Report on Feasibility Study of Introducing Housing Loan

Executive Summary:

The broad objective of the research is to get an idea about the housing crises in Bangladesh, asses the housing finance industry situation in Bangladesh, identify and formulate marketing strategy for potential customer group. Specific objective of the research are to determine

• Industry size in terms of number of organizations providing housing finance.
• Market share of housing finance companies/ institutions in terms of volume
• Demand for housing finance especially by middle and upper income group in Dhaka.
• Profile of the middle and upper income group.
  • Feasibility of getting organization’s guarantee regarding regularity in installment payment for their employees who are interested to take loan for housing.

Population of the survey consists of institutions providing housing finance, Individuals with minimum family income of Tk 10,000 per month and business organizations. Families were divided into four income groups.

Income group –   1: Families having income more than 35,000 Tk per month.

Income group – 2: Families having income more than 25,000 Tk but less than or         equal to 35,000 Tk per month.

Income group – 3: Families having income more than or equal to 18,000 Tk but less than or equal to 25,000 Tk per month.

Income group – 4: Families having income more than 10,000 Tk but less than 18,000 Tk per month.

Questionnaire survey, interview and observation were the primary source of information. Reports, journals, and various published articles were the secondary source of information.

Non probability sampling was performed for Individuals with minimum family income of Tk 10,000 per month and for business organizations (purposive sampling). Census was done for housing finance institutions. Sample size of organization is 15 and 180 for Individuals.

Research findings shows that in 1991 about 21 million families of which 18 million lived in village. There were 18.5 million dwelling stock in the country of which 3.3 million were in the urban areas. In the rural areas about 30% of the families were virtually without shelter while in the urban areas the floating people varied from 20 to 33 percent of the city dwellers in different cities. Permanent structures in rural areas accounted for no more than 15% and in urban areas no more than 40% of the dwelling stock. According to the estimate of Housing Ministry the shortfall in housing in 1991 was 2.15 million units in rural area and .95 million in urban areas. Over 75% of the existing units require improvements.

In Dhaka city about one Lac units are required per year whereas 15 thousand to 20 thousand are being build each year, there is a shortfall of 80 to 85 thousand units each year. 95% of the unit is financed by personal source and 5% units is financed by institutional source. That means if 20 thousand units are build in Dhaka city each year then 19 thousand is financed by personal source. If 80 thousand units is the shortfall each year then 1 % of 80 thousand is 800 units.  If the average loan size is five to ten Lac then 400 to 800 million Tk is required each year.

Research findings shows that capital is the main problem of middle and upper middle income group who are working in mid and upper mid level position in various business organizations in Bangladesh. Most of them are interested in small size apartment but they do not have enough savings to pay bulk amount at a time. They have acute need for housing finance. In government sector, only House Building Finance Corporation provides loans and this is grossly inadequate. No other reliable financing bodies has been established and banks do not provide necessary amount of loan and most of the bank loan is for short period of time as a result monthly installment becomes very high which middle and upper middle income group cannot afford .Banks only finance affluent parties and as such middle and upper middle class people, specially those with small mortgage are unable to get the benefit of the bank loans.  As a result huge demand for long term loan of this group is not met.

Introduction to the Organization:

About The Engineering and Technology:

Success lies in the ability to adapt with changing times. That is something The Engineering and Technology use as their strategy to anticipate that change and mould their services to meet the needs of their valuable clients.

The Engineering and Technology is a family run Independent company with experience in the Property & Land business, and has excellent connections with many of the most successful architects, planning specialists and other property and Land professionals.

The basic demand of a civil citizen is food, shelter, clothes and medicine. But considering the present scenario shelter is the main problem to all of us. Dhaka is now one of the fast growing and densely populated metro-city in the world. It has been an unplanned city with disorganized facilities for residents. But there should be a change; it is the demand of time.

They are committed to providing their customers with quality, affordable Lands. They visit all of their Lands to ensure accuracy in the descriptions they provide.

They are delighted to offer to people the lands they currently have available. They strive after 100% customer satisfaction. They achieve this by personal and individual customer treatment. They will assist their customers with thinkable help during the whole buying process.

Their business has been around for 1 year. However, their team is young and ambitious. They continuously grow, innovate, and reinvent themselves. They take pride in what they do and it is always a pleasure for them to serve their customers.

1.2 Mission Statement

“To be the leading provider of land development solutions today and tomorrow by building on our strong foundation of integrity and on our commitment to associates, clients, and communities. Our commitment is to preserve the natural beauty of the environment and generate economic growth for the area.”

Company Perspectives:

 The Engineering and Technology business strategy is to: build on its leading position in the small and medium sized residential units development segment; increase recurring income from growing rental property portfolio; maintain strategic investments to strengthen income and asset base; generate significant future cash flow from diversifying businesses.

Vision Statement:

”With ethics and integrity, THE ENGINEERING AND TECHNOLOGY  strives for excellence in all facets of Land Development services in order to enhance our position as an industry leader. Our team transforms forward thinking ideas into cutting edge applications, to achieve maximum results for our clients, company and community.”

Corporate Values:

“Support and demonstrate our corporate values of growth, passion, integrity, flexibility, benevolence and collaboration.’’

INTEGRITY- Over the past 1 year, THE ENGINEERING AND TECHNOLOGY built a reputation on performance and integrity. Many people know and select THE ENGINEERING AND TECHNOLOGY for their land development needs.

VISION – Seeing opportunities others miss
ADAPTIVE – Anticipating and preparing for change
VIBRANT – Infusing energy to vitalize communities
TRUST – Confirming your confidence, exceeding expectations
COMMITMENT – Our greatest asset is YOU”

Why Invest in Land?

Land is real
Unlike shares, land for sale is tangible, – it can be visited, seen, and walked on.

Land is a finite resource
Bangladesh is a small country with the majority of the population wanting to live in the CapitalCity, Dhaka.

Land is a solid and easy to understand investment

Land is not open to accounting scandals and it is clear when property prices are going up (or down) and the reason for this movement. For example, everyone in Bangladesh is presently aware of the housing crisis in the country. Other traditionally ‘solid’ investments such as precious metals are not as simple as they appear.

Land increases in value
This is due to demand outstripping supply and also from land gaining planning permission to have houses built on it.

Investment land has a wide range of uses
Investment land can be used for grazing animals, starting a business or building a home on, or it can simply be left as it is – whatever is done with it, the price is likely to rise considerably, even with the slowdown in house price inflation

Land investment – The alternative investment opportunity

“The population is growing, the economy is growing, the demand for new workers is growing, and household formation is changing with an aging society and family break up. The demand for housing is increasing.”

The result is a massive pent-up demand for new housing. What shape and form that housing takes is irrelevant to land owners. Whether executive houses, or affordable flats for key workers, land is needed for new homes.

Decision process:

      One should decide where to buy land by applying in exactly the same two key criteria as for any other investment, reward and risk. What is the potential reward? How great is the potential risk.

      How great is the potential return?
Get it right and the rewards can be exceptional. Typically, when land is redesigned for development purposes its value dramatically increases. The exact percentage increase varies between plots and locations, but it should be reasonable to expect a substantial return on investment if your land is rezoned for development purposes.

      And what’s the risk factor?
The risk is that one’s land will not be re-zoned for development purposes, in which case, he still owns the land, and it should still have its initial value. After all, land never goes out of business!

The Engineering and Technology efforts seek to:

    Create affordable housing (developed land & homes) for people

    Foster better living environments and pleasant surroundings

    Ensure environmental balance and sustainability

    Treat industrial effluents

    Develop a meaningful partnership with others for development

    Provide better working conditions for its staff members

 THE ENGINEERING AND TECHNOLOGY works in close partnership with the City Corporations, the Government of Bangladesh, other private sector companies, multilateral institutions, the environment department, and myriad financial institutions. THE ENGINEERING AND TECHNOLOGY has its head office in Dhaka, Bangladesh.

 Addresses

The Engineering And Technology.

Head Office: KA-56/3, Kuril, Progati Sarwani

2^nd floor (south side),

Dhaka – 1229

Bangladesh.

The common features in all the projects of THE ENGINEERING AND TECHNOLOGY are:

1. Wide roads for easy access
2. Open spaces
3. Pollution free environment
4. Detailed landscaping

Over the years, The Engineering and Technology approach to Land development has evolved from A to Z to bring sophisticated, yet easy-to-use solutions which guarantee success. They deliver the best quality and increased resource efficiency following a few simple steps:

      Their superior project management is based on deep customization of user-oriented solutions. They carefully assess customers’ project requirements to eliminate all possible risks and eventually find an optimum choice for them.

      Their team works out for their customer a project scheme, including its estimate and timeline, and, as soon as they give us their approval of it, the actual development process begins. All team members have excellent credentials in their particular field of Land development, so customers may rest assured of their profound understanding and excellent implementation of IT.

      They provide a streamlined continuous control over the entire project. This helps them reduce the amount of testing procedures as well as stay within the time and budget frames.

THE ENGINEERING AND TECHNOLOGY will design this model city with all best standard facilities for the peace lovers. Being the member of the metro-city, they offer a futuristic living plots within the most suitable location in Dhaka City that gives people natural fresh environment, broad roads and lanes, power, water, IT communication, club, college, corner shop, hospitals, katcha bazaar, lake, mosque, school, park, and round the clock security facility to make their life peaceful and happy.

 Features and Facilities:

What facilities people will enjoy in The Engineering and Technology:

1. Very easy and convenient communication with offices, educational institutions, hospitals, mosque, lake and commercial areas.
2.  The Engineering and Technology is a RAJUK registered project.
3.  Bus stops, train station and airport are within 500 to 700 meters.
4. Project planners are highly experienced and reputed town planners have been working for its development.
5. Inside the project roads and lanes are minimum 30feet and maximum 80 feet broad.
6. Flood free area.
7. International standard schools, colleges, universities, children parks, hospitals, shopping malls, bazaars, restaurants, clubs, community centers, banks, mosques, post offices all these facilities will be available inside the project.
8. 40% of the project area has been allotted for the above facility.
9. 16 Security service by police, ansar and company security forces.
10. Easy and interest free payment system in 12/24/36/48/60 installments.
11. Plot sizes are 3, 3.5, 4, 5, 6, 10, 11, and 12 kathas.
12.  The project is outside of the flood flow zone of RAJUK.

Price Chart

* This price will be applicable for first 500 plots.

 THE ENGINEERING AND TECHNOLOGY Ensures the Followings

 THE ENGINEERING AND TECHNOLOGY is very sensitive to fulfill their commitment.

      They use high quality construction equipments.

      They always try to satisfy their customers.

      All of the directors, Managers, Executives and other employees of THE ENGINEERING AND TECHNOLOGY are very experienced and professional.

      THE ENGINEERING AND TECHNOLOGY ensures their customers that they are tension free about the quality of their apartments.

      They provide maximum benefit to their customers.

 Introduction of the Project

 Problem Situation:

Bangladesh the eight most populous country of the world is overburdened with its huge population and alarming growth rate. In 1989, the population of Bangladesh was around 110 million of which 20.2 million lived in urban areas. The growth in urban population has been alarmingly fast, almost 11% against the population growth rate below 3%. There has been more than ten fold increase in urban population from 1950 to 1989. The urban population in 1950 was 1.78 million, which grew up to 2.65 million in 1960. In 1970 it became 5.15 million while in 1980; the total urban population was 9.53 million.

The situation of excessive urban population has resulted in a very serious housing crisis specially in the capital city, Dhaka. The population of DhakaCity was 1.6 million in the year 1974 and doubled to 3.4 million by 1981.The situation will be more pressing by the end of the century when Dhaka will be one of the five most densely populated cities of the world.

This rapid increase in population quickly resulted in scarcity of open spaces in the important residential area of Dhaka. This problem has further assumed serious magnitude by hazards of purchasing dwelling places, construction materials, suitable location etc. For these reasons people are switching to the developers to get well constructed ready-made apartments. But the problem is that the prices of these apartments are high enough to afford. Middle class citizens cannot think to purchase such apartments. But they constitute a major part of the prospective market. This has evoked the idea that if those people are supported by financing a major portion of the price of the apartment, they could easily purchase it. This study is aimed also to analyze that is it feasible to give such support to them.

Housing Sector in Bangladesh:

Summary:

Due to the lack of proper govt. policy and shortage of fund, housing is becoming a major in the country especially in the urban areas. Only 0.4% of the development budget of the country is allocated in housing sector and this money is spent to construct flats for govt. servants who make up 4% of the manpower of the country. About 95% of the total houses are being built by individuals with their own resources and the rest is being built through borrowings from the informal or formal market.

Current Scenario of Housing in the country:

According to the census of 1991 there were about 21 million families of which 18 million lived in villages. There were 18.5 million dwelling stock in the country of which 3.3 million were in the urban areas. In the rural areas about 30% of the families were virtually without shelter while in the urban areas the floating people varied from 20 to 33 percent of the city dwellers in different cities. Permanent structures in rural areas accounted for no more than 15% and in urban areas no more than 40% of the dwelling stock. According to the estimate of Housing Ministry the shortfall in housing in 1991 was 2.15 million units in rural areas and 0.95 million in urban areas. Over 75% of the existing units require improvements.

 Problem Statement and Objectives

Problem Statement:

“Feasibility of introducing housing lone who wants to purchase apartment in Dhaka city if financial help is available to them”

Housing is a prime need. With the emergence of Dhaka as the capital of independent Bangladesh and as Dhaka became the hub of increasing various types of activities, there occurred a incredible rise in its population with in a very short time. The annual population growth rate in Dhaka is 7% and Dhaka accounts for 30% of the country’s total urban population .This rapid increase in population quickly resulted in scarcity of open spaces in the important residential areas of Dhaka. The problem is of more serious magnitude due to legal hazards associated with land purchase and construction of building. At present one Lac houses are needed in the capital city while only 15,000 to 20,000 houses are being constructed every year. For these reasons people are switching to the developers to get well constructed ready-made apartments .Mostly bigger flats are constructed by the developers for the upper income group. Sales of such larger and expensive flats have slowed down despite discounts and longer payment periods offered by the developers.

Middle and upper middle citizens of Bangladesh neither can think of purchasing large and expensive apartments nor can think of constructing their own dwelling because of their financial constrain. They are still mostly an untapped group of prospective customers. This has evoked the idea that if financial help is available to them to purchase small and middle size apartment, or to construct their own dwelling they will be interested to take the financial help. This effort will partially help in solving housing problem in Bangladesh.

This study is aimed to get an idea about the housing crises in Bangladesh, assess housing finance industry situation, identify the prospective customers of small apartments and develop marketing strategy to attract the target group.

Broad Objective:

The broad objective of the study is to get an idea about the housing crises in Bangladesh, to asses the housing finance industry situation and to identify potential customers of small apartments and develop marketing strategy to attract the target group.

Specific Objectives:

Specific objectives of the study are to find out

• Industry size in terms of number of organizations providing housing finance.

• Market share of housing finance companies/ institutions in terms of volume

 Demand for housing finance especially by middle and upper income group in Dhaka.

 Profile of the middle and upper income group in Dhaka.

• Feasibility of getting organization’s guarantee regarding regularity in installment payment for their employees who are interested to take loan.

Scope of the Report:

The scope of the report is to get an idea about the housing crises in Bangladesh, to asses the housing finance industry situation and to identify potential customers of small apartments and develop marketing strategy to attract the target group. The results of this internship period are presented in this report.

Types and Sources of Information:

Limitation:

• All the objectives of the initial project proposal is not fulfilled because of unavailability  of data and lack of accessibility to the existing data .These are

Housing finance industry growth rate in terms of entry in the industry

1.  Average loan size of various housing finance institutions / organizations.
2. Default rate in terms of occupation.
3. Performance of various housing finance institutions / organizations in terms of loan recovery rate. Area of operation and number of loans provided.

• Various NGO’s like Grameen do finance housing mostly in the rural areas. Data of these NGO’s and few other  organization like DLIC who provide housing finance in limited basis  couldn’t be collected as a result housing finance industry  size calculated doesn’t include these NGO’s , and organization who provide housing finance in limited basis .

• Separated data on housing finance provided in rural areas and urban areas is not available for the year 92 and 93 and for various banks in different years.

• Non probability sampling was performed so statistical authenticity couldn’t be proved and various data analysis techniques couldn’t be used. Analysis on the basis of percentage is sometimes misleading.

• In many organization key decision maker were not available.

• Many respondents filled the questionnaire in an inconsistent way. Those questionnaires were identified and rejected. Though 150 questionnaires were filled. 105 questionnaires were accepted after validation.
• Only one respondent is between 51 to 55 years of age so the need of this age group couldn’t be identified properly.

• Only two respondent is between 56 to 60 years age group so the need and complete profile of these age group couldn’t be identified

 Benefit of the Study:

• A comprehensive understanding of the apartment industry position is observed
• Help to explore the customers’ expectations.
• Ascertain the importance of housing finance and average loan size .

Major Area of Investigation:

Housing Status of Dhaka city:

Housing is an enormous problem for Dhaka city. Only 15% of the 9 million inhabitants of the city own their house, 18% live in flats provided by the employer, 34% in rented accommodations, 18% in slumps and 20% is floating. About 90% of the dwelling of the city is privately owned. Dhaka is the hub of all sorts of activities and therefore the pressure of human inflow into Dhaka and consequently on housing is ever increasing. The density of population in Dhaka city is about 15000 people per square mile with substandard facilities and by the year 2025 population per sq. mile will be nearly 32000. In that case the city of Dhaka will be in great distress if proper care is absent. Already in 1995 most of the areas in Dhaka city didn’t have enough supply of water, gas and electricity. Price of land in this city has increased nearly 200 times on an average since 1974. A 1982 survey showed that about 70% of Dhaka city people were lower-middle to lower class but only about 20% of the land was in their possession. Remaining 80% was in the possession of the affluent class people. Due to rapid rise in land price most of the land will remain beyond the purchasing power of the middle and lower class people for all time to come. Annual demand for additional housing units in Dhaka is 100,000 whereas the total new units built (both in the public and the private sector) annually is between 15000- 20000 and there is a clear gap of about 80000 units which is alarming.

Dhaka is surrounded by swamps of between 10-15 feet depth and it is highly expensive to construct buildings through filling this low lands. The cost of filling of one bigha of low land is between taka 1.2 – 1.5 million. Residential plots within Dhaka city cost between taka 20-30 million per bigha. On the other hand the cost of residential flats ranges between 1500- 2000 taka per square feet. Thus about 60% of the city people are unable to buy either a flat or a piece of land.

 Housing Finance is a Problem:

Finance is the main problem of housing sector in Bangladesh. In the Public sector only HBFC provides loans which is grossly inadequate. In the private sector only DBH has started disbursements and so far it has served only the affluent class. Banks also do not provide the necessary amount of loan to the less fortunate people, especially those with little or no collateral at their disposal. The Board of Investment (BOI) declared housing as an industry but still this is a neglected sector.          

 Industry Trends:

Housing as a problem is experienced of all socio-economic groups both in urban and rural areas in developing as well as in developed countries. In a developing country like Bangladesh with a low level of industrialization but a very high growth rate of both urban and total population, housing is perceived as a very acute national problem. The population growth rate is over 2% per year. The urban population constituting 20% of the total population is growing at an alarming rate of over 4.5% annually. This crisis has led to overcrowding with an occupancy rate of 6.5 persons per housing unit. With available housing deteriorating rapidly due to age, general neglect, lack of maintenance and other factors, the country’s total housing shortage is likely to exceed 5 million units by the turn of the century.

Housing crisis is acute particularly in urban areas mainly in Dhaka and Chittagong. In Dhaka city the major share of population is rising due to migration. About 200,000 people are migrating to Dhaka every year for which about 40,000 new housing units are required. Considering natural growth of population, plus annexation plus the replacements, about 100,000 housing units are required every year in Dhaka city whereas only 15000-20000 units are being built every year .Therefore the need for additional housing remains one of the biggest problems before the government .However, the public sector can do the least to redress the crisis due to severe resource constraints and preoccupation with other development issues.

From household expenditure survey carried out in 1988 it is obtained that less than 4% of the total stock in Bangladesh is permanent structures, almost 40% is of a temporary nature, the remaining being semi permanent. Some 77% of urban dwellings and Over 99% 0f rural dwellings are not permanent structures. In some urban areas up to 10% of the people have no living accommodation .The already decrepit situation is further aggravated each year during the rainy season and by the typhoons and storms at less regular intervals when millions of dwellings are destroyed?

 The informal owner builder sector is by far the major supplier of housing both in urban and rural areas. In urban areas the sector supplies over 95% of housing and in rural areas almost 100% is provided through this sector. In many cases the builder provides a dwelling for himself plus additional dwellings for other members of his family or for the tenants. The sector faces severe constraints as a result of difficulties and delays in obtaining land, difficulties in obtaining finance for development, high construction costs, and technical and regulatory restrictions.

Both in the past and in current years govt. or public housing programs have met with little success because they have attempted to meet housing needs rather than effective demands. In the recent years there has been a new trend of housing development namely the apartment development mainly in the private sector. Only ten years back there were only a few developers. The pioneers in this field are Eastern housing LTD, Sheltech, Isphani, Property Development Ltd, Building Technology And ideas Ltd etc. At present there are about two hundred and fifty developers in Dhaka city. These companies together have either developed or developing around 6 thousand new building units for the market which is a considerable contribution for increasing the dwelling stock in the city.

In the city of Dhaka, where 100000 new housing units are required every year, fixed salaried middle income group chiefly relies on high rental houses. There is now a trend of co-operative apartment building in Dhaka by sharing a land among a group and constructing a multistoried apartment thereon. However, this caters to the need of higher income groups though some small apartments are also being built for the middle income groups. The largest developers have built 60% of about 4000 flats in the city; over 200 units are now being produced annually. Besides, many other forms of operation are now upcoming, for example, a group of people buy land jointly and construct a multistoried building with at least as many flats as the number in the group; or an individual buys the roof with rights to construct on that. Another form of development is buying rental flats in multi-storied buildings (not built as commercial apartments).The present overall situation indicates that the housing/ housing finance sector is still in its nascent stage and a lot of development and very big thrust in terms of low cost loan, cheap land such as ‘khash bhumi’and utilities and other related facilities are required to boost up the industry.

 Industry Characteristics:

Market is largely untapped. Residential units could be constructed for a wider section of the population if the long term loans needed to finance them were readily obtainable. Once institutional funds are made available the major developers are likely to focus their activities on smaller-sized flats for middle class people.

          During the last decade real estate sector has had tremendous progress. The reasons behind flourishing this business are manifold. Among them scarcity of open space in the city, rapid increase in population, hazard of buying land and constructing building on own  can be mentioned. A recent development in the economy has changed the scenario dramatically. Wage earners are the major clients of apartments in Dhaka. Since remittance of foreign currency is now easier than before they can buy apartment easily.

Real estate business, especially apartment projects, was started in late 70s in DhakaCity. Ispahani group is the pioneer in this sector. But in early 80s, with the inception of Eastern Housing Ltd., the business started flourishing. Now this is a booming sector of the economy. More than 100 real estate developers are now active in this business.

Construction cost is very high. Construction industry of Bangladesh is small and at an early stage of development. The country is heavily dependent upon the importation of building materials, such as cement, sanitary wares, electrical equipment and other materials. Other than Brick and labour, almost all materials used in building a house is imported. Due to the high cost of imported building materials, the cost of construction becomes rather high and is beyond the afford ability of low income groups.

The majority of apartments currently available in Dhaka and Chittagong belong to the 1,500 to 3,000 square feet range. Sales of this category of flat have slowed down over the last two years. Recent investigations show that there is significant demand for smaller-sized flats. Experts feel that a variety of factors including economic considerations, smaller family size and increased urbanization are compelling people to seek smaller, more functional flats.

High cost in land transfer is another characteristic of the industry.

 Industry Outlook:

The total urban and rural housing requirements have been determined from the following three elements:

1. Projected population growth through natural growth and with an  adjustment for inward or outward migration.

                        2. Replacement of existing dwellings due to their limited life span.

            3. An estimate of the existing shortfall of dwellings due to  homelessness and sharing of dwellings.

Using this methodology it has been calculated that the annual housing need, till the turn of the century in urban areas to be 658,000 and in rural areas to be 2,672,000 dwellings.

Compared to increasing demand for housing, supply is not increasing adequately at all. Possibility of setting up new housing finance company in near future is low.

Presently rate of interest of HBFC charged on house loan is low compared to commercial rate. The National Housing Policy 1993 indicates that the HBFC will not be permitted to rely on government-subsidized funds indefinitely. The HBFC will consequently have to look to the marketplace for its funding requirements. This would force it to bring its lending rates in line with commercial interest rates. Thus HBFC posses little threat to private housing finance companies.

Demand/ Market Potential for Housing Finance

Dhaka City:

Every year in Dhaka city there is an additional demand for 100,000 housing units but around 20,000 units are being built. There is a shortage of 80,000 units. Only 5% (1000 units) of the total additional houses is being built through institutional credit. The rest 95 %( 19000 units) is being constructed through personal finance. In the last 5 years the average loan of BHBFC is taka 1 million. If only 1% of 19000 units i.e. 190 units, could be financed with an average loan amount of HBFC, it would be taka 190 million.

   Out of the total shortfall of housing if only 1% i.e. 800 units is financed with an average loan amount of 0.5 million to 1 million, the total demand for fund would be 400 – 800 million.

If however 10% of the total shortfall is targeted with an average figure of 0.2-0.5 million, the total fund required would be 1600- 4000 million.

So demand for housing finance is incredible in the Dhaka city which can’t be fulfilled alone by the govt. Private housing finance companies have to be established. DBH is the first of its kind in Bangladesh. Besides, private housing finance companies, commercial banks and other specialized institutions should invest more funds to redress the crisis.

 Methodology:

 Data Collection Techniques:

• Questionnaire: Questionnaires were developed to collect information from individuals and from organizations.

• Interview: Organizations were approached to collect information through structured interview – telephone, fax, e-mail and personal interview will be conducted.

• Observations: Surveyor while taking interview used his own observation to collect information. Observations were written down in a separate diary.

• Secondary information: Secondary information was collected by reviewing reports, newspapers, journals and other relevant documents.

 Sampling:

Population:

Population refers to any group of people or objects which are similar in one or more ways and which forms the subject of the study in a particular survey.

The population of our survey consists of institutions providing housing finance, individuals with the minimum family income of Tk 10,000 per month and organizations that are willing to provide financial help to their employees for housing.

The reason to include institutions providing housing finance is that they consist of the housing finance industry and they can provide information required for the study.

Families were divided into four income group:

Income group – 1: Families having income more than 35,000 Tk per month.

Income group – 2: Families having income more than 25,000 Tk but less than or equal to 35,000 Tk per month.

Income group – 3:Families having income more than or equal to 18,000 Tk but less than or equal to 25,000 Tk per month.

   Income group – 4: Families having income more than 10,000 Tk but less than      18,000 Tk per month.

It was expected that these four income group is having different type of need for housing finance.

Organizations are included to get organizational guarantee for the employees. The reason is to identify organizational interest to come to various types of arrangements for housing finance operation.

Sampling Unit:

 Institutions providing housing finance, individuals with minimum family income of Tk 10,000 per month and organizations that are willing to provide financial help to their employees for housing.

For individuals sampling unit is determined as according to the area described in sample frame.

For the housing finance institutes          ———          Finance manager

For the organization                               ———-         Decision-maker (who has the                          most responsibility for major     Decision making)

Sample Extent and Frame:

Dhaka metropolitan city is the sample extent for the study.

A complete list of the housing finance institutes (BANKS) was available from Bangladesh Bank.

The list of Individuals with minimum family income of Tk 10,000 per month is not available. In this case the previous address of the dwellers of concerned apartment type is collected from the builders. On the basis of this information Dhaka city is divided into 5 zones. They are shown in table 4.1.

Table – 4.1

Survey is conducted with in this five zones by maintaining the area serial code.

 A complete list of the organizations can be obtained but this was not feasible for  this study because of resource constraint and lack of accessibility.

Sampling Design:

Neither a complete list of organizations nor lists of Individuals with minimum family income of Tk 10,000 per month are available so, non probability sampling was performed (Purposive sampling).

In case housing finance institutes complete list of banks providing housing finance was available and census was done to collect information.

Individuals                                                                              —- Purposive Sampling

Organizations                                                                          —-Snow-ball

Housing finance institute(BANKS and HBFC)                                 —- Census

 Sample Size:

Families and Organization:

For families and organizations non probability sampling was be performed. So the sample size was determined based on secondary information obtained of experts

Total sample size of family considered ———– 150 ( for the sample extent )

                                                            30 samples for each zone of table 4.1

Total sample size of organization considered —— 15

Sampling Plan:

Organizations:

Surveyor went to the organizations form the list of which is provided at the end of this Report. Appointment was made over telephone with the human resource manager of the organization.  Then decision- makers (who are having major responsibility in making decision in the organization) were surveyed through interview and questionnaire to find out the intention of the organization to be the guarantor for their employees. Interview and questionnaire survey was also be conducted to have an idea about the organizational intention and interest to come to possible arrangements for housing finance of their employees. While filling up the questionnaire the respondent will be provided with information like the interest role and the probable arrangement to extend financial help.

Individuals:

The surveyor went to the houses of different zones mentioned in table 4.1. Head of the family or major decision maker of the family was interviewed through questionnaire. The sections of houses were made by following the right hand rule. While filling up the questionnaire the respondent will be provided with information like the interest role and the probable arrangement to extend financial help.

Housing finance institutes:

Appointments were made with the financial manager over Fax /telephone/e-mail whichever was convenient. Appointments were also made by personally going to their office.

Survey was performed through questionnaire and interview. They were supplemented by the surveyors’ observation. Whenever any information was not be provided at the time of interview, the respondents were contacted afterwards.

 Selecting the Sample:

Organizations:

Surveyor went to the organizations form the list of which is provided at the end of this Report. The decision- makers (who are having major responsibility in making decision in the organization) were selected and surveyed through interview and questionnaire.

Individuals :

The surveyor went to the houses of different zones mentioned in table 4.1. Head of the family or major decision maker of the family was selected and interviewed through questionnaire. The section of houses was made by following the right hand rule.

Housing finance institutes:

Appointments were made with the financial manager over Fax /telephone/e-mail whichever was convenient. Appointment was also made by personally going to their office.

 Data Presentation:

Profile of the respondent

• Respondents were divided into six age groups. Of 105 respondent 31.4% is in between 25 to 30 years, 13.3% is in between 31 to 35 years, 19% is between 36 to 40 years 33.3 % is between 41 to 50 years, only one respondent is in between 51 to 55 years, and only two respondents is between 56 to 60 years.

• Among the respondent 71.4% stays in rented dwelling, 20% stays in own house, 6.7% stays in own apartment. Office provides accommodation for 1.9 % of the respondent.

• 59%  of the respondents monthly income is between 10 thousand to 18 thousand taka , 20% of the respondents monthly income is between 18thousand + to 25 thousand , 5.7% of the respondents monthly income is between  25 thousand to 35 thousand  , 15% of the respondents income is more than 35 thousand .

Requirement of financial help:

• 89.5% of the respondent wanted to take financial help , among these  respondent 75.5% of the respondents wants to purchase apartment in Dhaka city ,  15.9% wants to construct house on their own land in Dhaka city , 4.25% wants financial help to extend or improve their house in Dhaka city .1.06% wants to construct a house in Dhaka city  on land to be purchased , another 1.96% wants to construct a house on own land in other city , and 2.12% wants to construct a house on land to be purchased in other city .
• Of all the respondent 26.7% wants 80% of the construction cost as financial help (that is 29% of the respondents those who wanted to take financial help)  , 23.8% of the respondent wants 90% of the construction cost as financial help (that is 26% of the respondent those  who wanted to take financial help) and 17.1% of the respondents want 70% of the construction cost as financial help( that is 19% of those who wanted to take financial help)
• Of all the respondent 61% wants 15 years minimum repayment period (that is about 68% of the respondent who wants to take financial help), 14.3% wants 20 years minimum repayment period (that is about 15% of the respondent who wants to take financial help), 4.8% of the respondent wants 25 years of minimum repayment period (that is 5.3% of those who wanted to take financial help).

• Out of those who wanted to take financial help 17% wants to take in less then a year, 30% wants to take between one to two years, 26.5% wants to take between two to three years, 3% wants to take between three to four years, 5.3% wants to take between four to five years and 17.02% wants to take after five years.

Apartment price and demand:

• 24.7% of the entire respondent wants to purchase apartment within 10 Lac that is 36.6% of those who wants to purchase apartment in Dhaka city if financial help is available to them. 23.8% of the respondent wants to purchase apartment between 11 to 15 Lac that is 35% of those who want to purchase apartment in Dhaka city if financial help is provided to them ,12.3 % of  the respondent wants to purchase apartment within 16 to 20 Lac that is 18.30% of those who want to purchase apartment if financial help is available to them , only 8.5% of the respondent wants to purchase apartment within 25 to 50 Lac that is 12.6% of those who wants to purchase apartment in Dhaka city if financial help is available to them .

• About 26.7% of  all the  respondent(28  out of 105 respondent)  do own a house or apartment but only 10.5% of the respondent(11 out of  105 respondent) doesn’t want any financial help . Only 3.8% of the respondent (4 out of 105 respondents) wants financial help for extension or improvement that means 6.6% of the respondent (7 out of 105 respondents) wants financial help to purchase or construct dwellings even though they have their own dwelling.

Income and minimum covered area:

• 40% of the income group 10000>18000(Tk per month) wants minimum covered area of 500 to 800 sft , 30% of the  same income group wants minimum covered area  of 801 to 1100 sft , and 9.7% of this income group wants minimum covered area  of 1101 to 1400 sft , and only 3% of this income group wants minimum covered area  of 1401 to 17000 sft if financial help is available.

• Only 9% of the income group 18000+ to 25000(Tk per month) wants to minimum covered area t of 801 to 1100 sft , and 57% wants minimum covered area of 1101 to 1400 sft ,19% wants minimum covered area  of 1401 to 1700 sft and another 9.5% wants minimum covered area of 1701 to 2000 sft if financial help is available . None of the respondent in this income group wants minimum covered area 500 to 800 sft .

• 66% of the income group 25000+ to 35000(Tk per month) wants minimum covered area of 801 to 1100 sft and 16.6% of this income group wants minimum covered area of 1101 to 1400 sft if financial help is available.

• 31% of the income group 35000+ (Tk per month) wants minimum covered area of 801 to 1100 sft. 6.25 wants minimum covered area t of 1101 to 1700 sft , 18% wants minimum covered area  of 1701 to 20000 sft and 31% wants minimum covered area  of more that 2000 sft if financial help is available .

• 28.6% of the respondent wants minimum covered area of 801 to 1101 sft, 23.8% wants minimum covered area t of 500 to 800 sft. , 19% wants minimum covered area of 1101 to 1700 sft, and 5.7% wants minimum covered area of 1401 to 1700 sft, another 5.7% wants minimum covered area of 1701 to 2000 sft and 4.8% wants minimum covered area of more tan 2000 sft if financial help is available.

Age group   :

• 84.4% of the age group 25 to 30 years are in the income group 10000> 18000(Tk per month), 15.5%  of the  same age group  are in the income group 18000+ > 25000(Tk per month) .

 64%  of the  age group 31 to 35 years are in the income group 10000> 18000(Tk per month) , 14% are  in the income group 18000+ > 25000(Tk per month) , 7% are in the income group 25000+>35000(Tk per month)  and another 14%  of the  age group 31 to 35  years are in the income group 35000+(Tk per month) .

• 85%  of the  age group 36 to 40 years are in the income group 10000> 18000(Tk per month) , 10%  are in the income group 18000+ > 25000(Tk per month)   another 5% are in the income group 35000+(Tk per month) .

• 22.8%  of the  age group 41 to 50 years are in the income group 10000> 18000(Tk per month) , 34% are  in the income group 18000+ > 25000(Tk per month) , 11% are in the income group 25000+>35000(Tk per month)  and another 31%  of the  age group 41 to 50  years are in the income group 35000+(Tk per

• All the respondent of the age group 51 to55 are in the income group 25000+to 35000(Tk per month)

• All the respondent of the age group 56 to 60 are in the income group 35000+(Tk per month)

• 45% of the income group 10000>18000 are in age group 25 to 30 years , 14% are in age group 31 to 35 , 27% are in the age group 36 to 40 and 12% are in the age group 41 to 50 .

• 23% of the income group 18000+>25000 are in age group 25 to 30 years , 9% are in age group 31 to 35 , another 9% are in the age group 36 to 40 and 57% are in the age group 41 to 50 .

• 16% of the income group 25000+>35000 are in age group  31 to 35 , 66% are in the age group 41 to 50 and 16% are in the age group 51 to 55 .

• 12.5% of the income group35000+ are in age group 31 to 35 years , 6.25% are in age group 36 to 40 , 68% are in the age group 41 to 50 and 12% are in the age group 56 to 60 .

Income and installment payment:

• 5.4% of the respondent in income range 10000>18000 can pay monthly installment of Tk 4000, 40% can pay monthly installment of Tk 50000, 43% can pay monthly installment between Tk 60000 to 8000. 9% can pay monthly installment of Tk 10000.  One respondent could pay Tk 20000 as monthly installment that is more than his monthly income. Respondent revealed that he will get promotion soon and will be able to pay higher installment.

• 5% of the respondent in income range 18000+ to 25000 can pay monthly installment of Tk 4000, 25% can pay monthly installment between Tk 50000 to 8000 .70% can pay monthly installment of Tk 10000 .

• 40% of the respondent in income range 25000+>35000 can pay monthly installment of Tk 10,000 , 20% can pay monthly installment of Tk 12000 , and 40% can pay monthly installment of Tk 25000 .

• 14% of the respondent in income range 35000+ can pay monthly installment of Tk 15000, 21% can pay monthly installment of Tk 20,000, 28% can pay monthly installment of Tk 25000. 35% can pay monthly installment of Tk 30,000.

Organizational guarantee and line of credit:

• Of the fifteen organizations surveyed only six organizations filled up the questionnaire for the organizational part. Interview with the key decision maker was not also possible in most of the organization.

• IBM , AB Bank , Pacific Bangladesh Telecom Limited and BEXIMCO doesn’t have any housing loan scheme for their employees , Novertis and BRAC do have housing loan scheme for their employees .

• Novertise IBM and Pacific Bangladesh Telecom Ltd are interested in providing guarantee for their employees who will take financial help for housing.  They are also interested in introducing housing lone scheme for their employees and line of credit facilities for their employees.

 AB Bank is interested in introducing housing loan scheme for their employees by taking financial assistance from a housing finance company but AB Bank is not interested in providing organizational guarantee regarding regularity in installment payment for their employees who are willing to take financial help for housing. AB Bank is not also interested in line of credit facility for their employee.

• None of the non financial institution wants to lend their funds as a line of credit because of the legal barrier. AB Bank (financial institution) showed interest to lend their fund as line of credit at a competitive term to a Non Banking financial institution. No response from BRAC and BEXIMCO in this respect was available.

Topic Analysis and Discussion:

Most of the areas in Dhaka city didn’t have enough supply of water, gas and electricity. Price of land in this city has increased nearly 200 times on an average since 1974. A 1982 survey showed that about 70% of Dhaka city people were lower-middle to lower class but only about 20% of the land was in their possession. Remaining 80% was in the possession of the affluent class people. On the other hand the cost of residential flats ranges between 1500- 2000 taka per square feet. Thus about 60% of the city people are unable to buy either a flat or a piece of land.

Middle and upper middle citizens of Bangladesh neither can think of purchasing large and expensive apartments nor can think of constructing their own dwelling because of their financial constrain. They are still mostly an untapped group of prospective customers. This has evoked the idea that if financial help is available to them to purchase small and middle size apartment, or to construct their own dwelling they will be interested to take the financial help. This effort will partially help in solving housing problem in Bangladesh.

There were 18.5 million dwelling stock in the country of which 3.3 million were in the urban areas. In the rural areas about 30% of the families were virtually without shelter while in the urban areas the floating people varied from 20 to 33 percent of the city dwellers in different cities. Permanent structures in rural areas accounted for no more than 15% and in urban areas no more than 40% of the dwelling stock. If however 10% of the total shortfall is targeted with an average figure of 0.2-0.5 million, the total fund required would be 1600- 4000 million. So demand for housing finance is incredible in the Dhaka city which can’t be fulfilled alone by the govt. Private housing finance companies have to be established.

 Major Findings:

• From the result it is apparent that most of the respondent wants to take financial help to purchase/construct / extend/improve apartment or house in Dhaka city for 15 to 20 years period. 80 to 90 percent of the construction cost as financial help is mostly required. Most of the respondent wants to purchase apartment and it is easier and less costly to finance apartment purchase because legal and engineering details need to be checked once for an apartment project.

• 75.5% of the respondent wants to purchase apartment by  taking financial help (94 respondent wants financial help and 71 respondent wants to purchase apartment in Dhaka city) and most of the respondent prefer low price apartment so it seems that their is a higher demand (if financial help is available) for low priced apartments among the service holders .

• Survey results shows that  801 to 1100 sft minimum covered area  are mostly wanted by the service holders specially by the income group 25000+ to 35000 (Tk per month )  and age group 41 to 50 . 500 to 800 sft is wanted by the income group 10000>18000 per month and age group 25 to 30. 1101 to 1400 and 1401 to 1700   sft is mostly wanted by the income group 18000+ to 25000 (Tk per month) and age group 41 to 50. 1701 to 2000 and 2000+ sft is mostly wanted by the income group 35000+ (Tk per month) and in the group 41 to 50.

• Surprisingly 25000+ to 35000 income group wants less minimum covered area then income group 18000+ to 25000. The reason behind is not clear in this survey.

• price of 500 to 800 sft apartment in areas like Shaymoli ,Kakrail , Tikatoli , Paltan, Kamlapur, Goran , Hatkhola Wari , varies  from five to nine Lac . If 80% of the apartment price is financed then on an average 5.6 Lac Taka needs to be provided as financial help. At 14% interest rate (15 years repayment period) monthly installment comes to nearly 7700 Tk. Respondent of income range 10000>18000 are interested in  apartments of 500 to 800 sft and  they are capable of paying 7700 Tk installment per month . This group mainly consists of young executives and most of them don’t have any dependents. Currently in Dhaka city apartment of 500 to 800 sft are very less approximately 6% of the apartment are in this range. If financial help is available then this income group will be interested to take financial help and purchase apartment and for the builders this will become the new market segment. It is also safe to finance these young executives because their earning capacity is expected to increase with time.

• Price of a 1100 sft apartment in Gulsan is about 22 Lac if 80% of the apartment price is financed then 17.6 Lac needs to be provided as financial help. At 14% interest rate (15 years repayment period) monthly installment comes to nearly 24,500 Tk. Respondent of income range 25000+>35000 are interested in apartments of 801 to 1100 sft and  40%of this income group is  capable of paying 25000 Tk installment per month . 66% of them are in the 41 to 50 age group.  The price of 1701 to 2000 sft apartment in Mohammadpur, Shamoli, Kakril , Palton is about 20 lac , so this income group can also purchase bigger size apartments in this areas by taking  financial help and pay monthly installment comfortably .

 Respondent of 18000+ to 25000 income group wants apartment of 1101 to 1400 and 1401 to1700 sft but most of them cannot pay more then 10000 monthly installments. To finance this group interest rate has to be very low which doesn’t seem to be possible for a private housing finance company as because cost of fund is pretty high. Availability of financial help for lower size apartment may encourage this group to purchase lower size apartment by taking financial help.

• Most respondent having income more than 35000+ Tk per month can take about 22 Lac taka loan at 14% interest rate for 15 years period. For 22 Lac installment comes to about 30,000. 35% of this income range can pay this installment comfortably.
• For organizational guarantee, top level meeting with the corporate heads is required to convince the management and settle the terms and conditions. As there is legal barrier in lending fund as a line of credit in non financial institution fund won’t be available from this source.
• Research findings shows that in 1991 there were about 21 million families of which 18 million lived in village.  There were 18.5 million dwelling stock in the country of which 3.3 million were in the urban areas. In the rural areas about 30% of the families were virtually without shelter while in the urban areas the floating people varied from 20 to 33 percent of the city dwellers in different cities. Permanent structures in rural areas accounted for no more than 15% and in urban areas no more than 40% of the dwelling stock. According to the estimate of Housing Ministry the shortfall in housing in 1991 was 2.15 million units in rural area and .95 million in urban areas. Over 75% of the existing units require improvements.

• In Dhaka city about one Lac units are required per year whereas 15 thousand to 20 thousand are being build each year, there is a shortfall of 80 to 85 thousand units each year. 95% of the unit is financed by personal source and 5% units are financed by institutional source. That means if 20 thousand units are build in Dhaka city each year then 19 thousand is financed by personal source. If 80 thousand units is the shortfall each year then 1 % of 80 thousand is 800 units.  If the average loan size is five to ten Lac then 400 to 800 million Tk is required each year.

• Research findings shows that capital is the main problem of middle and upper middle income group who are working in mid and upper mid level position in various business organizations in Bangladesh. Most of them are interested in small size apartment but they do not have enough savings to pay bulk amount at a time. They have acute need for housing finance. In government sector, only House Building Finance Corporation provides loans and this is grossly inadequate. No other reliable financing bodies has been established and banks do not provide necessary amount of loan and most of the bank loan is for short period of time as a result monthly installment becomes very high which middle and upper middle income group cannot afford .Banks only finance affluent parties and as such middle and upper middle class people , specially those with small mortgage are unable to get the benefit of the bank loans .  As a result huge demand for long term loan of this group is not met.

Recommendations:

Many of the developing countries, apartments in Bangladesh are costly rather than being affordable for most people. Banks only finance affluent parties and middle and upper middle class people, especially those with small mortgage are unable to get the benefit of the bank loans.  As a result huge demand for long term loan exists among this group. In government sector, only House Building Finance Corporation provides loans and this is grossly inadequate.

No other reliable financing bodies has been established and banks do not provide necessary amount of loan and most of the bank loan are for short period of time as a result monthly installment becomes very high which middle and upper middle income group cannot afford. Therefore, unlike many of the developing countries, apartments in Bangladesh are costly rather than being affordable for most people.

Purchasing apartments, however, can help to avoid many hassles such as those related to purchase of land, approval of design, connecting electricity, gas and water purchase of raw materials etc. Payments can be made in three of four installments as well. As a result apartment builders will be encouraged to build small size apartments to fulfill the need of this group. The recommendations for this case are as below-

1. In government sector, only House Building Finance Corporation provides loans and                 this is grossly inadequate.

2. Banks only finance affluent parties and as such middle and upper middle class people, especially those with small mortgage are unable to get the benefit of the bank loans.

3. 95% of the unit is financed by personal source and 5% units are financed by institutional source.

4. Over 75% of the existing units require improvements.

5. Top level meeting with the corporate heads is required to convince the management and settle the terms and conditions.

6. Availability of financial help for lower size apartment may encourage this group to    purchase lower size apartment by taking financial help.

7. Financial help is available then this income group will be interested to take financial help and purchase apartment and for the builders this will become the new market segment. It is also safe to finance these young executives because their earning capacity is expected to increase with time.

Conclusion:

There is a growing need for people representing the middle and upper middle income groups in Bangladesh. Faced with severe resource constraints the government is keen to de emphasizes its role as a provider of housing for those groups. In recent policy statement it has been repeatedly encouraged the setting up of housing finance institutions by the private sector in the country. To that end, the government has committed to create an encouraging environment for local and foreign parties wishing to invest in the area of housing finance.

There is an increasing interest among the affluent class of the society to buy apartments especially in Dhaka city. Most of these apartments have most modern imported fittings, latest architectural design, parking facility, emergency generator and almost all modern amenities which give rich people a sense of new social life. Therefore, unlike many of the developing countries, apartments in Bangladesh are costly rather than being affordable for most people. Purchasing apartments, however, can help to avoid many hassles such as those related to purchase of land, approval of design, connecting electricity, gas and water purchase of raw materials etc. Payments can be made in three of four installments as well. In developed countries, apartments are generally built in suburban areas whereas in Dhaka, most of these are constructed close to the city center.

Though middle and upper middle income group in Bangladesh has huge want for small size apartments effective demand is low because they do not have enough savings to pay bulk amount at a time. Capital is the main problem of this group. In government sector, only House Building Finance Corporation provides loans and this is grossly inadequate. No other reliable financing bodies has been established and banks do not provide necessary amount of loan and most of the bank loan are for short period of time as a result monthly installment becomes very high which middle and upper middle income group cannot afford. Banks only finance affluent parties and middle and upper middle class people, especially those with small mortgage are unable to get the benefit of the bank loans.  As a result huge demand for long term loan exists among this group.

If long term finance is made available middle and upper middle income group they will be able to purchase small size apartment. As a result apartment builders will be encouraged to build small size apartments to fulfill the need of this group.

Survey results also support the idea that huge demand for housing finance exist among the mid and upper mid position holders in various private business organization in Dhaka. It also indicates the opportunity of the market of housing facilities provided by financial help

Assalamu Alaikum, I am a student of MBA program at the School of Business American International University-Bangladesh. At present I am doing a report for the requirement of my internship requirement. All the information provided by you will be considered strictly confidential. Your help will be highly appreciated.