NATION BUSINESS REPORT
The Bangladesh Bank has started closely monitoring the country’s real estate prices in the wake of drastic fall in housing prices worldwide, including the United States and neighbouring India.
Even the International Monetary Fund has recently warned that the US housing downturn might deepen and lasted longer than previously forecast, and the slump could spread to other countries.
In a report to the Group of 20 developed and developing countries, the IMF said that house prices in the US and other countries could continue to plunge through 2010 as unemployment rises amid the global economic slowdown.
“In the United States in particular, there is a risk of deeper and more prolonged housing correction,” the Washington-based multilateral institution said.
The US housing slump, at the epicenter of the global financial crisis, in under severe pressure “as labor markets deteriorate further, mortgage financing remains restrained and foreclosures rise steeply as the ‘negative equity’ problem in housing spreads,” it said.
“There are risks that house price declines could intensify in other advanced economies and also spread to a broader range of countries, particularly if the availability of housing finance is squeezed through adjustment in the financial sector,” it said.
The report was prepared for a G20 ministerial meeting held in London on January 31 and February 1 ahead of a G20 summit in the British capital on April 2.
“House prices could continue to fall sharply through 2010, undermining recovery in financial markets and contributing to the adverse feedback loop with the real economy,” the 185-nation IMF warned.
“We’ve started monitoring the real estate prices in the country, particularly in the Dhaka city to avoid a bubble-burst in the housing sector that may seriously affect the banking sector,” the central bank officials said Thursday.
Sources at the Real Estate and Housing Association of Bangladesh (REHAB) told The New Nation that a team of the Bangladesh Bank led by a deputy director has been designated to monitor real estate prices and the sector’s exposure to the banks.
“They supplied a list of queries on land, apartment, and flat rates, trend in sales, bank financing in the purchases etc, early this month,” a REHAB official said.
The Bangladesh Bank’s moves came after Governor Dr Salehuddin Ahmed warned off a “bubble-like pressures on real-estate prices,” caused by high credit growth in the banking sector in the recent months posing serious threats to the overall banking system of the country.
The Governor also spoke about the urgent need for “real estate price monitoring” when he presented the next six month’s monetary policy on January 14.
“The continuing sharp escalation of real estate prices in Bangladesh in the context of collapse of house price bubbles in many major economies adds urgency to the need for dependable time series information on real estate prices,” he said.
“We have become surprised witnessing growing prices of apartments and flats in Dhaka city in recent months which are not supposed to be sold at such higher prices. It is totally undesirable. It seems that an unhealthy competition is now prevailing in the country’s real estate sector,” an official of Bangladesh Bank said.
“If you look at the prices of apartments and flats sold only one year ago in Dhaka city you will become totally surprised thinking what caused this price hike,” he said.
The Bangladesh Bank official further said there is no reason behind the prices of apartments and flats going up as the housing sector around the world has been witnessing a sluggish trend. “Prices of apartments and flats have drastically fallen across the world including the neighbouring India. But why should the prices continue to rise in Bangladesh. We are suspecting some foul plays taking place in the country’s real estate sector,” the official also said.
However, REHAB officials said that there is no ‘over-heating’ in the real estate sector although housing prices in some parts of the Dhaka city are higher than cities like Mumbai or Bangkok.
“We have a demand for 100,000 units of flats a year. But the we can provide only 8,000-9,000 apartments annually,” a REHAB official said.
“The demand for new apartments and flats are still very high. So, we don’t see any chances for overheating or a sharp downturn in the sector in the coming years,” the official also said.
But the REHAB official admitted that prices of some flats in posh Gulshan, Baridhara, Banani and Dhanmondi have gone up to Tk12, 000-Tk 15,000 per square feet–equal to the prices in Bangkok or Mumbai– which may result in a sharp downturn in case a major fall in demand.
Housing prices in Indian commercial capital of Mumbai is one of the highest in the world. Late last year the Mumbai housing prices declined sharply due to the effect of global financial crisis.
Another REHAB official said over the past few months, sales of the top-bracketed flats have dropped in Dhaka, causing no worries to the bankers.
The official said the REHAB’s 453 member companies have over 2500 housing projects under construction, but together they have a very small amount of exposure to the banking sector.
He also said hard-savings rather than bank loans are fuelling the housing prices in the city.
“For years apartment sales in both Dhaka and Chittagong are driven by non-resident Bangladeshis and the country’s growing middle-class,’ he said.
“Both these groups spend their hard-earned cash rather than relying on bank loans or mortgages to finance their purchases. So the Bangladesh Bank should not worry about a housing price bubble,” the official said.
Courtesy: nation.ittefaq.com
