Potential buyers are shying away from buying plots and flats reportedly due to a recent government move to collect clients' particulars from leading real estate companies and list the sector as a targeted one under suspicious money laundering deals. As a result, sales of both flats and plots of land have reportedly declined by 60 per cent during the last one year.
The recent developments would tend to suggest that the National Board of Revenue (NBR) and a host of other government agencies hold the view that a large part of the daily transactions in the real estate industry are not properly reflected in the documents including the deed of registration, shown to the authorities. There are, of course, some valid reasons for holding such a view. In this context, the authorities concerned have asked the realtors to provide information about the actual sales' price of a flat or a plot of land and its 'stated' cost in the deed of registration during last five years.
On its part, the Real Estate and Housing Association of Bangladesh (REHAB) wrote a letter recently to the NBR stating that it would not be possible to provide such information to them for such a long period of time. The realtors likened the drive to 'intimidating' the potential clients and 'forcing' them to stay away from making any fresh purchase or buying. They also requested the ministry of finance (MoF) not to list the sector as a targeted one to plug the holes that are responsible for deployment of large amounts of tax-evaded or 'black' money and laundering of the same through investment in the sector. A government committee is expected to submit a report in this connection by April 30. The realtors are now expecting that the sector would be de-listed, if the committee recommends it.
Reports say the realtors had set the sales target at over 18,000 flats for 2013. If the current sluggish growth continues this year, the sales target won't be achieved; rather, it will come down drastically. Banks are otherwise reluctant or are exercising restraint at the directive of the central bank, to sanction and disburse loans to the sector. Without credit facilities by banks, many individuals will be able to buy any flat or a piece of plot with their own means. There is, of course, also no denying the fact that there are some risks about making heavy investments in the real estate sector, in view of the bubble of the latest intangible properly-related asset prices.
If this bubble bursts, it will be too difficult for banks to cover their loans. Besides the increased prices of land in all major cities including that of Dhaka, high rates of taxes and registration fees, lack of power and gas connections, share market debacle, liquidity problems of banks and financial institutions etc., have all created a stagnant situation in the housing sector. If the government does not come forward to save the sector from a dire straits, it, the realtors say, will face a severe crisis in the near future.
The sector's contribution to the country's gross domestic product (GDP) is about 12-15 per cent. It has not only generated 2.5 million employment opportunities directly and indirectly but also created several dozens of ancillary industries, namely those of steel, cement, tiles and sanitary ware, cable and electric ware, paint, glass and aluminum, brick and other building materials.
The industry is also facing major challenges in the absence of proper urban planning and land administration. It does not enjoy the status of an industry yet in real terms. In the midst of such odds, inadequate funding support, shortage of skilled and qualified manpower, phenomenal hikes in prices of land and rising manpower and material costs have all compounded the problems in the sector.
On their part, the REHAB leaders had earlier demanded that the government should allow investment of 'undisclosed' income in the sector, made being subject to payment of a nominal rate of tax. Given the tax compliance culture in this country, there are some points in favour of realtors here. The latter have thus been arguing that such a concessionary fiscal facility, to up a certain limit, will help them overcome the depression facing the sector for some years now. They told the government that between 22,000 and 30,000 ready flats remained unsold due to lack of gas and electricity connections. The problems facing the real estate industry, according to them, would remain unresolved unless the government allowed the investment of 'undisclosed income' in the sector.
The morale aspect of such a demand does certainly raise a number of critical and also normal issues that must not escape the attention of all concerned. However, the practicalities of the state of affairs in the context of Bangladesh as far as tax-related matters are concerned, can not also be relegated to the background, on grounds of pragmatism.
The practice of maintaining different books of accounts to hide transactions by many real estate companies is otherwise facilitating the pumping of 'undisclosed income' into the economy. In all fairness, the concerned authorities do need to act upon this situation to combat the dual menace of black money and money laundering. The country is otherwise committed to upholding the standards and practices of Financial Action Task Force and Asia Pacific Group on money laundering. However, actions done in a hurry may be counter-productive, unless there is a synergy of actions on all fronts to curb the areas of activities that promote or encourage the growth of 'black' or 'undisclosed' money and help or induce money laundering at both country and inter-country levels.
Given such circumstances, real estate companies at large are really facing a hard time as sales of plots and flats which were otherwise robust even a few years back, are now on the decline. But it is also beyond doubt that the prices of flats, regardless of the areas of their locations, have gone phenomenally up, far beyond the purchasing capacity of the majority. Besides, absence of gas and power connections has also discouraged buyers; they do if like not to jump into an uncertain situation for some valid reasons.
On the whole, all issues of consequence that are responsible for the ongoing crisis facing the real estate sector merit a clear scrutiny on a dispassionate basis. These, according to some analysts and industry insiders, are mostly connected to the policies, economic and infrastructure development. The emerging situation demands that something is done to protect the genuine interests of the buyers of apartments, industry operators and the economy. The government and the leaders of the real estate sector should sit together to devise ways and means to bring an end to the ongoing impasse.
Housing is one of the basic needs of every citizen. 'Housing for all' should not merely be an empty political slogan. The government should create an enabling environment, with the support of encouraging policies, so that the real estate sector can flourish, and this will also be a great boon for the national economy.
