“An Overview of Real Estate Financing of

Bangladesh: Problems and Prospects”

Prepared For
Mrs. Mabia Khatun
Assistant Professor
Department of Finance & Banking

Prepared By:
Niamul Hassan - 17FB016
Kakali Akter - 17FB021
Sanzida Thasin - 17FB025
Habiba Khanom Bithe - 17FB028
Meemrat Jahan - 17FB036
Kaosar Ahmad Emon - 17FB039
Nabil Hossen Joy - 17FB045
Eashamoni Chakma - 17FB055
Nurjahan - 17FB061
Md. Riajul Islam - 17FB067
Riaz Uddin - 17FB074
Sagor Halder - 17FB077

Sagor Halder

- 17FB077
 Table of Contents
Contents Page no.

Executive Summary……………………………………………………………………. ii
Elaborations…………………………………………………………………………….. iii
1.0. Introduction

1.1. Origin……………………………………………………………………...… 1
1.2. Objectives
1.3. Methodology………………………………………………..………….…… 1
1.4. Limitations………………………………………………………..…………. 1
2.0. Status of Real Estate Sector in Bangladesh……………………………..……….. 2
3.0. Lending Institution of Real Estate Sector (DBH)
3.1. Introduction…………………………………………………..…………….. 4
3.2. Objectives……………………………………………….…………………. 4
3.3. Mission…………………………………………………………………….. 4
3.4. Vision………………………………………………………………………. 4
3.5. Core Values…………………………………………………..…………….. 4
3.6. Service Provided by DBH……………………………………….…………. 5
3.7. Types of Loans………………………………………………….………….. 7
3.8. Lending Procedures of DBH…………………………………….…………. 8
4.0. Banking Sectors in Real Estate Financing…………………………………..…… 13
5.0. Alternative Housing Financing System……………………………………..……. 15
6.0. Borrower’s Perception on Real Estate Financing…………………………….…. 17
7.0. Problems and Prospects of Real Estate Financing………………………….…… 21
8.0. Conclusion…………………………………………………………………….……. 22
9.0. References………………………………………………………………………….. 23
 List of Tables
Name of Tables
Table 1. Financial Highlight of DBH ……………………………………………………. 11
Table 2. Income Statement of DBH……………………………………………………… 12
Table 3. Range of considerable factors of loan…………………………………………... 19

List of Figures
Name of Figures
Figure 1. GDP growth: Real Estate Sector……………………………………………… 3
Figure 2. Outstanding Housing Loans (Banks)…………………………………………. 14
Figure 3. Outstanding Housing Loans (Alternative Financial Institutions)…………….. 17
Figure 4. Borrowers Financial Source…………………………………………………… 20
 Letter of Transmittal

July 10, 2021

Mrs. Mabia Khatun,
Assistant Professor,
Department of Finance & Banking,
Bangabandhu Sheikh Mujibur Rahman Science & Technology University
Gopalganj-8100

Subject: Transmission of the report on “An overview of real estate financing of Bangladesh:
problem and prospect”

Honorable Mam,
We would like to show our appreciation for the opportunity you have assigned us in preparing this
informative report. This report has been prepared in respect to your expert instruction and it carries
information that is relevant to the course “Real-Estate Finance.” Through hard labor and with
available information, we tried to prepare a knowledgeable and rational report upon “An overview
of real estate financing in Bangladesh problem and prospect”. We believe that this paper will help
to get some ideas about real estate sector in our country.
Therefore, we would like to thank you for assigning us this report. This report was a learning spree
for us. We want to have the privilege to give answers to your queries, if any.

Sincerely,
On behalf of our team.
 Acknowledgment

Throughout the writing of the dissertation, we have received a great deal of support and assistance.
With our hard core labor, we tried to fulfill all the requirements that match the title of the report-
Overview of Real Estate Financing in Bangladesh: problems and prospects.
While making of this report, we have gathered many useful information from Delta Brac Housing
Finance and some people related with DBH who helped us in working on this report.
We would like to thank our honorable and respected course teacher Mrs. Mabia Khatun who
assigned us this opportunity to research and prepare the report according to her instructions and
helpful suggestions.
We are also thankful to our dedicated team members who worked very hard and with sincerity.
Above all, we are so much thankful to The Almighty from whom we got our courage and the
ability to work on this report.

i
 Executive Summary

The report endeavored to highlight the prospects and problems of real estate sector in Bangladesh.
Like other economic sector in the country, real estate is one of the major sectors which furnish the
national economy. The report tried to come up with the overview of the performances of real estate
sector in Bangladesh. The report has also shown the overall picture of the real estate market and
opportunity in Bangladesh. Residence is one of the basic needs of human beings. The right to live
in one’s own house is a rudimentary rights of people and it is internationally recognized. The
demand of housing in urban areas in developing countries like Bangladesh is dramatically
increasing due to population increase and its fast growth rate. Rural people are migrating not only
to find jobs but many wealthy people are moving to urban areas like Dhaka city for the fulfillment
of their expectations of better of their future generation, and for enjoying the modern facilities of
the city life. This has resulted into a serious crisis all over the country especially in the major cities
of Bangladesh. In recent time, the private real estate firms have taken initiatives by ensuring
maximum uses of land in a planned way. With time curtailment, in this report all the required
qualitative and quantitative data have been taken in and upon which rational judgment is made
along with quantitative analysis.

DBH is the pioneer of private sector housing finance in Bangladesh. Since inauguration of
business operation in 1997, DBH has been a partner with numerous of its clients to materialize
their dream homes into a reality. DBH, the specialist in housing finance, has earned the trust of
thousands of customers through some salient features of its Home Loan product.

ii
 Elaborations

FY – Financial Year
MFTs - Micro Finance Institutions
NGO- Non Government Organization
GDP – Gross Domestic Product
REHAB – Real Estate and Housing Association of Bangladesh
ROI- Rate of Interest

iii
 1.0. Introduction

1.1. Origin
The report is prepared as the partial fulfillment of the course ‘Real Estate Finance’ (FIN301). This
report is assigned by the course instructor, Mabia Khatun.

1.2. Objectives
The main objective of this group report is to allow students to relate their textbook knowledge with
the practical work field practices. Real estate sector is one of the fastest growing sector in
Bangladesh. The objective of this study to look into every aspect of Bangladesh real estate sector
and identity its various pros and cons. The specific objectives of this study are:
• To give an overall idea about real estate sector in Bangladesh
• To identify the current situations of our real estate sector
• To sort out the problems and prospects associated with real estate business
• To give an idea about a lending institution (DBH) of real estate sector

1.3. Methodology
An exploratory research has been conducted in preparing this paper. Pure basic research approach
has been used along with this where theoretical and practical studies have been incorporated. Data
have been collected through face-to-face and telephone interview. Questionnaire has been used in
gathering primary information from real estate participants. Information has been used from
different secondary sources - internet, Newspapers, annual reports, online and printed articles,
journals and previous research papers on real estate sector. Opinions have been collected from
experts and participants in the real estate sector, which have been very useful in analyzing the data
and information and to reach a conclusion. Numerical data have been analyzed and interpreted
with concentration and relation to the main issue. Data and information collected from different
sources were compared critically and there was no mismatching. Theoretical analysis along with
numerical evidence has been used to substantiate the findings of the study. The analysis has been
presented first and then findings have been drawn.

1.4. Limitations of the Report

While preparing this report the following difficulties were conducted:

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 • Issues with covide-19 situation
• limited access to information
• Time constraints
• Insufficient sample size of statistical measurement

2.0. Status of real estate sector in Bangladesh

Residence is one of the basic needs of human beings. The right to live in one’s own is a
fundamental right of people and it is internationally recognized. The demand of housing in urban
areas in developing countries like Bangladesh is dramatically increasing due to natural increase
and its fast growth rate. Rural people are migrating not only to find jobs but many wealthy people
are moving to urban areas like Dhaka city for the fulfillment of their expectations of better of their
future generation, and for enjoying the modern facilities of the city life. This has resulted into a
serious crisis all over the country especially in the major cities of Bangladesh. In recent time, the
private real estate firms have taken initiatives by ensuring maximum uses of land in a planned way.
In this system it is possible to accommodate more people in a comparatively small place.
In Bangladesh real estate industry took off during the 1970s but started flourishing between 1980s,
when rapid urbanization was taking place. The population was growing so fast that housing more
people within limited space became a necessity. As a developing country, Bangladesh government
was unable to provide housing for all, even with growing urbanization. The real estate industry
took the responsibility to accommodate our dense population in the last 40 years and it has not
been easy. At present, more than 1500 companies are active in the real estate sector with 1081 of
them registered with REHAB (Seraj, 2012). In the last four decades, private developers have
supplied more than 100000 units of apartments to the nation and will be supplying25000 more
units in the next three years.
The Real Estate sector in Bangladesh is considered as stable and has been through steady growth
as incomes rise. Economic and political stability, more extensive construction projects and falling
interest rates have contributed to the industry’s mounting growth rates. According to Real Estate
& Housing Association of Bangladesh (REHAB), the real estate sector and its linkage industries
contribute to 12% of the country’s national GDP.
View Bangladesh's GDP: Real Estate, Renting and Business Activities from 2010 to 2020 in the
chart:

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The real estate market has always been booming in Bangladesh. Naturally one could safely assume
that it will continue to be so in the near future as well. Unfortunately, the year 2020 has not been
so kind to the entire world, subsequently affecting the Bangladeshi market as well. COVID-19 has
affected the household income of every family both locally and overseas. Many lost their jobs and
the real estate industry felt the effects. Loss of jobs leads to a lower purchasing power. Sellers, in
turn, are now stuck with properties without any buyers. And to sell their properties, they are having
to resort to lowering their prices further, fueling the deflation even further. According to the Daily
Tribune, the prices for the properties are expected to drop even further by 5-10% in the year 2021.
Even after so much, thanks to the initiatives taken by the Bangladesh government to rescue the
real estate market from the effects of a global pandemic and its economic fallout. It already started
to recover. We eagerly hope that it won’t take long to go back to its previous state.

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3.0. Lending Institution’s in Real Estate Sector: Delta Brac Housing
Finance Corporation Ltd. (DBH)

3.1. Introduction
Delta Brac Housing Finance Corporation Ltd. (also known as DBH)
is a private sector non-bank financial institution in Bangladesh. It is
a public limited company listed in Dhaka Stock Exchange and
Chittagong Stock Exchange. It was established in 1996 by an
international joint venture and started its operation in 1997. DBH
specializes in real estate finance & is the largest institution in real
estate finance. It is considered pioneer and market leader in the private sector housing finance.
DBH is the only financial institution in Bangladesh that has been receiving the highest credit rating
of 'AAA' for 7 consecutive years.

3.2. Objective
Focus on building deep and long-standing relationships with our clients, customers as well as real-
estate developers, and constantly look to improve the quality of our products and services. →Focus
on developing our human resource talents. →Ensure balanced growth with a disciplined approach
to the management of risks and costs. →Ensure adequate capital and liquidity to sustain our
business over the long term.

3.3. Mission
To strengthen the society of the country by continually expanding home ownership.

3.4. Vision
The vision of Delta Brac Housing Finance is to be the leading financial institution in the country
with satisfied customers and employees and to generate value for our shareholders while
contributing to the wellbeing of the society.

3.5. Core values

• Honesty, integrity and ethics in all aspects of business

• Outstanding service to the customer, above all else

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 • Individual opportunity, responsibility and reward based on merit

• Hard work and continuous self-improvement, never being satisfied

• Respect and concern for the individual employee

3.6. Services provided by DBH

DBH is considered market leader in private sector real estate financing in Bangladesh. As a non-
bank financial institution, DBH can operate in all the areas that a non-bank financial institution is
allowed to do business in. However, the services provided by the Delta Brac Housing Finance can
be described as follows- Loans: Home Loan, Apartment Loan, Home Construction Loan, Housing
Plot Loan, Home Extension Loan, Home Improvement Loan, Home Owner's Family Loan, Flexi
Plus Home Loan.
Deposits
Annual Income Deposit, Annual Plus Income, Monthly Income Deposit, Quarterly Income
Deposit, Cumulative Deposit, Flexible Fixed Deposit, Profit First Deposit, Easy Way Deposit,
Children's Deposit, Easy Home Deposit.
Green Banking Activity of DBH
Green banking considers all the environmental factors along with financial priorities with an aim
to protect the environment as well as to foster the economic development in a more environment
friendly way. This concept of Green Banking will be mutually beneficial to the banks, financial
institutions and the economy. DBH has outlined a policy guideline for implementing Green
Banking activities in a structured manner in line with standard norms so as to protect
environmental degradation and ensure sustainable business practices.
Environment Friendly Loan Financing
We have incorporated sustainability principles into day-to-day activities of the Company. Our aim
is to do best to ensure that the credits we extend to our customers are utilized for environmentally
sound and sustainable purposes. DBH complies with environmental standard while financing.
Projects with likely adverse impact on environment are strongly discouraged by DBH. As an
environment responsive Financial Institution, DBH ensures that the borrower has the due
environmental clearance certificate from the concerned authorities while granting or renewing
credit facilities. DBH has assessed environmental and social issues related to the projects at the
time of granting credit facilities which reflects DBH’s strong commitment in ensuring
environmental and social safeguard of the projects, while creating a sense of accountability for the
borrowers. DBH also encourages it’s borrowers to have solar panel in their project at the time of
appraising and granting housing loan facilities. In future the company aims to enhance the effort
on preserving ecosystem, land, air and water, in line with broad corporate mission of the Company.
Environment Due Diligence

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DBH maintains Environmental Due Diligence at the time of processing proposal before placing
the same to Management. Few clients of DBH have found applicable for EDD and after conducting
Environmental Risk Rating (EnvRR) it is found that few clients have been fallen in the category
of low risk and in moderate risk level.
Corporate Social Responsibility (CSR) at DBH
Delta Brac Housing Finance Corporation Ltd. (DBH) being a corporate citizen derives the
resources and benefits from operating in the society in general. It therefore, owes a solemn duty to
the less fortunate and the under-privileged members of the society. Thus, Corporate Social
Responsibility (CSR) is embedded in our values and informs how we conduct business. We have
put in place very strong and sensible CSR initiatives. CSR is an integral part of corporate culture
and ethics of DBH.
DBH and its Customers
DBH is determined to serve its customer's needs by offering useful financial products and services,
while maintaining good relationships with them. We have taken several measures to raise the bar
of our service excellence to ensure that customers receive the best possible service. DBH ensures
confidentiality of customers' Information and attaches highest importance in complaint
management. The Company strives to listen and learn from its stakeholders and to take the
appropriate action where it applies, since responsible behavior towards its clients, shareholders
and employees is an essential element of Company's daily business
DBH and its Employees
DBH has established a competitive and enabling working environment to help employees perform
their best. DBH is working with a vision of converting human resources into human capital through
appropriate knowledge, skills, abilities and personal attribution. Creating a culture of healthy
competition driven by knowledge is what we believe is the best way to prepare our employees to
take up challenges of the contemporary business world. DBH ensures equal opportunities for all
its employees in terms of both their personal and professional development. DBH ensures health
and safety in the workplace while keeping it modern by providing all amenities for its employees.
To attract talents and retain competency, we have a balanced compensation scheme comprising
financial and qualitative benefits. Besides providing competitive package, DBH provides various
welfare schemes to its employees.
Gender Equality and Women's Empowerment
DBH considers the responsibility for protection age, gender, ethnicity and locality. DBH strives of
human rights, gender equality and women's empowerment to strike the balance between male and
female empowerment. DBH is successfully developing employees in the workforce.
Corporate Governance at DBH
As a strong believer of sustainable growth, principles of good corporate governance form the core
values of DBH. In order to achieve transparent and sound corporate governance, we have adopted
international best practices to help us sustain in this globalized competitive free market economy.

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Corporate Governance policy of DBH recognizes the importance of the transparency to all its
constituents; including employees, customers, investors and the regulatory authorities
demonstrating that the DBH's corporate governance philosophy encompasses not only regulatory
and legal requirements, including the BSEC Regulations and the Bangladesh Bank Guidelines in
respect of corporate governance but also other practices aimed at a high level of business ethics,
effective supervision and enhancement of value for all shareholders.
Environmental Awareness
As an environment-responsive Institution we initiated Go Green campaign in our Company. DBH
ensures borrower has the due environmental clearance certificate from the concerned authorities
while granting or renewing credit facilities. DBH has assessed environmental and social issues
related to the projects at the time of granting credit facilities which reflects DBH's strong
commitment in ensuring environmental and social safeguard of the projects, while creating a sense
of accountability for the borrowers. due to inability, some of the students are unable to get quality
education. Without quality education a nation cannot develop, as education is an essential
component of human development and empowerment of nation. Considering the fact, DBH has
come forward to do something in this area and engaged itself with the following project: Pabna
Cadet Collegiate School: In addition to that, DBH conducted CSR activities during the period
under reporting i.e. from January 1, 2019 to December 31, 2019.
Health Care
DBH donated an amount of Tk. 2.00 lac only to a cancer patient for his medical treatment under
the CSR policy of DBH.

3.7. Types of Home Loans

DBH provides several home loans. Describes in bellow:
Apartment Loan
DBH has a unique product to cater to individual needs when they think of buying a new apartment
and DBH also has a meaningful relationship with developer across the cities to ensure better
coordination regarding the disbursement of the loan. DBH can finance up to 80% of the apartment
value (as will be assessed by DBH) to be purchased. The tenure of the loan can be up to 25 years
meaning that the EMI can be set at the minimum level. Wide array of choices regarding Interest
rates ranging from fully variable to semi fixed to fully fixed rates. There are no hidden charges.
Partial prepayment without any charge as per prevalent company policy.
Home Construction Loan
DBH acknowledges all the intricacies involved with construction of a building and have experts
to guide client through this process. The advice is aimed to make sure that the client does not
become entrapped in a situation where he finds it difficult to manage the required fund to complete
the intended construction. DBH can finance up to 80% of construction cost excluding the land

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procurement cost. The tenure of the loan can be up to 25 years meaning that the EMI can be set at
the minimum level. Wide array of choices regarding Interest rates ranging from fully variable to
semi fixed to fully fixed rates. There are no hidden charges.
Housing Plot Loan
Unlike many other Financial Institutions, DBH also finances for plot purchases. DBH can be the
ideal one-stop solution beginning with the purchase of plot and then, having further loan to finance
construction of building on the plot. DBH can finance up to 70% of required fund for these
purposes. The tenure of the loan can be up to 10 years. Wide array of choices regarding Interest
rates ranging from fully variable to semi fixed to fully fixed rates There are no hidden charges.
Home Extension Loan
DBH finances if anyone wants to extend his present building or wants to make some renovations
to improve its condition. They can finance up to 80% of required fund for these purposes. The
tenure of the loan can be up to 25 years meaning that the EMI can be set at the minimum level.
Wide array of choices regarding Interest rates ranging from fully variable to semi fixed to fully
fixed rates. There are no hidden charges.
Home Extension Loan
DBH can finance if anyone wants to extend his present building or wants to make some renovations
to improve its condition. They can finance up to 80% of required fund for these purposes. The
tenure of the loan can be up to 25 years meaning that the EMI can be set at the minimum level.
Wide array of choices regarding Interest rates ranging from fully variable to semi fixed to fully
fixed rates. There are hidden charges.
Home Improvement Loan
DBH can finance for home improvement. It could be Dhaka, Chittagong or Sylhet.
Home Owner’s Loan
People come across different situations in life while they need fund at affordable costs. The
purposes may include purchase of a car, wedding programs of children, higher study of children,
medical emergencies of family members, purchase of another asset etc. If there is an acceptable
property available to mortgage, DBH has the product to make required fund available at affordable
cost and for longer period of time. DBH can finance up to 70% property value as assessed by DBH.
The tenure of the loan may be extended to 15 years. Wide array of choices regarding Interest rates
ranging from fully variable to semi fixed to fully fixed rates. There are no hidden charges.

3.8. Loan providing procedure of DBH

DBH normally provides maximum 80% of Apartment purchase cost and 80% of cost of
Construction. Repayment Capacity as assessed by DBH. They will determine the Loan Amount
you can borrow. Repayment Capacity is determined by the factors such as your income, age,

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qualifications, number of dependents, spouse's income, assets, liabilities, stability and continuity
of occupation and savings history. While providing housing loan they ensure that borrower can
comfortably and regularly repay the Loan Amount they borrow.
Potential borrowers can apply when they are planning to purchase an apartment/plot or
construct/extend a house or renovate your apartment/house. The application can be made even if
the payment against the potential purchase or the construction work of the house has not started.
DBH prescribed loan application form needs to be properly filled up and to be submitted to any of
the DBH offices along with case-specific required documents and necessary fees (to be paid
through A/C payee cheque). Payment of all fees must be made through "A/C Payee" Cheques in
favor of "Delta Brac Housing Finance Corporation Ltd." Loan related fees are subject to 15%
VAT. Potential borrowers have to contact any of the DBH Offices for the Processing Fees and
Loan Fees currently applicable to avail DBH Home Loan. Payment of all fees must be made
through "A/C Payee" Cheques in favour of "Delta Brac Housing Finance Corporation Ltd." Loan
related fees are subject to 15% VAT.
There are some documents of income loan seekers have to provide if they want to borrow loans
from DBH. If the potential borrower is employed the following documents needs to be provided.
• Employment Certificate
• Latest Salary Slip/Salary Certificate showing all documents.
• Bio-Data/C.V.
• Bank statements for last 12 months.

If the loan seeker is self-employed the following documents need to provide.

• Trade License of the business
• Copies of individual income-tax returns and assessment orders for the last three years along
with the statement of income.
• Profit and Loss Account and Balance Sheet of your business for last three years.
• A note giving information on the nature of your business/profession, form of organization,
clients, suppliers etc.
• Bank statements for last 12 months.

In addition to these documents there are also other documents loan seeker have to provide when
proceeding the loan. Such as
• Copies of Ownership Document & Rental Agreement, if you have rental income

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 • Copies of Savings Instrument (if any)
• Similar proof of other income.

After submitting all required documents all of the property owners need to be added as either
applicant or co-applicant(s) of the loan. Normally, respective spouses are added as co-applicants
irrespective of their ownership status in the concerned property.
DBH loans are repaid in Equated Monthly Installments (EMI) comprising both principal and
interest amount. EMI starts after availing the full loan amount. In partly drawn cases, only the
interest amount (PEMII) calculated on the already drawn amount is payable each month.
The rate of interest of DBH home loans is 8.50%-10.50%. It varies for different risk parameters
like customer profile, loan purpose, loan amount, location, property type, security type, etc. Please
contact us for more details. The Rate of Interest (ROI) mentioned above is under Adjustable Rate
Home Loan (ARHL) Scheme. Under the ARHL Scheme the interest rate of the loan may vary
upward or downward during the duration of the loan depending on the changes in the money
market conditions. As a result of the variation of interest rates, the number or amount of the EMI
(Monthly installments) may vary from time to time.
DBH offers both Adjustable and Fixed Rate Home Loan Schemes. Under Adjustable Rate Home
Loan (ARHL) Scheme, depending on the changes in money market conditions, DBH reserves the
right to change the rate of interest prospectively from time to time. In case of Fixed Rate Home
Loan (FRHL) Scheme, the rate of interest remains same throughout the loan tenure.
Loan amount can be availed after satisfactory legal documentation, full own investment and
satisfactory work-in-progress as per DBH assessment. Fees to be normally paid through A/C Payee
cheques in favor of Delta Brac Housing Finance Corporation Ltd. EMI and PEMII amounts to be
paid through Electronic Fund Transfers in most of the case.
Holding Tax benefit from concerned City Corporations may be availed if your property is
Registered Mortgaged with DBH.
Borrowers have to ensure that the property is duly and properly insured for fire and other
appropriate hazards, as required by DBH, during the term of the loan and to produce evidence
thereof to DBH, each year and/or whenever called upon to do so. DBH should be the beneficiary
of the insurance policy.

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 Financial Highlight of DBH

Financial Highlights 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20

Profit before tax *602.91 1,492 1,607 1,555 1,498

Profit after tax *330.81 949 1,048 1,073 891

Shareholders' fund 3,591 4,358 5,040 5,809 6,431

Total deposit 34,394 41,188 43,319 43,411 43,827

Long term borrowing 3,109 2,610 2,219 1,954 1,709

Housing loan portfolio 35,552 42,041 43,427 44,296 42,614

Total balance sheet size 46,472 54,581 57,499 59,280 58,607

NPL ratio (%) 0.36% 0.27% 0.30% 0.45% 0.41%

Return on equity (average 18.38% 23.88% 22.30% 19.79% 14.56%

equity)

Earnings per share **5.43 7.79 8.60 8.04 5.78

Earnings per share (restated) **4.94 7.08 7.82 6.96 5.78

Book value per share 29.47 35.76 41.36 43.36 41.72

Dividend cover ratio 1.81 2.60 2.46 2.30 1.93

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Page | 12
 4.0. Banking sectors in Real Estate Financing

Commercial Banks
The commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank is the
Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system
is composed of 6 state-owned commercial banks, 3 specialized banks, 42 private commercial
banks, 8 Islami Shariah based PCBs, one land development bank and 9 foreign commercial banks
(Bangladesh Bank, 2020). Total outstanding of housing loans from banks and financial institutions
as of end June 2020 amounted to BDT 930.3 billion which was 8.5 percent of total credit to the
private sector. In recent years, major changes have taken place in total housing loan portfolios.
Private banks with ample deposit resources have expanded their housing loan activities. These
banks had the dominant position with the largest amount of BDT 489.3 billion in outstanding
housing loans as of end June 2020.
State Commercial Banks (SCBs):
Nationalized Commercial Banks always give priority to short term corporate lending than long
term housing financing. But they are also an important source of housing finance of Bangladesh.
About 3 to 6 present of their outstanding portfolio in housing finance. There are 6 Nationalized
Commercial Banks in Bangladesh, these are: Sonali Bank Limited, Rupali Bank Limited, Janata
Bank Limited, Agrani Bank Limited, Basic Bank Limited and Bangladesh Development Bank
Limited. The SCBs had the second highest amount of BDT 242.0 billion and other banks had BDT
40.6 billion in total outstanding of housing loans as of end June 2020.
Private Commercial Banks (PCBs):
In this country impressive numbers of private commercial banks are working under the central
bank. Those commercial banks are operating all over the country with a large number of branches.
Private Commercial Banks are the good source of housing finance. About 47 percent of total
housing finance of Bangladesh is contributing by Private Commercial Banks. In FY19 and FY20,
BDT 4.3 billion and BDT 4.2 billion were disbursed out of recoveries of BDT 5.3 billion and BDT
4.6 billion respectively.
Foreign Commercial Banks (FCBs):
There are 9 Foreign Commercial Banks (FCBs) working in Bangladesh. All of these are customers
focused and professional in service. They have different products and service culture to serve the
customers. About 5 to 10 present of their outstanding portfolio in housing finance.
Micro-Credit lenders (Grameen Bank):
Grameen Bank introduced the “Moderate Housing Loan” program in 1984 with a current loan
maximum of 25,000 Tk. After the floods of 1987, the Bank introduced a “Basic Housing Loan”,
which presently has a loan maximum of 12,000 Tk. It targets the poorest rural households, similar
to income-generating credit. This program has remained the most popular among its target

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population. There is also a loan program for the purchase of small parcels of land and one for the
repair of houses. The ratio of basic housing loans to original moderate housing loans is
approximately 7:1. Besides these, another kind of housing loan called “Pre-Basic Housing (PBH)”
loan amounting BDT 7,500 to 8,500 has been introduced to meet the demand of house dwellers in
the northern part of the country. The interest rate is on 8% per annum.The housing loans, like the
other grameen bank loans, are provided without collateral, but the borrower must have a title to
the land, must sign an individual pledge that includes a repayment obligation and must obtain a
pledge from all members of the group or centre which commits them to repayment in case borrower
fails to do so.Repayments are made in weekly instalment.
The maximum repayment period is 10 year, but faster repayment is encouraged.To date the loan
repayment have been excellent with 98% in some area.
As 1999, Grameen Bank has made housing loan total of $190 million to build over 560,000 homes
with near perfect repayment. By 1989, their average housing loan had grown to $300(BDT-25000).
That year the grameen housing program recieved the Aga khan International Award for
Architecture.

Outstanding Housing Loans (Banks) (billion BDT)

1600

1400

1200

1000
FY20
800
FY19
600
FY18
400

200

0
PCBs SCBs Other banks Grameen Bank

Sources: DFIM and SD, BB, and Grameen Bank.

Page | 14
 5.0. Alternative Housing financing system

In recent years, as an alternative to the existing formal financial system, housing micro-finance
system has gone through by an evolution. In the lights of Grameen Bank, several other MFIs, such
as BRAC, ASA are now providing long and short term credit for housing development in
Bangladesh.
So, in this section we will discuss about the housing loan programs of the major MFIs in
Bangladesh.
BRAC
BRAC's housing loan program started after the flood of 1988 and it was focused on the same rural
poverty groups. This loan is eligible for the members who have successfully repaid an income
generation loan and saved an amount equivalent to the monthly repayment for a housing loan. The
loans are smaller than those provided by Grameen Bank and have a maximum of BDT- 8000.
Interest rates on housing loans are 5% and the repayment period is 3 years. BRAC has also initiated
a home loan program for its own staff members. It provides fifteen year loans at a flat rate of
10%(equivalent to a compound rate of approximately 15%) for housing of a minimum size of
500sq.ft.
Grihayan Tahobil
Grihayan Tahobi was established in the fiscal year 1997-98 with a view to eliminate the housing
problem of the homeless people of the country. The Tahobil was formed by the then honorable
prime minister Sheikh Hasina with a fund of 50 crores. Housing activities of Grihayan Tahobil is
being implemented through non-government organizations(NGOs) of the country. The Tahobil
provides housing loan Tk 1,30,000/- for each specific house as designed and specified in scheduled
through the NGOs. Grihayan Tahobil charges simple rate of interest 1.5% and NGOs apply 5.5%
on the borrowers, the recovery period of said loan is 3 to 10 years. At present, the fund of the
Grihayan Tahobil stood approximately at Tk-348 crore. According to the latest data of central
bank, the rate of loan recovery Against the disbursement from the housing fund had so far been
satisfactory with borrowers paying bank 93.0 percent of their loans. Grihayan Tahobil created by
the Government of Bangladesh, provides housing loan to the NGOs at the minimum rate of 1.5
percent simple interest who in turn provides housing credit to the rural poor at the rate of 5.5
percent simple interest for a recovery period stretching from 3 to 10 years. Up to June 2020, the
Grihayan Tahobil has been released BDT 3.5 billion through 616 NGOs for rural housing program
which have covered 404 upazilas of 64 districts of the country and 84050 houses have already
been constructed. As of end of June 2020, Tahobil has recovered BDT 2.3 billion against the total
recoverable amount of BDT 2.4 billion and the recovery rate is 96.8 percent.8.36 Under Grihayan
Tahobil Schemes of constructing dormitories/women hostels, a 12 storied women hostel has been
constructed at Ashulia, Savar, Dhaka with the collaboration and supervision of the Department of
Women Affairs at the cost of BDT 0.2 billion. Now, this dormitory is ready to provide residential
facilities to 744 women workers. In addition, an agreement between Grihayan Tahobil and BEPZA

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has already been signed for the construction of a dormitory for female workers working in Mongla
EPZ at the cost of BDT 0.2 billion. Besides, Grihayan Tahobil has initiated for enhancing loan
facilities to the member companies of BGMEA to build hostels/dormitories for the poor garments
workers. Moreover, Grihayan Tahobil has sanctioned BDT 0.02 billion in favor of the project
Ghore Fera Karmosuchi implementing by Bangladesh Krishi Bank and the first instalment of BDT
0.01 billion has already been released. Grihayan Tahobil has sanctioned BDT 0.3 billion for the
construction of labor hostel/dormitories by the Department of Labor in the area of Kalur Ghat,
Chattogram and Bander, Narayangonj. Apart from the housing loan activities Grihayan Tahobil
disbursed BDT 0.1 billion as a grant to the poor people who are affected by natural calamities like
Sidr, Aila, etc.
ASA
ASA has started a rural housing credit program in 1989-1990. The target group for its lending
programs is poverty groups that earn less than BDT 2000 in rural areas less then BDT 3000 in
urban areas and these groups can only afford to repay BDT 25 per week for their micro-credit.
ASA's management considers housing loans to the lowest income group unfeasible and intends to
target the rural middle class farmers for that lending activity in the future. Ironically, a sizable
group of borrowers (close to 15%) use part of the income generating loans the receive for other
purpose such as the improvement of their homes, even though that is apparently forbidden. This
clearly indicate that the demand for housing loans is large.
Proshika
Proshika started a housing program for rural areas in 1988 and has provided assistance for the
construction of more than 30,000 houses to date. Proshika’s housing loans are based within the
group and the group selects the member most deserving of a housing loan under strict allocation
rules; for example, only three housing loans per year per group, housing loans can only be provided
to groups that have been in existence for at least three years. Only those that have a loan for
income-generating activities are eligible for a housing loan, in order to ensure repayment capacity.
The performance of the housing loan portfolio is not as good as that for the income generating
loans. While housing recoveries are at 85% cumulative, loan recovery for the entire portfolio is
96%. Yet interest rates for micro-lending are 18% while the housing loans at 5% receive a deep
cross-subsidy.

Page | 16
Outstanding Housing Loans (Banks) (billion BDT).
250

200

150

FY20
100 FY19
FY18
50

0
Alternative
financial
institutions

Sources: DFIM and SD, BB, and Grameen Bank.

Page | 17
 0.6. Borrower’s Perception on Real-Estate Financing

While borrowing, borrowers consider some common effective factors of real-estate financing so
that they can make decision according to their affordability. There are people of different income
level and thus seeks for such options from different financing sources so that they can undertake
any option to get relief from the financial harassment. The common variables that affects the
borrowing decision are-
i. Interest rate
ii. Payment procedures
iii. Maturity of the loan
iv. Collateral value etc.
In Bangladesh perspective, recently a huge demand for real-estate financing has been increased
due to initiatives of developers. As a result, a numbers of borrower demand for purchasing
apartment. But the lower and medium earning people faces problem in searching for best quality
housing that can match their affordability. Besides these loan variables, borrowers also demand
the deriving facilities from the actors in financial area. Such actors are:
i. The service provided by the lender, developer, contractor, and RAJUK
ii. The banks
iii. Financial institutions etc.

Here is a brief condition of borrowers’ perception given below according to the

informationcollected from 15 different ages and different professional borrowers.
• Condition of Considerable factors
From the above data of the borrower it indicates a fluctuating demand for financing in the real-
estate sector. For example, among the 15 borrowers 100% considers of interest rate
while borrowing. But on the other hand, about 27% and 40% considers respectively the collateral
value and Effective monthly installments. The table and the graph is shown below-
Table no.3:
Range of Considerable Factors of Loan.
In this table and graph, it signifies the 30 to 40 aged people prefers interest rate like others rather
than EMI and Collateral value. But also EMI preferences are also given importance while
borrowing.

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 Age Range Interest rate Collateral EMI
value
30-40 6 2 3

41-50 4 1 1

51-60 3 1 2

Importance given in interest rate and EMI means the borrowers verify whether it would be able to
repay the loan in regard of their income level.
• Satisfaction level for the service providers
Again the borrowers also justify the service providers’ facilities while purchasing or constructing
the facility. Table no. - 3 shows that the satisfaction level for the service providers vary among
different aged people according to their borrowing condition. For example; the people who are
mostly satisfied through the lenders’ service are not highly satisfied with the other service
providers. But there are a poor performance of contractors and the RAJUK, because the rules
of RAJUK consists lot of documentation procedures and financial harassment that sometimes
create negative impression. And the contractors working procedures sometimes become lengthy
or other harassment occurs while constructing.
• Financing sources
There are also considerable impacts on selecting of the sources for best possible option that
matches with the affordability of the borrowers.
Borrowers mostly prefers the bank for financing, but others also go for Non-Banking Financial
Institutions, other sources or self-financing along with these sources. In the table no. 4 and the
below graph shows that about 60% go for banks and 27 % people go for NBFIs.
One of the reasons for preferring NBFIs is the portfolio investment where risk is minimized. But
people are relaxed when they have enough self -funds for financing real estate.

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% of borrowers out of total (15 Borrowers) for financial
source.

BANKS NBFI

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 7.0. Problems and Prospects of Real Estate Sector

Bangladesh is a developing country and its growth rate is significantly increasing the demand of
urban areas. Rural people are migrating not only to find jobs but many wealthy people are moving
to urban areas for fulfillment of their expectations of better lives for their future generation, and
for enjoying the modern facilities of the city life. This has resulted in a serious crisis all over the
country, especially in the major cities of Bangladesh. In this way land is becoming increasingly
inadequate to provide individual housing solutions. For huge demand and inadequacy of land,
price of land is very high in the urban areas according to real estate participants. While there are
many real estate developers in the market, there are also very few of them who have maintained
the quality, safety and customer preference. In developing urban areas, real estate plays an
important role as well as solving housing problem. Nowadays real estate business in Bangladesh
became very competitive. Competitors are moving very aggressively to achieve their target as well
as increase their market share. On the other hand, the customers are becoming more aware about
the current market of apartments.
The real estate sector was almost getting over these problems then another problem arose last year,
the pandemic. Bangladesh’s real estate sector was badly hit by the pandemic at first. The last year
was really an untidy. But slowly, thanks to certain initiatives from the government, along with an
improvement in the situation, resulted in the market rebounding slowly from the effects of the
pandemic. Bangladesh economy has more to grow. There are some government initiation and
prospects of real estate sector are pointed out below.
Increase in investment
One of the most important initiatives taken by the government to boost real estate investment last
year was the allowance of investment of untaxed income into real estate. This has seen investments
of over Tk3,200 crores of untaxed investment into the real estate market. With regulations
changing in June, the months before that will see an increase in such real estate investments. Other
important regulations, such as the reduction of interest rates of home loans to 9%, along with a
reduction in land transfer taxes from 2% to 1% and stamp duty fees from 3% to 1.5% will also
result in increased investment into the sector.
Changes in regulation
In the latter half of 2020, the real estate sector saw a resurgence in activity. It is working its way
towards complete recovery. But for this upward trend to continue, certain changes in regulations
need to be made, so that the industry can grow further. Although the regulations that are already
in place are adequate, there are still many barriers that prevent the participation of a large portion
of our population in real estate investment. Removal of such barriers can greatly increase the
amount of investment in real estate, further fueling the growth of the real estate market in 2021.
Current regulations that have been put in place can also be improved upon for the same effect.
Higher demand for land

Page | 21
As 2020 progressed, the demand for land increased greatly. Compared to the start of the year, the
end of the year saw a ten-fold increase in the demand for land, according to our data. There is a
good reason for that, though. Investing in land provides much greater returns when compared to
investment in property.
More affordable home from developer
With the onset of the pandemic, the number of buyers in the real estate market declined greatly.
But the number of flats for sale on the market remained the same. This resulted in far greater
supply compared to demand in the real estate market. Many developers faced a consequent cash
crunch, as they were relying on selling apartments to fund future projects. But with lower demand,
they had to lower their apartment prices significantly. This makes it a great opportunity for those
looking to invest in real estate, as prices will go up once the economy recovers.

8.0. Conclusion

The real estate sector is growing and shows tendency of future growth. The GDP share and growth
of real estate and construction is growing. This indicates a hopeful future for this sector. Rise in
house rent increasing demand for housing getting easy financing facility 'rapid urbanization'
inadequacy of land and many other factors are creating huge scope for this sector to grow. As a
result aggregate demand for housing and apartments has shown increasing trend and is expected
to increase further. Though inadequate, supply of apartments with the number of real estate
developers also has shown rising trend and suggests future growth. Regulatory environment has
been helpful for the sector to grow except the recent Real estate management ordinance 2008
which is yet to be passed and is likely to be very important for protecting buyers interest. Financing
market for the real estate sector has become easier and more available than ever before. Private
sector housing finance is available at competitive interest rate for flexible period but still the
amount of loans given is very low compared with loans in other sectors.
Strengthening the regulatory and supervisory system for the financial sector and improving and
expanding debt markets are of particular concern for the housing finance sector. Cost for apartment
has increased varying with different locations and size. Additional cost for additional facilities is
required. On the whole, this study finds a very promising and positive tone of growth, provided
this sector is given proper attention and facilities. It has certainly become very necessary to satisfy
the increasing housing demand and minimize the supply gap in the country.

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 9.0. References:

1. Retrieved on September 21,2019 from https://btibd.com/

2. Retrieved on February, 2021 from https://btibrokeragebd.com/
3.Retrieved on June 1, 2020 from https://www.ceicdata.com/
4. Retrieved on March 12, 2015 from https://www.thedailystar.net/
5. Retrieved on July 05, 2012 from http://www.academia.edu/com
6. Retrieved on July 04, 2021 from http://www.deltabrac.com
7. Retrieved on July 03, 2021 from http://www.researchgate.net
8. Retrieved on December 2020 from https://grameenbank.org/
9. Retrieved on December 2020 from https://world-habitat.org/
10. Retrieved on 31 December 2020 from https://www.bb.org.bd/en/index.php

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