Bad Spell In Real Estate

Fees get the blame for bad spell As fall in sale rings the alarm bell. Opaque capital in real estate Hardly fixes the problem in dire straits.

Real estate sector is going through a bad spell. According to a news report, flat sale took a nose dive in recent months. Reason attributed behind this slump points to National Board of Revenue's policy of doubling the registration fee¹. Since Bangladesh is going through budget and current account deficit, cash-strapped govt has no other choice but to raise taxes and fees, except the corporate tax that may see a hike after the election.

Government hoped raising the land and flat registration fees might bring revenues. For far too long,real estate sector has been one of those sectors where opaque capital finds safe sanctuary. NBR does not question about the origin of money being spent in this sector. Government anticipated that any increase in registration fee would not translate into fall in revenue. However, comparison between corresponding months revealed that registration revenue was halved in some cases.

I think NBR may likely to attain the revenue goal from this sector. We are heading towards election. A great deal of uncertainty envelopes many. So a great number of people are not interested to purchase flat.Political impasse also holds back many from investing in flat. A dramatic improvement may be expected after the election.

I had earlier watched a news report where one developer claimed number of unsold flat keeps rising. In addition, somber outlook in flat sale also puts on hold undertaking of new project, which earlier had witnessed fast sale even before completion of the project.

My personal observation is that recent visa restriction, clamp down on illicit wealth in Singapore and UAE may herald new beginning for the real estate sector. High-end flat sale may likely to rise after the election.

However, it is not right to allow clandestine capital in real estate sector without any scrutiny. Prices pushed towards such a level that lower and middle income groups find it hard to avail a flat. Government initiative or Public-Private Partnership in addressing the issue is also conspicuously absent. Meanwhile, allowing opaque capital in real estate is causing political and social tensions.Incidents like slum dwelling as a mean to occupy land,territorial hooliganism, murder,influencing local government election, fire accident,retributive fire attack,extortion etc are on the rise.

Furthermore, there are many empty apartments and commercial spaces. That means the flats and commercial spaces are being owned by someone but there are no occupants. Housing problem remains acute and increasing size of commercial space does not translate into vibrancy in economy.

British travel vlogger Simon Wilson accidentally documented two incidents of illicit funding of real estate sector: one in Cyprus and the other one in Moldova.

I mentioned the Cyprus incident in my piece titled “Investment Should Not Become Liability “ back in September,2022². Sharing parts of it:

“In social media,I watched few videos made by British Travel blogger Simon Wilson who coincidentally/accidentally unearthed how the good intentions of investment may turn ugly. In Cyprus, a British gangster invested in real-estate in a bid to legalize his wealth which he amassed somewhere else. The investment was not properly planned or done with dubious intentions.It led to unsold houses. Some even went to court to sue the gangster for selling one unit of house to multiple clients ³.

In this case,investment did not resolve the housing problem of the Cypriots and the worst part is that criminal activity spread to other part of the Europe. “

In Moldova, many stranded Russians invested in hotel and commercial spaces after US sanctions had made it impossible to transfer dollar to Russia.Result is too many empty commercial spaces at the heart of the country³.

It is absurd to expect that private sector alone will address the housing woes of the poor and lower income group in a country where land prices keep rising. Government should come forward and nudge the private sector to build houses for the underprivileged class. At the same time, NBR' s decision to raise registration fees is right. It will raise the revenue at one hand and help financing programs aimed at vulnerable groups.

Notes And References

1. “Dhakae Flat-Plot Nibondhon E Dhosh(Registration Of Flat-Plot Plummets In Dhaka)”,Jahangir Shah,Daily Prothom Alo(P-9),August 25,2023
2. “Investment Should Not Become Liability “,Rezaul Hoque,https://hoquestake.blogspot.com.September 10,2022.For more read at https://hoquestake.blogspot.com/2022/09/investment-should-not-become-liability.html?m=1
3. Simon Wilson's video on Cyprus millionaire,"Abandoned Millionaire Ghost Town In Cyprus". For more see https://tinyurl.com/ytjdn9z7
4. Simon Wilson on Moldova. See the link: https://tinyurl.com/3wpsweem

Investment Should Not Become Liability

Investors with dubious intention Cause trouble and irritation. Revenue loss,fraudulent activity Result of investment-liability.

For the development of a country, investment plays a crucial role. Foreign Direct Investment fosters employment generation. FDI also brings foreign currency/US dollar into the country. Bangladesh right now feels the hit of a record current account deficit due to lack of foreign currencies.

Apart from that the most crucial thing FDI does is to bring new technology that propels a country to a new stage by increasing productivity, value addition and access to wider market.

Failure to meet these goals deviates a country from the road to reach the next destination. Just a month ago I came across a news report that divulged how our investment policies are being misused by a vested group who plays all the dirty tricks in its book to fool the authority. The report says a Chinese company CONDA Art Materials opened a factory at Chattogram EPZ and exported goods to various countries using “Made In Bangladesh “ label. EPZ authority to its surprise found that the company put “Made In Bangladesh “ tag on Chinese-made goods,forged documents and exported the goods abroad,evading taxes and other tariffs applicable to it as per Bangladeshi laws. The company even paid punitive fees for its act¹.

In this case,no value addition took place,government did not get proper revenue and workers missed the remuneration that went to Chinese workers pockets.”Made In Bangladesh “ price tag is deliberately misused to market goods that are not produced by Bangladeshis.Danger is such misdeed may be replicated if no action is taken.

We need FDI. But who are investing here, how they plan to go ahead with their proposed projects,type of investment are the things that call for greater scrutiny.

Bangladesh lies in a region where bouts of corruption,turmoil, longest running insurgency prevail.Bitter truth is that these things have leverage on our external trade.We should be more cautious to maintain our independent and buffer role when when we give nod to FDIs.

In social media,I watched few videos made by British Travel blogger Simon Wilson who coincidentally/accidentally unearthed how the good intentions of investment may turn ugly. In Cyprus, a British gangster invested in real-estate in a bid to legalize his wealth which he amassed somewhere else. The investment was not properly planned or done with dubious intentions.It led to unsold houses. Some even went to court to sue the gangster for selling one unit of house to multiple clients².

In this case,investment did not resolve the housing problem of the Cypriots and the worst part is that criminal activity spread to other part of the Europe.

Bangladesh’s resource is limited and capacity of our government is not good enough like those of other countries.So detection of fraudulent acts in disguise of investment / economic activity is an uphill task for a poor and corrupt country like ours.

What is worrying we do not have laws or institutions that could distil undocumented money and convert them into productive capital and direct it to economic activities.

Investment, be it domestic or foreign ,should not turn sour. In the case of Cyprus, investment made by British gangster may drive up the housing prices,making it difficult for the ordinary Cypriots to buy a house. Waste of resources (man-hour,land) is also observed. In Myanmar, operation of foreign tour operators did not bring any foreign currency due to Chinese tour operators’ “zero-dolllar” policy. So every penny spent by a tourist went straight into the pockets of Chinese tour operators who arranged the trip. In this case, investment did a tremendous disservice to local industry.

The case of metro could be brought here for discussion. We made investment in public transportation not for quick returns. Metro is considered cheapest mode of transportation.Aam-Admi(ordinary people) travel on metro.That is why fare is cheaper than bus.But in Bangladesh, according to a news report by the Daily Star,minimum fare of metro is TK 20 whereas it is TK 8 for bus.Across the globe metro system is conceived and designed for the mass. And its pricing reflects it.Metro fare in Bangladesh is even higher than that exists in the neighboring countries. I think per kilo fare of metro should be less than per kilo fare of bus,now TK 2 or 2.20. A fare in the range of TK 0.75 –TK 1.5 would be ideal for me.If Delhi,Kolkata can expand their network with such a low fare,then Bangladesh can also follow their footsteps.

Investment should not be a mean to amplify the ordeals of ordinary citizens. It should not be a scope to rich the portfolio of those with bad reputation.It should not also be a source to increase the liability of the country.

Notes And References:

1. ”Chiney Toirey ‘Made In Bangladesh' Ponno Jukto Rashtrey Roftani Kora Hochhey(Chinese Made ‘Made In Bangladesh' Products Are Being Exported To USA)”,AOW News. For more see https://tinyurl.com/44b5ryve
2. Simon Wilson's video on Cyprus millionaire,"Abandoned Millionaire Ghost Town In Cyprus". For more see https://tinyurl.com/ytjdn9z7