countrys second basic cement raw materialsupplier with 400-tonnes perday capacity


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CostConstraints: Brick Price Price Determinants ofBricks:

y Natural Calamitiesy Prices ofNatural Gas and Coal


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Summary

Stabilize prices ofmaterials by subsidy, tax cut, duty-free import

Form groups ofbusiness bodies and monitor theirwork

Keep safety stock for uncertain time

Diminish curtails formed by illegal business people

The government has the responsibility to minimize thisprice asymmetry by initiating a numberofsteps statedbelow:


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Production Input Price

Current (Tk.) Earlier (Tk.)

Labor (work hours: 7am to 5pm):

Foreman 250-300 220-240

Worker 160-180 130-140

Brick (1st class per piece) 6.00-6.20 5.90-6.10

Sand (including carrying cost):

200 CFTLocal 1500-1600 1300

Red sand 4500 2300

Paint (per gallon):

Berger

Plastic 650 620

Elastic 700 600

Distemper 315 305Steel :

DIC sheetLocal 135-140 ---

Imported 230-240 ---

Rod (40 grade per ton) 52000 75000

Cement (50 kg bag) 370-390 320-350

Tiles (12"x12") 48 45

Summary of Some ofthe Recent Prices


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FINANCINGIN REAL ESTATE

y Two Types ofBuyers

y Individual Buyers: a service holder, a business person, a

retiree, an institution or any other individual who wants topurchase a real property or renovate an existing property.

y Developer Firms: they develop or construct a large realproperty, which may be an apartment, commercial complex, orany other structures; with an intention to sale or rent that property

to other individuals and institutional buyers.


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SOURCES OFFINANCE

y Public, private & private-NGOs collaborated FIs Bangladesh House Building Finance Corporation (BHBFC)

Delta-BRAC Housing Finance Corporation Ltd. (DBH)

Industrial Development Leasing Company (IDLC)

National Housing Finance & Investment Ltd. (NHFIL)

Phoenix Finance & Investment Ltd. (PFIL)

y Commercial Banks

y OtherSources:

Employee Loans Insurance Policies

Micro Credit Lenders


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SALIENT FEATURES IN REAL ESTATE FINANCING

Eligibility ofthe Applicant (Individual Buyer)

Age: Less than 40 years and not exceeding 60 years

Ratio between monthly income and monthly installment ofthe loan

Type and consistency of the service or business the individual orfirmis engaged in

Numberof family members

Holding ofany otherfixed assets and liabilities by the applicants

Applicants past savings behavior Applicants reputation and previous loan payment record

Any kind ofspecial expertise possessed by the applicant

Quality ofthe collateral


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Eligibility of the Applicant (Individual Buyer)

The economic and social feasibility of the

project; Location ofthe project;

Applicants equity investment in the project;

Experience of the firm in this kind ofbusiness;

Any kind ofprevious default culture of the firm;

Reputation ofthe firm in the market and

The relationship between the firm and thefinancial institution.


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yAmount ofLoan

Normally the loan amount providedfor individual buyergroup varies between ranges ofBDT 100,000

20,000,000.

For providing loan ofmore than BDT 5 crore to anindividual, special permission from Bangladesh Bank isrequired.

When a developer company requires a huge amount ofloan (for example, 100 crore or above), some firms formsa syndicate and together theyfinance the project.


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y Percentage ofLoan to Property Value

the ratio between the maximum amount ofloan provided and the total value of the

property including registration cost.Forced Value Concept

generally the range is 30%-80%

y Collateral


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Credit facilities of Financial Institutions

Company Loan AmountLoan Tenure

(Years)Interest Rate

Types of

Interest

Installment

Process

Intended

Client

Group

% of the Loan to

Property ValueOther services

BHBFC=1.5 million 15% EMI, ARM

DBH 2 million 15 years 16.50% Compound All groups80% of the

construction cost/70%

of the purchase price;

whichever is lower

Discretionary

ARM

IDLC 2 million

20 yrs-Res.purpose

16.5% -Businessperson, NRBs

Compound

EMI, Both

FRM &

ARM

All groups70% of the property

value

Grace period-1Year

Offers Home Loan

Shield which is a

group life

insurance scheme

7 yrs-Com.

purpose

16%- Service

holder

PFIL

5000 million

Res.purpose

6 years Compound EMI, FRM All groups

50% of the prop. value

for res. purpose.

Grace Period-6

months

10,000 million- Com.

purpose

30% of the prop. value

for com. purpose

Prepayment

allowed

HSBC 0.75-7.5 million5 years 14.50%

Compound EMI All groups70% of the property

value.

Partial or early

settlement

facilities.

6-10 years 15% Financing for the

registration cost.11-15 years 15.50%

SCB 1.5 million 5-10 years 12.50% Compound EMI , ARM Individualclients 75% of the propertyvalue


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CRITICAL ISSUES

y Financial institutions are not providing loan todevelopers in abusiness scale.

y As compared to the demandfor housing, the numberofFIs

providing housing loan is really very insignificant.

y Adjustable Rate Mortgage (ARM) provided byfew companiesis under big question.

y Lack ofknowledge and awareness from the side ofbuyers.


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Impactof regulationon Real

Estate Business

Real Estate Management Ordinance 2008

y

Govt.s rationale Investors/purchasers protection

y Developers concern Over/illogical regulation hamperingsector growth


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Summary, Situation & Suggestion

SubjectSummary of

clausesProbable situation

Suggestions by

REHAB

Scope of theordinance

Real EstateManagement Ordinance2008.(Besorkari plot oflatkroy-bikroybabosthaponaoddhadesh)

Govt. Institutions havingundue advantage overprivate institutions

Sorkari o Besorkari(govt. & private)

Registrationofdevelopers

Mandatory Developerregistration with anauthority

Registration grantingsubject to theconsideration of theauthority

Scope for bureaucraticcomplexity,

Red-tapism and side money transaction

Empowerment ofREHAB

Mandatorymembership ofREHAB

members followingcode of conduct ofREHAB.


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Summary, Situation & Suggestion

SubjectSummary of

clausesProbable situation

Suggestions by

REHAB

Agreementbetween land

owner anddeveloper

Accomplishing workwithin predetermined

time frame

Provision for complain

External factors Regulatory changes

Price volatility Natural calamity

Provision fornegotiation rather

than firm standpoint

CriminalProsecution

Non-bailable

Liability span- fromowners todirectors,

managers, agents

Violation ofhuman rights

Illogical span of liabilityskilled and educated

personnel discouraged tojoin the sector

Must be EXCLUDED


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Recommendations

Objective of the regulation protectingbuyer but not at the cost ofsector growth

Possible Measures:y Independent research and investigation results

as inputs forordinance finalizing

y Focused group discussions

y Opinion survey taking BTRC example


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REF Housing Industry P&P

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