Housing sector

The housing sector towards stagflation?

Now the Russian-Ukrainian war has made steel rods, cement and tiles even more expensive

March 16, 2022, 11:50 p.m.

Last modification: March 17, 2022, 1:36 p.m.

What happens when the housing market heads into stagflation? Prices soar as inventories stagnate. This is the situation prevailing in the housing market in Bangladesh, causing headaches for builders and apartment buyers.

Building material prices have risen since March last year after global supply disruptions caused by the Covid-19 pandemic.

Today, the Russian-Ukrainian war has made steel rods, cement and tiles even more expensive.

As a result, the completion and delivery of apartments has nearly ceased, new sales have slowed, and property companies are set to raise rates – up to 30% – to offset rising costs.

On March 1, Jams Developments Ltd (JDL), one of the country’s leading housing companies, raised the price per square foot of apartments in its various apartment projects from 1,000 to 1,500 Tk.

JDL Chairman, Md Shahadat Hossain Dabi said: “The rate at which the market price of building materials has increased since the start of the war last month has left us with no alternative but to increase price.

Infographic: TBS


Infographic: TBS

“A key cost item is steel bars and the war has driven bar prices up 10% per ton. 25%.”

He said rising costs have led to an increase in the price per square foot of apartments – an increase ranging from Tk 800 to Tk 1,000 for standard apartments and from Tk 2,000 to Tk 3,000 for luxury apartments.

Shahadat also said that several projects are underway in different parts of Dhaka city including Gulshan, adding that the rate hike was determined by the quality of the apartments and the location.

He said work on three new apartment projects had been suspended for the time being.

The company recorded no sales in March. According to the real estate broker, apartments worth Tk 100 crore were sold in January and February last year.

Manohar Hossain, president of the Bangladesh Auto Re-Rolling and Steel Mills Association, backed Shahadat’s concerns, saying the cost of importing scrap metal, the main raw material for steel rod, was previously $435. per ton, but since the war the price has increased. at $500.

Manohar Hossain said that if the war continues, prices could rise further.

Around the same time, Sheltech (Pvt) Ltd, the country’s leading real estate company, also decided to raise the price of its apartments.

Tanvir Ahmed, managing director of Sheltech (Pvt) Ltd, told The Business Standard that the market price of building materials has so far risen by 35-40%, along with business costs, so prices fixed could also be increased.

Sheltech has already raised apartment prices in some areas, he said. Again, prices have not been increased based on the quality of certain areas and projects.

Tanvir Ahmed said that the construction works will be carried out in the new projects taking into account the situation of the international and domestic markets.

Economist Ahsan H Mansoor said that due to the increase in the price of materials, the price of buildings will also increase. However, apartments that have been contracted before must be delivered on time.

He also said that if the situation continued, some 3.5 million construction workers risked losing their jobs.

In addition, new small and medium-sized residential settlements outside the capital will also be at risk.

Alamgir Shamsul Alamin, chairman of the Real Estate and Housing Association of Bangladesh (REHAB), told TBS that there is no alternative to rising apartment prices. However, the increase would depend on the quality of the apartment and the location.

“Housing companies have been asked to raise prices at a reasonable rate taking customers into account,” he said.

He said housing companies in the capital had sold standard and luxury apartments worth Tk 5,000 crore on average per month last year and the year before. But in March, the sale had almost stopped. He mentioned that some companies had sold fewer apartments.

No discount, few sales

In the Kalachandpur district of Gulshan, the Comfort Housing Apartment project sold 18 apartments between June and December 2020.

In June last year, all apartment owners had a transfer agreement. So far, however, no apartment owner has received their apartment.

Imroz Habib Russell, who works for a multinational, bought an apartment in the Comfort housing estate.

Speaking to The Business Standard, he said: “I reached an agreement in November 2020 to buy a 1,550 sq ft apartment for Tk 1.3 crore. I paid Tk 60 lakh as an advance. , with the remainder to be paid by December last year.”

He said when the developers were asked to hand over the flat in June last year, they said construction work was being delayed due to an increase in the market price of building materials.

Eighty percent of the construction work has been completed so far. Only 18 apartment owners in the project are in arrears.

Nazmul Haque Rony, managing director of Sign Bd Development Ltd – the company behind Comfort Housing – told TBS that at the time the flats were sold in 2020, the price of the flats was based on the market price of building materials .

Since the beginning of last year, the market price of all types of building materials, including rods and cement, has increased by around 50%. As a result, most project work has slowed down.

The prices are soaring

According to REHAB, around one lakh flats and flats were sold in 2020. Around Tk 50,000 crore was invested in purchasing these flats and flats.

About 1,20,000 flats and apartments were sold last year. About Tk 60,000 crore has been invested for the purchase of these flats and flats.

More than 50% of apartments and apartments sold in 2020 have yet to be released to buyers, REHAB official said, while more than 60% of apartments and apartments sold in 2021 have yet to be released to buyers .

REHAB Chairman Alamgir Shamsul Alamin told TBS that REHAB is in talks with real estate agents on how to quickly hand over sold apartments.

Negotiations are also underway with the government to regulate the construction materials market. A positive result will come soon, added the REHAB president.

REHAB Director Naimul Hassan said that in March last year, the market price of construction materials started to rise sharply. After a three-point increase, the price of wire rod stood at around 60,000 taka per ton in January this year.

A week after the Ukrainian unrest on February 24, the price of wire rod rose from Tk 6,000 to Tk 7,000 per ton.

Manufacturers and importers of these building materials say the war between Russia and Ukraine has disrupted shipping on various routes, including the Black Sea, and freight rates have skyrocketed.

According to the rod manufacturers, most of the raw material for the rod came from Ukraine. Due to the war, the sea route was disrupted, affecting supply and therefore prices.

In retail and wholesale outlets across the city, cement prices for all businesses have risen by Tk 50 over the past two weeks.

The price of bricks and stones, the main building materials, also increased following the Russian-Ukrainian war.

Previously, imported stone was sold at a maximum of 3,000 taka per ton. During this period, the price of one ton of stone increased by 1,000 Tk.

The price of bricks has also increased. Last January, the price per thousand bricks was 6,000-8,000 Tk, but currently it is 9,000-10,000 Tk.

Dr. Zahid Hussain, a former senior economist at the World Bank’s Dhaka office, told TBS that the protracted war between Russia and Ukraine would have a major impact on the housing sector.

In this situation, only the rich can afford to buy flats or apartments, while there will be ripple effects on other sectors. Affected workers would also be greatly affected.

He said that if the war is not long-term, traders and property buyers will gradually adjust to the current market price of building materials over a period of time.

Former Secretary General of the Bangladesh Institute of Planners (BIP), Dr. Adil Muhammad Khan, told TBS that the Ministry of Housing and Works is responsible for adjusting apartment prices in different areas by adjusting current market prices for building materials.

In addition, according to the private housing promotion policy, an apartment must be handed over to the buyer within six months of the promise of sale.

The word “stagflation” appears more frequently in Google search trends since the launch of the Russian strike against Ukraine on February 24, reflecting growing concerns among researchers and economic policymakers about the future course of the economy. .

Bloomberg’s News Trends feature, which tallies keyword occurrences in articles from more than 1,500 sources, illustrates how stagflation is hitting the global radar.

The U.S. housing market is already in stagflation and showing 1970s conditions, according to a Bloomberg article.

The same condition also prevails for the real estate market of Bangladesh.

Dr Zahid Hussain said that if building material prices continue to rise, apartments will be more expensive and home builders will have few buyers, which could lead to construction work being suspended. “In such a situation, there are fears that the housing sector will face stagflation,” the economist said.