HOFINET | Housing Finance Information Network

Real Estate Financing in Bangladesh: Problems, Programs, and Prospects

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Abstract

Housing issues are a part of economic, financial and social policies of a country. Considerable research interest is attached to the question of how the acquisition of residential real estate has been financed. The main constraint in housing production is the high cost of housing in relation to incomes. The lack of housing finance exacerbates the problem. The present housing finance system in Bangladesh is extremely small and highly segmented: Formal mortgage finance is only available to households with incomes above BDT 25,000 per month (well above the 10th percentile of the urban income distribution) and is restricted to selected housing sub-markets in Dhaka. Government subsidized housing finance through the Bangladesh House Building Finance Corporation (BHBFC) is most prevalent, while the nationalized commercial banks (NCBs) are decreasing their housing loan portfolios. Recently, new private housing finance institutions have started to operate in this market targeting middle income households. Non-collateralized credit for houseconstruction by micro finance institutions (MFIs) is only available to a small proportion of poor rural households that have participated in income-generation credit programs. All other households that aspire to home-ownership are dependent on their own savings with additional contributions from relatives, friends or employers, or short-term money-lenders. Given the lack of credit and the overall low levels of income, informal and non-permanent housing prevails, both in urban and rural areas. The government has to assess and decide on housing financing policies, which, in conjunction with the evolution of private sector housing financing, will most effectively and efficiently support housing demand and stimulate supply and rehabilitation, i.e. improve the national housing situation.

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