Construction business practices and pattern in Bangladesh

In a country of more than 180 million inhabitants, people of Bangladesh are always struggling to fulfill their basic need of shelter, especially the people residing in the cities and towns. With the changing economy, the pattern of movement of the people also changed. At present, people like to reside within the cities with their own family. But, even couple of decade ago, they were intended to keep their family in their village home. In addition, there was a significant change in the economic development. As a result, the need for construction of new establishments for the commercial as well as residential purpose was increased manifold. To meet this demand, a number of big companies have involved themselves in this booming sector.
History of real estate sector in Bangladesh
In the early 1980s, the real estate sector has started to come into the picture. At that time, the number of private companies was very limited, but with the passage of time, the number has increased to a great extent. Then the companies have focused themselves to prepare apartments in some very limited area like Maghbazar, Paribagh, Shantinagar, Dhanmondi, Mirpur, Banani, DOHS, Gulshan, Baridhara area. As the area and population size of the Dhaka city has increased, the companies have spread their area of operation beyond the central part of Dhaka. Since the last few years, the companies also extended their operation in different divisional cities and other towns. This is happened because of the increased demand of housing needs and acute competition among the companies.
This change has not only taken place in the area of operation, but also took in the pattern of business. Initially, the companies intended to purchase land to construct the buildings or establishments. But, nowadays, the business has turned into a pro-rata basis. For example, if any person has a land on a particular area, but short of fund to establish a building, then the companies extend their hands to help them. They try to reach an agreement with the landowner on a property share basis. The company bears all the costs of establishment on that land and in return, both the parties (the landowner and the company) will get their share on that establishment at an agreed upon manner. This particular move has greatly changed the construction business of the Dhaka city as well as in the country.
Contribution of real estate sector in the economy of the country
The contribution of real estate and housing sector in the Gross Domestic Product (GDP) of Bangladesh is very significant. As per a report published in The Daily Financial Express on April 16, 2012, the contribution is in between 12 to 15 percent and annual turnover was more than 20 billion BDT. As like any other industry, based on the real estate sector a number of other backward and forward linked industries were developed in Bangladesh. The number of such industry would be around 250. Some of the industries are – steel, cement, brick, ceramic, tiles, sanitary industry, cable, electric ware, paint, building materials, glass, aluminum, consumer durables, furniture and the like. The aggregate contribution of these companies on the GDP will be the indirect contribution of real estate sector. At present, around 3 million employment opportunities were created due to the direct and indirect impact of this sector.
In addition, real estate sector is one of the most labor absorbing sector in our country. Skilled, semi-skilled and unskilled laborers are the driving force of this sector. This sector is also an important revenue earning source of the government. Government earns revenues in the form of registration fee, VAT, AIT, stamp charge and other similar charges.
The real estate sector has a great contribution in the mobilization of the economy of the country. With the development of this sector, huge value is added on the land which is used as collateral security to get credit facility from the banks. The impact of bank loan on the economy acts as a life blood and the contribution of real estate sector is very significant.
Reasons of development of real estate sector
As per the expert opinions, there are many forces acting behind the booming of real estate sector. Rate of population increase is on the top of this list. Among other reasons, scarcity of land, high price, multiple sale of a particular piece of land or building, scope of investment of illegal money, increased tendency of residing as unit family, nature of management of security of the apartment, rapid urbanizations are included.
Factors adversely affecting the real estate sectors
It is well known that like any other industry, real estate sector is also confronting many issues. The issues are related with government, demography and persons involved in this sector. Political un-stability, frequent changes in the policy with or without the change of government, poor urban planning, bureaucratic problems, problems with approval procedure, non-availability of utility facilities are some of the factors controlled by government. For example, for last couple of years, government has decided to not allow any new electricity and gas connection in residential as well as commercial purposes. For this single decision, the entire industry became stagnant and the companies are still struggling to get rid of it.
Demographic factors might include the change in income level of the people, shifting interest towards the suitable alternatives, level of skills of the manpower, etc. There are some companies whose managements are allegedly known as land robber. They illegally occupy the lands of other people and try to construct establishment on that land. As a result, the consumers are also in fear from those companies. In addition, as the number of companies has increased to a great extent, the competition among the companies is so acute to do business and survive in the industry.
In addition to the above reasons, the volatility of the prices of backward and forward linked products has a huge negative impact in fixing the price of the final product. Sometimes, the price of goods increases so high that the companies face difficulty in fixing price as well as dealing with the customer.
As per the experts in this sector, there are chances of very high level of urbanization by 2015. At that time, Dhaka would be a place of 15 million people needed housing facility. To reduce the costs of business, the price of land should be fixed properly and documented with great care, so that the price of that land would be reasonable.
Government policy should be on very long-term basis and customer friendly. As a result, the businessmen and consumers will be able to think about long-term investment. This will help to reduce the price of property and also to increase the quality of products. At that time, other industries like Banks, Non-Bank Financial Institutions, Leasing Companies will show their great eagerness to invest on this sector.
It is the responsibilities of the industrialists of this sector to wash out the alleged claims against some of the businessmen known as land robber. For a very small proportion, the entire sector is now under the risk of image crisis and they should be united against those companies. This would be beneficial for the industry itself, the customers and for the government.
Author: Abdullah Al Arafat
A civil engineer from Bangladesh. Mr. Arafat has worked for notable Bangladeshi civil engineering companies for more than 7 years. Now, he is pursuing higher studies in Canada. He has keen interests in new forms of structural and geotechnical designs and researches.