Home loan demand rebounds as housing sector wakes up

The demand for home loans has bounced back as the country’s real estate sector starts making progress after a long dry spell in the wake of the pandemic.

By the time the Covid-19 hit the country in March last year, the pandemic-induced intermittent shutdowns brought the apartment sale to its knees.

The second wave of pandemic dealt another blow to the real estate business, so was the appetite for home loans, said industry insiders.

“But the turnaround happened from the beginning of this year. The sector tried to get back in the game overcoming the brunt of pandemic,” they added.

The total outstanding home loans in the banking sector stood at Tk 29,717.52 crore as of June 30 this year, up from Tk 26,062 crore at the same time last year, as per the latest data from the Bangladesh Bank.

The banking sector registered 14.02 per cent year-on-year growth in home loans as of June this year while the overall private sector credit growth was at 8.35 per cent.

The single-digit lending rate pushed up the demand for such loans even amid the pandemic, bankers said, adding that most banks now finance the housing sector at 7.50 to 8 per cent interest.

Dhaka Bank provides home loans at between 7.99 per cent to 9 per cent interest rate. The bank fixed a target to disburse Tk 250 crore to Tk 300 crore for the housing sector in a year.

The seeking for home loans has started to rebound in the midst of this year and it will rise further in the coming months if the ongoing Covid-19 situation keeps improving, said Dhaka Bank Managing Director and CEO Emranul Huq.

“We have tied up with 15 real estate companies to provide loans at lower interest rate. Dhaka Bank is also providing loan for interior design,” added the banker.

Similarly, the state-run Agrani Bank provides home loans at 8-9 per cent interest rate depending on the bank-customer relationship.

According to Agrani Bank Managing Director and CEO Mohammad Shams-ul Islam, the application for home loans has gone slightly up, and it will increase in the days to come.

The clients are still waiting and observing the ongoing Covid-19 situation; the prices of construction materials are high now; if the prices decrease, the demand for home loans will shoot up, Islam pointed out.

Likewise, Mercantile Bank provides housing loan at highest 9 per cent interest rate. The bank’s outstanding loan in this sector stood at Tk 1000 crore while its total outstanding loans is Tk 25,000 crore.

The request for housing loans has gone up from the last few months, said Matiul Hasan, additional managing director of Mercantile Bank.

The lower interest rate on bank loans and the policy relaxation by the government for the real estate sector are the main reasons behind the rising demand for such loans, he observed.

Not only Banks, a number of non-bank financial institutions are in the leading position to provide home loans, but the clients are more inclined to banks instead of NBFIs for such loans due to differences in their interest rates.

Now banks charge the highest 9 per cent interest rate for home loans while NBFIs 11 to 14 per cent.

Bangladesh House Building Finance Corporation is a public sector NBFI that finances the construction and renovation of houses as well as the purchase of residential apartments in the country.

The corporation has a number of 11 loan products and its highest lending ceiling is Tk 2 crore. The state-run specialised finance company provides housing loans at 7 to 8 per cent interest rate.

The public sector organisation has sanctioned Tk 619 crore and disbursed Tk 514 crore loans for the housing sector in Fiscal Year 2020-21.

The sanction and disbursement figures are Tk 164 crore and Tk 92 crore higher than what was made in the previous year, as per the data of the organisation.

Contacted, House Building Finance Corporation Managing Director Md Afzal Karim told The Business Post they have disbursed a record amount of loans in the housing sector in FY21 even amid the pandemic.

“We will disburse more loans in the current fiscal as the demand is on the rise. In line with the demand our capacity has also been enhanced,” said the high-up.

Domino effect

The country’s real estate sector started sending a domino effect to other sectors as well due to the pandemic.

The industry insiders viewed that around 6,000 projects of the Real Estate and Housing Association of Bangladesh (REHAB) members were put on hold as construction workers and other employees returned home due to lockdown. Many clients were unable to pay their installments on time.

“We were hard hit by the pandemic. Most of our clients withheld their monthly payment as they were hard up. We also could not arrange two fairs because of the deadly virus,” said REHAB president Alamgir Shamsul Alamin, who is also the managing director of Shamsul Alamin Real Estate Ltd.

The business leader asserted that the real estate companies are getting over the difficult situation as construction work has resumed after a series of pandemic incidents. The sector will fully turn around by December this year.

Alamgir observed that their business will gain momentum in the upcoming days as the government reduced the land registration fee and allowed untaxed income to invest in this sector.

The government allowed the use of untaxed money to purchase property, land and apartments without having to answer for its source in the budget for the current fiscal year.

On the other hand, banks and NBFIs are providing home loans at a very low interest rate -- below 9 per cent, which also helped the sector rebound, according to the sector people.