Domestic Bonds

Affordable housing: a billion dollar opportunity


In the 50 years since independence, Bangladesh has enjoyed great success in the development of the country. There have been significant improvements in access to food, security, health care and education, which have led to an overall increase in living standards and a decrease in poverty rates. However, not all sectors have evolved in the same way.

As part of the sustainable development goals set by the UN in 2015, Goal 11 aims to make cities inclusive, safe and sustainable. For this, affordable housing must be made available to all by 2030 in the world and in our country.

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There is a shortage of affordable housing in Bangladesh, especially in the city of Dhaka. In 2021, around 22 million people reside in the greater Dhaka metropolitan area, according to the World Population Review.

The urban population of Bangladesh represents around 40 percent of the total population, and it is predicted that by 2030 it will be 50 percent. As temperatures and sea levels rise, the number of climate refugees from low-lying areas of the country moving to urban areas will reach around 20 million.

The city’s middle-income population is growing, as is the demand for housing. The middle-income population is expected to represent 37% of the total population by 2025, according to the IFC. However, the rent per square foot of homes that cater to middle-income people is higher compared to those intended for the middle and upper economic segments.

The needs of the middle-income population are underestimated. The current demographic dividend creates a huge growth opportunity for Bangladesh. We have one of the youngest populations in the world. Thus, more and more people will seek better housing facilities as the working age population increases.

Middle and lower income groups living in urban areas of Bangladesh pay high rents per square meter to live in cramped spaces. In many cases, they pay amounts equivalent to the rent of commercial space. There is a significant deficit in affordable rental housing.

With the right policy and the right support, monthly rent payments can be converted into homeownership installments. This will help people with monthly household income between Tk 50,000 and Tk 100,000 to become homeowners.

In the case of the greater Dhaka metropolitan area, the appropriate size of a unit for an affordable housing program should be 600 square feet to 1,000 square feet. In order to be able to purchase these homes, buyers in this income group would need the help of financial institutions.

According to the Bangladesh Bank, mortgage financing penetration in the housing market is only 3% (compared to 50-70% in developed countries), and home loans only account for about 6% of total loans. in the financial sector. .

Right now, the mortgage interest rate for a 20-year period is around 7-8%, which is too high. Traditionally, this segment of society has faced insufficient financial support, and without this change it would not be possible for them to own a home. Thus, the government should formulate a policy that is favorable to them.

Possible policies could include interest rate subsidies for first-time buyers during the first few years or interest rate reductions for the life of the mortgage. In addition, there should be a progressive interest rate system of financial institutions, whereby the mortgage payment will increase in line with the income of the mortgagee.

Another out-of-the-box possibility could be a collaboration between microcredit agencies and real estate developers, both of which can act as catalysts for affordable housing. By combining the experiences of microfinance and turnaround with the experience of real estate developers, it is possible to obtain affordable housing.

The location of the potential project is a critical factor to consider when providing affordable housing. Housing programs can be connected to export processing zones (EPZs) as thousands of workers in the middle income segment are employed there.

There are eight EPZs across Bangladesh. The EPZs, located in Chattogram, Dhaka, Mongla, Ishwardi, Cumilla, Uttara (Syedpur), Adamjee and Karnaphuli, collectively employ 461,460 people. Beyond that, there are hundreds of industrial belts located around EPZ zones.

People working in these areas can also be potential buyers. Their employers could act as a guarantor of the home loans, or a system could be created so that a specific percentage of an employee’s salary go towards paying off their home loans. It would also increase job sustainability and reduce the traditionally high turnover rate in this sector, thus encouraging employers to participate in such a program.

According to the Bangladesh Economic Zones Authority (Beza), there are a total of 88 economic zones spread across the country, of which 59 are state-owned and the rest are privately owned. This means that there are hundreds of thousands of employees who could be targeted for an affordable housing program, which would add billions of dollars to the GDP.

In the global scenario, other countries have been successful in providing affordable housing to the middle class.

For example, Singapore has gone from one of the world’s worst housing shortages in the 1950s to around 90% homeowners today. This is because citizens can take out loans from their pension funds from the first day they start earning a living.

India has also launched a “Housing for All” initiative. The government has lowered interest rates on home loans, prompting people to buy homes. Well-known real estate companies have also started offering affordable housing. As affordable housing complexes expand, localized amenities such as schools, hospitals, and shopping centers expand.

Providing affordable housing to the middle and lower segments of society in Dhaka will be a big undertaking, which will require cooperation between government, financial institutions and real estate developers. With the substantial gap in the housing market, this project is very necessary.

The demand for housing will only continue to increase over the years, especially with the growing number of climate refugees and other migrants settling in urban areas. Thus, affordable housing should be financed in part by the World Bank‘s Climate Change Fund.

There should be a public-private partnership in the preparation of housing policies and a target on the number of affordable housing that will be provided per year.

The government mentioned in the Eighth Five Year Plan for 2020-2025 that to alleviate the housing shortage, PPP can be used and the government can cede government owned land to lower and lower middle income people. . With adequate support from international lending institutions such as IFC, World Bank and Asian Development Bank, as well as favorable government policies, it will be possible to provide affordable housing in our country.

The author is Managing Director of Rangs Properties Ltd.