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GLOBAL RECESSION

Remittance drop to hurt real estate

Raws ar Khan
Realtors (eared the global recession might undermine the real estate sector's prospective growth unless special initiatives are taken, although the sector began to expand after a two-year sluggish trend when its growth slowed to 7.05 percent in 2006-07 from 8.31 percent a year earlier.
Construction takes up 9.16 percent of GDP (gross domestic product), according to 2006-07 data.
As exports and remittances are two major inputs to the economy, a negative impact of a prolonged and deepened global financial crisis on these two sectors is likely to affect the real estate sector.
"The remitters and their families buy around 35 percent of our total flats, while 40 percent apartments are sold to businesspeople majority of whom are exporters. So if exports and remittances are affected, there will be a negative impact on the real estate sector, said Sheikh Aftab Ahmed, chief operating officer of Shanta Properties Ltd, a real estate company.
Besides buying flats, people also undertake different construction works including building houses with the remittance that might be affected if inflow of foreign currency decreases on the global financial crisis, he added.
According to official reports, the country's exports slumped in the months of October and December of the current fiscal year that the businessmen attributed to the global financial meltdown.
Although the overall remittance inflow remains positive so far, reports said overseas workers in the Middle Eastern countries, the main source of remittances for Bangladesh, are now being forced to leave jobs.
In January some 4,817 migrant workers came back home on job losses, while the number was 701 in the previous month, according to official statistics.
"We all know that the recession in the USA originated from housing sector later crept into other potential sectors including banking and insurance," said Tanveerul Haque Probal, president of Real Estate and Housing Association of Bangladesh (REHAB).
Against this backdrop, the government will have to take safeguard measures so people do not lose confidence and invest in real estate sector, which he said would keep the economy rolling.
More investment in the sector will create more employment and keep the linkage industries of the sector vibrant, he added.
The realtors also urged the government to increase the volume of public construction works under the Annual Development Programme (ADP) to keep the real estate sector and hundreds of its linkage industries pulsating.
Bricks, cement, rods, furniture, paints and tiles are the main backward linkages of the real estate sector.
This year works in the real estate sector increased compared to the last two years, said Abdur Razzaq, general secretary of Imarat Nirman Sramik (building construction workers) Union of Bangladesh. But yet many of the construction workers do not get jobs regularly.
Now around 75 percent of some 40 lakh construction workers of the country can manage a job everyday but if the market performs badly, there will be a shortage of demand for workers, said Razzaq.
He however said the sector is performing better now compared to previous year since the job rate of the construction workers was around 65 percent last year.
Motaher Hossain, a member of Bangladesh Brick Manufacturers Owners Association, said recently consumption of bricks has increased what he believes due to a reduction in rod prices that led to resumption of different construction projects.
"But the performance of the construction sector is yet to reach the expected level as the implementation of public works has been very low for the last two years and the trend is still continuing," he added.
Forty percent of bricks produced in the country are consumed by the public sector, while the rest 60 percent by the private sector, he said.
According to statistics, the government implemented 69.58 percent of the original ADP for fiscal year 2007-08.
However rod manufacturers said reduction in prices has given rise to a demand for rods, inspiring different re-rolling mill owners to resume operations.
Now prices of 40-grade rod hover between Tk 41,000 and Tk 42,000 per tonne that was around Tk 65,000 in June last year, said Masudul Haque Masud, former general secretary of Bangladesh Re-rolling Mill Owners Association.
Prices of 60-grade rod are now ranging between Tk 50,000 and Tk 51,000, down from around Tk 70,000 in mid-last year.
But the cement manufacturers said their export to the seven-sister states of India jolted in recent months due to an imposition of 12 percent additional duty by the Indian government on cement import from Bangladesh.
"The production capacity of 50 cement factories in the country is between 14-15 million tonnes when the domestic demand is from 8 million tonnes to 9 million tonnes, which led to a shut down of 15-20 small
cement factories in recent times," said Mostafa Kamal, president of Bangladesh Cement Manufacturers .Association.
He suggested the government should construct concrete roads instead of malting roads with bitumen to increase cement consumption.
Many countries in the world construct roads with concrete as these are much more durable than bitumen-made roads, Kamal said, adding that such construction will increase domestic cement consumption.
Asked whether the global recession would take its toll on the real estate sector, Prof Nazrul Islam, an urban expert and Chairman of University Grants Commission (UGC), replied in positive.
"The rich, upper-middle and middleclass people are the main customers of the real estate products, so the real estate sector will be affected as the financial crisis is expected to reduce incomes of the people of these brackets dependent on remittances and exports," said Islam, also honorary chairman of Centre for Urban Studies.
He said a major use of remittance is house building, so reduction in remittance inflow is likely to slow housing works and impact all stakeholders.
kawsar@thedailystar net