Why are apartment prices going through the roof?

Pent-up demand and supply disruption have been fueling the prices of construction materials after the pandemic situation improved globally

Flats in Bangladesh witnessed a fresh price increase as realtors are being forced to pass on the increased construction cost to customers arising out of soaring prices of steel, cement, bricks and other materials.

Pent-up demand and the supply disruption have been fueling the prices of construction raw materials after the coronavirus pandemic situation improved globally.

The price escalated further following the outbreak of the Russia-Ukraine war from the fourth week of February as Russian firms faced problems in exporting products to Europe.

Ukraine is also a major supplier of finished and semi-finished steel products.

Since the disruption to the global supply chain has deepened, the prices of rods, cement and other construction raw materials have increased recently in Bangladesh as the country largely relies on imports to meet the domestic requirement.

For example, the price of rods rocketed to a record Tk 92,000 per tonne this month from Tk 70,000 last year, while the price of cement went up to Tk 560 per 50kg bag from Tk 475.

Similarly, sand, stone, brick, aluminium, glass, electrical equipment, and sanitary items have also seen a sharp increase in prices. The labour cost has shot up as well.

The price of steel has increased by Tk 100, cement by Tk 30, brick by Tk 20, and stone by Tk 67 per square foot (sft), according to an assessment of the Real Estate & Housing Association of Bangladesh (REHAB). As such, the construction cost has risen by Tk 381 per sft, said the trade body.

Realtors say flats in Dhaka, the biggest market for the industry, are as much as 10 per cent more expensive now, depending on their locations and amenities, compared to six months earlier.

In areas such as Gulshan and Banani, the prices have surged abnormally, according to a senior official of building technology and ideas (bti), a developer.

Any further increase in the price of flats would force many fixed-income families to give up on their dreams to own flats in the capital. And this may hurt the growth of the housing sector, which has been rebounding since the fiscal year of 2019-20.

"The price will increase for the rising cost of raw materials. This will decrease the sales of flats owing to the lower demand," said Mir Nasir Hossain, managing director of Mir Holdings Ltd.

He apprehends that some realtors would be compelled to sell flats at break-even or at the production cost if they face any cash crisis stemming from lower demand.

"Even, some realtors will postpone implementing new projects, and in some cases, the construction work of the ongoing projects will be put on hold as the requirement for working capital will go up."

"There is no alternative to price adjustment and it will affect the real estate sector immensely."

Alamgir Shamsul Alamin, president of the REHAB, says some realtors have already stopped constructing flats due to the higher price of raw materials as they fear that their projects might not be commercially viable.

"The realtors don't want to raise the price of flats as it is a very competitive market," he said, adding that the profit margin narrows significantly when the price of raw materials increases.

The real estate sector has started to rebound on the back of receding coronavirus infections and the scope to allow whitening of untaxed money, but the present situation is not favourable at all, said a top official of a real estate company. 

The bti official says all realtors are facing difficulties in making a comeback because of the sudden price increase of raw materials.

"It is not possible to raise the price of the flats that have been already booked despite the sudden increase in the price of raw materials."

"We have signed deals with the consumers and received money from them, so there is no scope to ask for additional money from them," he said, adding that the price would be adjusted in case of new projects in line with the escalated price of raw materials to stay afloat.

Hossain, also a former president of the Federation of Bangladesh Chambers of Commerce and Industry, called for a logical adjustment of the price of flats.

However, he says, realtors can't increase the price of properties abnormally due to the competition in the sector.

Mohammad Kayum Khan, head of mortgage at IPDC Finance, a non-bank financial institution, says they have noticed the price increase of raw materials but the demand for loans from developers and buyers has remained the same.

Because of the higher price, he says, buyers will have to increase their initial investment and this would be a burden for many middle-income clients.

Around 10,000 flats were sold in 2021, up from 8,500 to 9,000 per year since 2018, data from the REHAB showed.