Business Supplement Issue-27

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2 Sunday, August <strong>27</strong>, 2017 DT Special Home loan market booms as interest rates plummet • Ibrahim Hossain Ovi and Shariful Islam Home provides a sense of security. It is an address, a shelter for one’s entire life, and this is what one leaves behind for the family. Everyone dreams of owning a home, but how many people can afford it? The savings and financial management involved in buying or building a home are often long and complicated. Another way to avail a home is through home loans. Banks and other financial institutions offer loans of single digit interest rate to people looking to realise their dreams. Private, state-owned and foreign commercial banks, specialised housing finance providers Bangladesh House Building Finance Corporation (BHBFC), Delta-Brac Housing (DBH), National Housing Finance (NBH), other non-bank financial institutions (NBFIs) and micro credit lenders offer home loans. Some employers such as the government offer home loans as well. The interest rate for home loans is a minimum of 8% and a maximum of 15%, while the loans can range between two lakh to Tk1.2 crore. The minimum debt-equity ratio spans between 10:90 and maximum 50:50. Most of the banks provide loans at debt-equity ratio of 30:70 for locals and 25:75 for expatriates. The banks that provide clients with single digit rate home loans include IFIC Bank, Brac Bank, Standard Chartered Bank, and financial institutions IDLC and Bangladesh House Building Finance Corporation (BHBFC), among others. Thanks to the single digit interest rate, the country’s banking sector has seen a surge in home loans in recent times. According to a study of Bangladesh Institute of Bank Management (BIBM), as of June 2016, a total of Tk56,290 crore was disbursed in home loans, 9.1% of the total credit to the private sector. BIBM Director Prof Mohiuddin Siddique, Associate Prof Md Alamgir and Dr Md Tajul Islam authored the report. The report showed that of the total disbursed home loans, private commercial banks provided the largest portion - 55% or Tk30,920 crore - followed by state-owned banks - Tk11,930 crore. “Intense competition among the banks in attracting home loan borrowers has already lowered the interest rate to a single digit,” the report said. It also said: “The ongoing emphasis on home loans by the banks TREND OF HOME LOANS IN BANGLADESH Figure in Taka, crore Source: BB FY05 8,680 9,919 FY06 12,342 FY07 13,614 FY08 may be partially attributed to the accumulation of excess liquidity in the banking industry. A persistent increase in per capita income coupled with the availability of loanable fund certainly will make the housing finance a potential venue for making profit in future.” Moreover, a home loan is relatively safe for a bank in comparison to a business-focused loan, according to the research findings. The report showed the default loans in home loan are low due to good recovery rate, as only 3.12% of the loans were defaulted in 2016. Talking to the Dhaka Tribune, Mohammad Sarwar Jahan, principal officer of LankaBangla Finance Limited, said: “Till now, we have disbursed around Tk1,000 crore to around 2,000 clients and 70% of them are from Dhaka city and rest are outside the capital.” IFIC Bank, which began financing home building a year ago, aims to disburse Tk1,000 crore home loan by this year and the bank has already disbursed Tk400 crore in the first half of 2017. Shah A Sarwar, managing director (MD) of the bank said: “Clients usually refrain from buying flats due to high interest rate of home loan. We are getting good response after offering home loans with single digit interest rate.” IFIC Bank is now providing clients housing loan with 9.99% interest rate. It was 11.95% when the bank first introduced the loan. “Though many banks are offering home loans with a single digit interest rate, the high interest rate 17,072 FY09 21,652 FY10 28,030 FY11 35,200 FY12 is still a constraint for home loans,” said Abrar A Anwar, chief executive officer of Standard Chartered Bangladesh. He said: “The interest rate should be reduced further to make home loans more affordable and a bond market should be developed to collect funds for long-term financing like home loan.” BIBM supernumerary Prof Helal Ahmed Chowhdhury said: “If the provision of home loan is lowered to 1% from the existing 2%, bankers would be interested in disbursing more loans and a level playing field could be ensured.” Home loans in Bangladesh are regulated by government policy and Bangladesh Bank guidelines. In order to arrest the flow of credit from banks to unproductive sectors, banks are also instructed not 42,090 FY13 44,050 FY14 48,640 FY15 Private banks 56,290 FY16 SHARE OF HOME LOAN PROVIDERS IN 2016 8% 4% 12% 21% 55% Non-bank financial institutions Foreign banks Specialised housing finance institutions State banks Source: BB to provide any loan or credit facility for purchasing land. All scheduled banks are instructed to refrain from disbursing any loan to private housing projects which are not approved by statutory government organisations. Now, the central bank is developing a guideline to make the home financing schemes more affordable for the middle class, said BB Deputy Governor SK Sur Chowdhury. He said: “Though the banks operate their businesses depending on the deposits from the middle-class people, they make it harder for middle-class people to avail loans. That is why Bangladesh Bank is preparing a guideline to make the home financing schemes more affordable for the middle class.” BIBM Director General Dr Toufic Ahmad Choudhury said: “A home is a shelter of an individual and as such, there should be more flow of credit disbursement on easy terms in this sector.” He also stressed the importance for taking this loan to rural areas. Bangladesh House Building Finance Corporation, the state-run housing finance body, has disbursed home loan of Tk375 crore in the last year and aims to disburse home loan around Tk400 crore. Islamic Development Bank (IDB) has recently approved a loan of $95.24 million for rural and peri-urban housing finance project in Bangladesh. BHBFC Managing Director Debasish Chakrabarty said: “We will disburse the loan only to borrowers living outside Dhaka and Chittagong metropolitan areas for construction of multi-storied residential buildings.” He said under the project, a total of 1,046 buildings will be erected to accommodate 47,856 people. The loan would be disbursed under ‘Pallima Scheme’, a newly launched scheme of the corporation. Loans would be distributed to construct 4,050 units in rural areas, 2,825 units in peri-urban areas and 1,101 units for non-resident Bangladeshis (NRBs), said Debasish. He also said one could take loan up to Tk60 lakh while the interest would be 8.5%. “We would take the house building culture to urban, peri-urban and even to those municipality areas which are not under the project. We would like to provide lowcost home financing for low-income rural people as part of project assistance.” The BHBFC will hold the ‘Housing Financing Fair 2017’ to disseminate information on the housing sector. A total of 82 organisations will participate in the fair to be held at Hotel Sonargaon from October 19-21. A private service holder, Arifur Rahman, 45, told the Dhaka Tribune: “It was quite impossible for me to dream for my own home with my salary. But as banks have lowered interests, I am planning to buying a flat.” Beware of hidden charges Abdur Rahman, a government official, who bought a flat taking a home loan from a private bank, said: “I have taken a home loan of Tk80 lakh and bought a flat. When receiving the loan, the bank did not inform me about the hidden charges; they only informed me about the interest. But now I am paying the credit, they are charging Tk50,000 extra by the name of several charges.” •
Interview 3 Sunday, August <strong>27</strong>, 2017 DT Our goal is to ensure low-cost housing facilities in rural areas The state-run Bangladesh House Building Finance Corporation (BHBFC) has long been working towards ensuring affordable housing facilities for all. Its main focus is now on making the facilities available at lower costs to all beyond the country’s two major cities: Dhaka and Chittagong. In an exclusive interview with the Dhaka Tribune’s Ibrahim Hossain Ovi and Shariful Islam, BHBFC Managing Director Debasish Chakrabarty shares their initiatives and plans to make the housing facilities more accessible and customer-friendly Real Estate and Housing Association of Bangladesh (REHAB) claims that they are also working towards ensuring affordable apartments for all. What are the differences between the initiatives taken by BHBFC and REHAB? REHAB [a platform of realtors] focuses on profit maximisation, but our objective is to ensure housing facilities for all at lower costs. While they [realtors] tend to concentrate in Dhaka, our target is to provide low-cost housing facilities to the people living outside urban areas. Since real estate companies are concentrated in urban areas, we are increasingly focusing on rural areas. This is why our interest rates for Dhaka and Chittagong cities are higher than those for rural areas. We will reduce the rates further. How can the process of handing flats over to buyers be accelerated? Generally, realtors take three to five years’ time to hand over a flat to its buyer. They should come out of this mindset and concentrate on a first-track construction method. Also, we talked to the REHAB about technology and equipment needed to expedite the construction process so flats and projects can be handed over to their owners within the stipulated time. We have decided to send a team to Malaysia to gain expertise in the handling of advanced construction technology and equipment. Some of the REHAB members may join the team. While some banks offer home loans at 8.5%, why are the people opting for BHBFC loans? People have trust in us as there are no hidden charges. This is because buyers prefer our offers to bank loans. Home loans from banks and non-banking financial institutions are available only in Dhaka and Chittagong. But, the government’s vision is to ensure housing facilities for all by 2021. Over 80% of the total population live in rural areas and we have to make housing facilities available in the areas as well in order to materialise Vision 2021. Our competitors are doing well. The corporation could not duly perform its duties. We have, however, taken lots of initiatives including building new apartments and reducing interest rates. What measures have you taken to provide low-cost housing facilities beyond Dhaka and Chittagong metropolises? If you look around Dhaka city, you will find that the land for housing is decreasing day by day due to the rapid influx of people. This is because our emphasis is on building houses in rural areas. For Dhaka and Chittagong cities, we have reduced interest rate to 9.5% from 12%, while the rate is 8.5% for other parts of the country, especially at the district level. Moreover, Islamic Development Bank (IDB) has recently announced a $95.24m loan for a rural and peri-urban housing finance project in Bangladesh. We will disburse the loan only among borrowers living outside Dhaka and Chittagong metropolises for construction of multi-storey residential buildings. Under the project, a total of 1,046 buildings will be constructed to accommodate some 47,856 people. The loan will be disbursed under the “Pallima” scheme, a newly launched scheme under which one could borrow a maximum of Tk60 lakh with an 8.5% interest rate. We came to know that BHBFC has never suffered any loss since its inception in 1952. Would you tell us about its current performance? In the last fiscal, BHBFC disbursed Tk353 crore. Of the amount, 67% was given to people living outside Dhaka and Chittagong. We are set to disburse Tk400 crore this fiscal year. After getting the IDB credit, we set a target to disburse around Tk20,000 crore in the next two years. We have so far given loans for construction of 200,000 housing units, earning the BHBFC a Tk166 crore profit in the last fiscal year. Tell us something about the loan recovery rate Our loan recovery rate is very good. It was 93% in the last year. We have inked a deal with Standard Chartered Bank to make instalment payments even easier and more customer-friendly. Under the new system, the payments can be deposited through Electronic Fund Transfer, and Standard Chartered Bank will work as mediator. Client will get a text message in his or her phone right away after the fund is deducted from their accounts. What types of loan package do you offer now? We are offering four packages: Home Loan for Expatriate Bangladeshis, Rural House Loans, House Development Loan, and House Repair Loan. Also, we intend to introduce a new package under the name “Farmer’s Home Loan.” Which package is in high demand? Among them, the Home Loan for Expatriate package is in high demand as most of the expatriates have both land and cash in their hand. As the money and land do not always suffice to purchase a flat or to construct a building, the loans largely help them maximise their remittances that, in turn, help them either in their primary investment or in instalment payment. Given all these aspects, we have labelled the package “Probash Bondhu” under which a borrower can get a loan at a 9% interest rate with a repayment tenure of 25 Mahmud Hossain Opu years, and we will provide 70% of the total cost and the rest has to be arranged by the client himself. What difficulties are you facing in managing the corporation? The problems I face include small human resources and lack of adequate branches to render services to clients. To resolve the problems, we have sent a proposal to the ministry concerned and are hopeful that it will soon approve the proposal. There are only 29 branches across the country. Of them, 14 are in Dhaka. There will be 71 more branches if the ministry approves the proposal. What are your plans for the organisation? Where do you want to see it in the future? As I mentioned earlier, realtors are focusing on making their own profits. We want to construct flats so apartment prices go down further. If the government gives us khas land, we will construct buildings there and sell the people flats at lower prices. Getting a building design approved is a very complicated task. Many do not know how to get a design approved and by whom. In this connection, we are planning to introduce a low-cost-and-time consuming mechanism as used in the developed world. We talked to people who are using the Kotoko system [an advanced construction mechanism]. We are planning to launch banking services. Clients often say they face lots of hurdles when applying for home loans. What steps are you taking to simplify the process? Clients face hassles because many of them do not properly know how to apply for a home loan and what documents they need to submit. We are taking several initiatives to help them in the process. We have, for instance, prepared a checklist of loan application documents, which is available on our website as well as Facebook page. To disseminate information about our services and advanced housing technologies, the BHBFC will organise its first ever “Housing Financing Fair 2017” at Hotel Sonargaon in Dhaka from October 19-21. •
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Business Supplement Issue-27

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