Post on 28-Oct-2014
description
Page | 0
Date of Submission | 06.02.2011
FIN 475 REAL ESTATE FINANCE
Submitted By
Mohammed Mahib Ullah
ID # 073 267 030
Submitted To
Tashfeen Hussain
Senior Lecturer
School of Business
Feasibility of Apartment Project Development
Page | 1
Acknowledgement
One of the most pleasant parts of submitting a report is the opportunity to thank
those who have contributed to it. Unfortunately, the list of expression of thanks – no matter
how extensive is always incomplete and inadequate. These acknowledgements are no
exception.
My first thanks goes to the almighty Allah for giving us the patience and courage to
finish this unconventional task within its deadline. I am grateful to the employees, managers
and the directors of various real estate developers who helped me to fill to giving me
significant information on real estate industry. Special thanks to Mr. Enayet Ullah for
encouraging me to continue the project. We would like to thanks my family to be patient
and support always without any bother.
At last, i sincerely acknowledge my debt to Mr. Tashfeen Hussain, honorable faculty
of FIN 475 course, for his valuable counseling towards the improvement of the project.
Without his encouragement, this would have been impossible.
Page | 2
Executive Summary
This paper is intended for evaluating the feasibility of the Real Estate Developers of Dhaka
city who are doing joint-venture apartment development project with land owner. The
analysis involves the most up-to-date data of the land price per katha and apartment price
per square feet.
To evaluate the feasibility we have found some factors behind why developers and also land
owners are interested into apartment development project. To initiate a project developers
have to do calculation of financial feasibility. They also cannot ignore socio-economic
factors, macro-economic factors, legal restrictions, rules and regulations by city
development authorities like RAJUK and ministry of housing and public works, fiscal policy of
government and infrastructural facilities like gas, water & electricity.
The steps of developing an apartment from the initial approach with land owner and site
selection are showed chronologically. Legal steps are very important part in the
development process before a developer initiate the foundation of the building. Finance &
Marketing plays a big role in cash inflows and cash outflows.
Afterwards, feasibility of different areas of Dhaka city has shown in a way that everyone
understands. For comparing the net profit, apartment of Dhaka City has divided into three
parts; Luxury, Standard & Economy. Floor Area Ratio (FAR) & Maximum Ground Coverage
(MGC) plays a very important role in apartment size. The construction cost is more or less
same except the finishing materials which ornament the beauty of the apartment. But the
main reason why apartment price varies is depends on mainly land price of respective areas.
As the sector is flourished in last two decades, I have analyzed a SWOT analysis which comes
up with the strength and huge opportunity to the sector as well as weakness like
bureaucratic legal procedures and finally threats from government like delay and
unavailability of connection utilities like gas, water & electricity.
Page | 3
Table of Content
Topic Page
1 Introduction 4
2 Scenario of Apartment Project In Bangladesh 5
3 Factors Affecting Apartment Development 7
i Cost Benefit Factors 8
ii Socio Economic Factors 11
iii Macro-Economic Factors 13
iv Legal Framework 13
v Financing Opportunities 16
vi Fiscal Policy 14
vii Infrastructure 17
4 Apartment Development Process 18
5 Feasibility Analysis 21
i Luxury Apartment Feasibility Analysis 22
ii Standard Apartment Feasibility Analysis 23
iii Economy Apartment Feasibility Analysis 24
7 SWOT Analysis 25
8 Conclusion 26
9 References 27
10 Appendix 28
Page | 4
INTRODUCTION
In our everyday life, we use Real Estate in some manner; we make use of Real Estate
resources to provide shelter, comfort, convenience, and privacy, a place of work,
recreational facilities and related services. In an estimate Real Estate represent more than
40% of the national wealth (Hyote Weime, Principles of Real Estate). The basic component
of realty is not only the surface of the earth but also the property rights and interests that
attach to ownership of realty. Thus the Real Estate means acquirement of land and building
which is called inherent right. The men who are owner, user, maker, financer or marketer of
the property have some rights to the property.
Real estate development has got a momentum in the recent years in Bangladesh. During the
Eighties, Eastern Housing was the pioneer who started the apartment development concept
to mass people and later many real estate companies has grown to meet the growing
demand of apartments.
Financing the development of real estate projects such as apartment, office buildings and
shopping centre is not a simple approach. Developers of such projects face changing
conditions in the national and local economies, competitive pressure from other developers,
and changes in location preference of buyers or tenants. All together they affect the ability
of the developer to acquire the land, build apartments, sell them to buyers and earn
sufficient revenues to cover operating and all other expenses.
By Apartment Project Development, we refer to the process of financing the acquisition of a
tract land with the intent of constructing a building and eventually selling the completed
project. As a part of financing and estimating the development, certain process may affect:-
The size and cost of the proposed apartment
The price that a developer may pay to acquire a land
The price that a project may bring when it is sold to apartment buyers
Page | 5
SCENARIO OF APARTMENT PROJECT IN BANGLADESH
In Bangladesh apartment project is recent phenomenon which was started in 1964 by
Ispahani Group. But in early 1980s with the inception of Eastern Housing Ltd. the apartment
project started flourishing. Now it is a booming sector of the economy. Since the 1980s it
came into the horizon of business field. This business initially concentrated in Dhaka due to
the reason that it is the fastest growing city of Bangladesh. Some limited scales of activities
gradually expanded later to Chittagong and Khulna city. At present there are more than
thousands of firms (Source: Rehab) operating apartment business and they are producing
apartment project in Dhaka city and some other cities.
Over the last 25 years the real estate development sector has made significant contribution
to many sectors in our economy. Since 1985 this sector has created homes for over 20,000
families in the Dhaka mega city. Additionally, thousands of acres have been developed into
housing estates where lower and middle-income families can construct their own dwellings.
The Dhaka metropolitan city has seen a new dimension of modern shopping complexes due
to the initiative of the Real Estate Developers.
Since 1985 this sector has been procuring construction materials worth over Tk. 1500
crores. It gives employment to about 12000 construction workers and pays wages to
construction workers amounting to about Tk. 60 crores annually. Approximately Tk. 2 crores
is paid annually by this sector towards professional fees for architects and consultants. The
sector employs about 5,000 management staffs like accountants, sales personnel,
engineers, supervisors, administrative staff and others and pays approximately Tk. 25 crores
to these peoples in annual salaries.
Apart from the VAT and taxes paid by the Real Estate Development to the government
exchequer, the government should have collected VAT amounting to approximately Tk. 150
crores from importers and manufacturers of construction materials since VAT was imposed
in 1993.
The fact that many cement manufacturing industries have now been set up in Bangladesh is
a reflection of the momentum Real Estate Development sector has given to our economy. In
the last decade many steel mills would have shut down but it did not due to the support of
Page | 6
the Real Estate Development sector and several new mechanized construction material
manufacturing industries have recently come up due to the existence of this sector. Today
about 2000 architects and consulting engineers are directly supported by this sector and
almost 5000 diploma engineers are engaged by this sector.
The Real Estate sector in Bangladesh operates in the private market and accounted for 5.5%
GDP in the period 1985-90 in the construction sector and another 8.41% of GDP in the
housing sector. It is considered that the industry is very labor intensive, providing many jobs
for skilled, semi-skilled and unskilled workers. The informal sectors also employ many
people in the construction of simple shelter structures. For the migrants from the rural
areas, the construction industry is a stepping stone in urban life.
Page | 7
FACTORS AFFECTING APARTMENT DEVELOPMENT
Apartment
Project
Development
Cost Benefit Factors
(Cost of land,
Cost of construction materials,
Feasibility of the project)
Finance
(Private and foreign banks,
DBH, NHFI)
City Development
Authorities
(RAJUK, RDA, CDA, KDA)
Fiscal Policy
(Tax, Vat, Registration)
Legal Framework
(Companies act, Partnership act, RAJUK building
Code, etc.)
Macro- Economic Factors
(GDP, Inflation, Savings, FDI)
Socio- Economic Factors
(Population growth, Mobility of people, Migration, Level of
income)
Infrastructure
(Housing land,Electricity,Gas,
Water)
Page | 8
Cost Benefit Factors
Every Real Estate Developer wants to build their apartment in Dhaka city but there is
scarcity of land and the price of lands are increasing gradually. According to recent trend,
Real Estate Developers follow joint-venture strategy with the land-owner. It allows
Developer not to buy the land but build apartment and sharing the build flats with land
owner. The financing in joint-venture techniques are stated below:-
I. Give land-owner a certain percentage of flats equal to the value of land.
II. If the values of flats are less than Land-owners expected value of land, developer has
to offer some additional cash to the land owner which depends on the land price of
the respective area.
III. Collect some down payments of flats before commencing work
IV. Taking external investors/loan if needed
Before going to the calculation how a developer will set their apartment price and what
additional cash he might give to land owner, let’s look at the land and apartment price of
Dhaka City
Page | 9
Land price in Dhaka metropolitan area per Katha [1 Katha = 720 Sq ft].
Area Price (per Katha in BDT)
Min Max
Gulshan 20,000,000 40,000,000
Baridhara 20,000,000 40,000,000
Banani 15,000,000 20,000,000
Bashundhara 5,000,000 8,000,000
Uttara 6,000,000 8,000,000
Niketon 10,000,000 20,000,000
Nikunjo 6,000,000 7,000,000
Mohammadpur 6,000,000 7,000,000
Adabor 4,000,000 6,000,000
Mirpur/ Pallabi 3,000,000 5,000,000
Dhanmondi 20,000,000 30,000,000
Lalmatia 10,000,000 15,000,000
Eskaton 8,000,000 10,000,000
Badda 3,000,000 4,000,000
Rampura/ Banasree 4,000,000 6,000,000
Moghbazar/ Malibagh 6,000,000 7,000,000
Shantinagar/ Shegunbagicha 7,000,000 8,000,000
Khilgaon/ Bashabo 3,000,000 5,000,000
Wari 6,000,000 7,000,000
Azimpur 5,000,000 6,000,000
Rayerbazar/ Jhigatola 6,000,000 8,000,000
Page | 1 0
Apartment price in Dhaka metropolitan area per Square feet.
Area Price (per Sq. feet in BDT)
Min Max
Gulshhan 12,000 20,000
Baridhara 12,000 20,000
Banani 8,000 12,000
Bashundhara 4,000 6,000
Uttara 4,000 6,000
Niketon 6,000 8,000
Nikunjo 4,000 5,000
Mohammadpur 4,000 7,000
Adabor 3,500 4,500
Mirpur/ Pallabi 3,000 4,500
Dhanmondi 10,000 15,000
Lalmatia 7,000 10,000
Eskaton 5,000 8,000
Badda 3,000 4,000
Rampura/ Banasree 3,000 4,500
Moghbazar/ Malibagh 5,000 7,000
Shantinagar/ Shegunbagicha 6,000 8,000
Khilgaon/ Bashabo 3,000 5,000
Wari 5,000 7,000
Azimpur 4,000 5,000
Rayerbazar/ Jhigatola 4,000 6,000
Page | 1 1
Feasibility Calculation
We assume that a developer is going to build an apartment in a land in Gulshan with a land
owner with the ratio of 50:50. The land area is 10 katha. The average price of the land is Tk.
30,000,000/ Katha. So the market price of the land is Tk. 300,000,000. From our data we
assume that the flat price of the area is Tk. 16,000/ Sft.
From the new rule imposed by Ministry of Housing & Public Works the FAR (Floor to area
ratio) is 4.50 for 10 katha with 25 feet width road which means a building of 10 katha can be
build up to (10x720x4.50)=32,400 Sft.
Whether the Maximum Ground Coverage (MGC) is 65% for the land means that the building
cannot be extended more than 65% of the land. So the MGC of the land is (10x65%) = 6.50
katha = 4680 Sft.
So each floor size could be highest 4680 Sft. and maximum floor could be built 32,400
/4680=6.92≈7. But In order to build 7 floor except ground floor we have to maintain FAR of
32400 so the floor size is minimized to 32,400/7 = 4630 sft/per floor
Now, we consider each floor having 2 flats, so the neat flat size, 4630/2 = 2315 Sft
By adding 10% common space the sellable flat size is 2315 + 10% ≈ 2550 Sft
There will be total of 14 flats consisting 2550 Sft and Developer and Land owner both will
get 7 flat each.
Price of 7 flats (2550 Sft. x 7 x Tk. 16000) = Tk. 285,600,000
So initially the developer has to give about Tk. 15,000,000 to 30,000,000 in order to
compensate land owners land value.
Total construction, Utility connection, consultancy fees including architectural design,
management and office overhead costs are Approximately Tk. (57,000,000 1,000,000 +
2,000,000 + 3,000,000) = Tk. 63,000,000. So the total costs for developer (63,000,000 +
30,000,000) = Tk. 93,000,000
So, the profit of the developer (285,600,000 - 93,000,000) = Tk. 192,600,000
Page | 1 2
Socio Economic Factors
The demand for housing is one of the major factors that lead to the development of
apartment projects. Socio-economic characteristics of people influence the demand for
permanent houses. There are four major socio-economic characteristics of population that
influence that demand for houses –
I. Population growth
II. Income level of people
III. Migration towards cities
IV. Mobility of people
Population growth is one of the major factor that requires increased number of residential
houses. Bangladesh experienced high growth of population over the decades, which led to
high demand for residential houses. However, the rate of population growth reduced
significantly, the backlog in the creation of residential houses has still been significant. Here
is the statistical information of rural and urban population of Bangladesh
Year Population (in Millions) Percentage of total population
Rural Urban Rural Urban
1980 78.2 9.9 88.7 10.3
1990 92.5 17.2 84.3 15.7
2000 101.1 27.2 78.8 21.2
2010 110.1 41.7 72.5 27.5
(Source: The Daily Star)
The growth of population in urban areas is affected not only by birth rate but also the rate
of migration from the rural and suburban areas and other towns. Migration towards major
cities is increasing because of there being most important business centers as well as
employment opportunities. The rate of migration is acute in Dhaka City as it is the capital
city of Bangladesh. Most of the migrated people don’t want to move back to rural areas.
City having more than 5 million of population has been defined as Megacity. The population
of Dhaka city (areas under the jurisdiction of the Dhaka city corporation) stands at
approximately 7.0 million. The city, in combination with localities forming the wider
Page | 1 3
metropolitan areas like Savar, Gazipur, Uttara, Keraniganj and Narayanganj, is estimated
12.8 million as of 2008. The population is growing by an estimated 4.2% per year, one of the
highest rates amongst Asian cities.
Macro-Economic Factors
Macro-economic factors influence the choice of entering apartment market. There are three
major macro-economic factors that affect the development of apartment projects.
I. Rate of economic growth
II. Rate of inflation
III. Rate of savings
Higher growth of economic growth leads to increased income to people. With the economic
growth of the country more people are likely to be economically able to afford a house with
necessary facilities. Savings are also an important factor for members joining in housing
cooperatives. In the absence of institutional loans for purchasing land, personal savings is
the source of finance for real estate investment.
Apart from economic growth and savings, the rate of inflation also affects the decision to
make real estate investment. Inflation leads to the loss of purchasing power. To cope with
inflation, people try to hold those assets, which have less purchasing power risk. Real estate
is the most widely chosen assets that is believed to have least purchasing power risk in
Bangladesh. Therefore, on the presence of high rate of inflation, people are more likely to
invest more in real estate.
Legal Framework
The checklist is usually the first step that a developer reviews when evaluating a site for
possible development.
Floor to area ratio (FAR)
One of the important tools used by the city planners to control size and activity desired
within a geographic area. It is usually calculated as gross building area divided by square
footage of land area. For example, an FAR of 3 to 1 would, for one acre of land (43,560 sq.
ft.) provide that a structure with a gross building area of 130,680 sq. ft. may be developed (3
Page | 1 4
x 43,560 = 130,680). The greater the FAR allowed for a site the larger the project that may
be constructed on that site.
Setback/ Building line
Construct the building in a specified number of feet (setback) from the other landmarks in
order to ensure conformity with adjacent buildings and provide clear visibility for
pedestrians or motorists.
Maximum Ground Coverage
Maximum ground coverage is used to restrict builders to build in only certain areas of their
land. It varies from 50-67.5% depends on land size and front road. Here is the data of FAR &
MGC which is collected from Ministry of Housing & Public Works.
Plot Size (Katha) Road width (Meter) FAR MGC %
≤ 2 6.0 3.15 67.5 %
> 2 to 3 6.0 3.35 65.0 %
> 3 to 4 6.0 3.50 62.5 %
> 4 to 5 6.0 3.50 62.5 %
> 5 to 6 6.0 3.75 60.0 %
> 6 to 7 6.0 3.75 60.0 %
> 7 to 8 6.0 4.00 60.0 %
> 8 to 9 6.0 4.00 60.0 %
> 9 to 10 6.0 4.25 57.5 %
> 10 to 12 9.0 4.50 57.5 %
> 12 to 14 9.0 4.75 55.0 %
> 14 to 16 9.0 5.00 52.5 %
> 16 to 18 9.0 5.25 52.5 %
> 18 to 20 9.0 5.25 50 %
> 20 12.0 5.50 50 %
Any Size 18.0 6.00 50 %
Any Size 24.0 6.50 50.0%
Source: Ministry of Urban Planning & Housing
In a state where road width is 6 to 24 meter, then FAR will be added to 0.05 for every 0.30
meter additional road width.
Page | 1 5
There are so many acts, which affect the behavior and functions of housing cooperatives.
Building Construction Act, Rules & code.
i. Building Construction Act 1952
ii. Bangladesh National Building code 2006
iii. Building Construction Rules 1996
iv. Dhaka Metropolitan Building Construction Rules 2008
Associated acts related to Building Construction
I. Bangladesh Environment Conservation Act, 1995
II. Fire Control and Protection Act 2003
III. Town Improvement Act 1953 (CDA ordinance 1959 )
IV. Cantonment Act 1924 (Building Construction Rules 1985)
V. Private Housing (Land) development ordinance 2004
VI. Open Space and Wetland Preservation Act, 2000
VII. Public Park Act 1904
VIII. Antiquity act 1968
IX. City corporation Act
X. Municipal Ordinance 1977
Apartment companies function under the legal status of companies or a firm, like any other
Public or Private Companies or a Firm. A Real Estate Developer has to abide by the
Companies Act, 1994 or Partnership Act, 1932. The Companies Act, 1994 defines legal
framework for formation, management, responsibilities and winding up of companies. As a
part of their functioning, Real Estate Developer has to procure housing land at the primary
stage. The state acquisition and tenancy act, 1950 allows transferring of ownership of land
or part thereof to any other persons. This act defines the legal framework for the purchase
of land by the apartment companies from others to accumulate and develop the land under
planned area. The Objective of the Building Construction Act, 1952 are to provide
precaution for haphazard construction of building.
Page | 1 6
City Development Authorities
There are four city development authorities in Bangladesh,
I. RAJUK (Rajhdhani Unnayan Kartipakkha/ Capital Development Authority)
II. CDA (Chittagong Development Authority)
III. KDA (Khulna Development Authority)
IV. RDA (Rajshahi Development Authority)
Rajdhani Unnayan Kartripakkha, or RAJUK literally the Capital Development Authority of the
Government of Bangladesh, is a Bangladeshi public agency responsible for coordinating
urban development in Dhaka, Bangladesh. RAJUK is composed of various public officials, city
planners, urban administrators, engineers and architects. It is the National Authoritative
Board on building planning, estates and resources, plot allotment and construction
approvals from both public and private entities. It utilizes the Dhaka Improvement Trust
(Allotment of Land) Rule of 1969 and The Town Improvement Act of 1953, both scribed
since before the Independence of Bangladesh.
Financing Opportunities
In developed countries, institutional loans are available both for land and building. In
Bangladesh, loans are available for house building but generally not for the land purchase.
The only government own housing finance institution, House Building Finance Corporation
(HBFC), provides cheaper loan than commercial loans. Decades ago, private sector came
forward into this segment. Delta Brac Housing Finance Corporation (DBH) and National
Housing Finance and Investment Ltd. both are public ltd companies licensed from
Bangladesh Bank as nonbank financial institution. They are involved with financing to the
apartment buyer at 15-16% simple interest rate. They finance Developers also to provide
financial assistance. DBH is the pioneer, largest and specialist in Housing Finance institution
in the private sector of the country. After commencing operation in the early 1997, DBH has
registered commendable growth in creating home ownership among more than 7,500
families in Dhaka and other major cities of the country.
Page | 1 7
Fiscal Policy
The fiscal policy of government has some impact on the development of Apartment
business. VAT imposed in different items would be payable by the apartment company
during the time of material, machinery and equipment purchase. The registration charge for
transfer of land has to be borne by the developer. The apartment buyer also face the VAT
imposed by the government.
Infrastructure
There are a number of necessary infrastructures that are prerequisites to developing
apartment companies. First, there must be adequate and cheap land for a housing site
within the main city or city areas. Second, there must be good road connections from the
housing site to the city centre. Without good or potentially good road connections, people
will be reluctant to buy apartment from that area. Third, utility services such as Gas, Water
supply, Electricity must reach or be expected to reach project site. In the absence of utility
services, people will not be interested to build their house in the site, even if they purchase
plot there.
Page | 1 8
APARTMENT DEVELOPMENT PROCESS
As each stage in process the potential builders has to rely his knowledge and association
with other people as each stage difficulties are placed in the way of the developer.
1. Initial Search for land, prior to purchase or co-sharing with the land owner
Developer comes into an agreement with the landowner to develop the land. The basis
of agreement may be the sharing apartments or cash payments or both. Sometimes the
land owner may take initiative and find a suitable developer for development of this
land with the aforesaid agreement. But the very recent phenomenon is different that
the developers are searching for vacant and suitable land in urban areas.
2. Acquisition, possession and registration of land when buying
After acquiring the land the Real Estate Company has to do the legal procedure in
registry office. It costs single sum of legal fees
3. Signing agreement and transfer Power of Attorney and its registration from the land
owner if co-sharing
The developer has to sign an agreement with the land owner about the percentage both
party is getting in the joint venture. Land owner also has to transfer the Power of
Attorney to the Developer which is the clearance of giving permission to start the
building process.
4. Initial planning and designing of the apartment
Usually initial planning and design is done by the architects and civil engineers of
respective developers. Many developers manage to get this job done by consulting
engineering firm and who charges approximately Tk. 25-30 per Square feet.
5. Soil investigation for proper structural design of the building
Structural design and soil investigation is done through reputed firm. The process cost
Tk. 3000-5000 per Boring. Boring depends on size of the land. For example, in a 5 katha
land, a developer company needs at least 5 boring (4 in the corner, 1 in middle).
6. Obtaining plan permission by Rajuk
Obtaining permission from RAJUK is one of the most important parts of the apartment
development process. As this is a bureaucratic organization work process is depends on
only the officials of the authority. Sometimes developers have to pay some backhander
to grease the process and the total process costs approximately Tk. 50,000-300,000.
Page | 1 9
7. Selection of contractors/vendors for different items of works
A developer company mostly looks after the management of the company but they also
have to select a good and experienced contractors and vendors for different items of
works like piling, construction, sanitary works, tiles works, interior works etc.
Approximately 20% of total construction cost is assumed to be the cost of contractors
and vendors.
8. Overall financial management and marketing
The management has to calculate the upcoming costs of the proposed apartment and
management has to decide which medium they should use to potray their
advertisement. Before marketing the product, pricing is the most important task for the
producer. Many techniques can be used for apartment pricing. But whatever the price is
fixed the market mechanism is the vital factor. In years, apartment developers have
been using two types of pricing techniques;
a) Mark up Policy (Price is fixed by adding a target percentage of profit/margin with
cost of sales)
b) Competitive Pricing (Price is fixed by demand and supply interaction). Most of the
developer follows competitive pricing policy
Most of the developers use national dailies as advertising media. Many use brochures,
calendar, diaries etc to get public attention. Few of the Real Estate Developers use TV &
Radio as promotional media as it is quite expensive and not feasible for all. A common
platform for apartment buyers and sellers is fair which is organized by REHAB (Real
Estate Housing Association of Bangladesh) in every year.
A developer company may obtain a loan if necessary for part of expenditure. The
company can use the building as collateral to obtain the loan
9. To ordering and purchasing of building materials
Apartment project requires various types of materials which an apartment developer
can procure from either local or foreign suppliers. If they procure maximum materials
from foreign market then it would cost them a good amount of money. But if they
collect the materials from the local market then they could get them easily at cheaper
rate. But if a developer only uses local materials then the quality of apartment cannot be
ensured, and their product will not acceptable to all types of customers. So, for serving
Page | 2 0
all types of customers’ demand developers are bound to depend on imported and high
quality construction materials, especially floor fittings and electrical fittings. Actually the
cost of exclusive apartment varies mostly using the imported fittings used by the
developers. What type of material will be used depends on various factors,
a) Location of the project,
b) Prospective buyers,
c) Total price of apartment
Imported materials are used for making posh or luxury apartment. But in developing
standard apartments, the developers use mixed components of materials. But when
making economy apartments developer use maximum locally produced materials.
Availability is an important factor getting construction materials. Many construction
firms get the items on credit if they maintain good relation and regular payment with
the retailer.
10. Preparation of foundation works
Initial development of construction starts with foundation of the building. Every land
does not require piling. But those land which required piling cost Tk. 300,000/Katha.
Approximately 30-45 days to pile a 5 katha land.
11. Provision and connection of basic infrastructure service
Basic infrastructure such as Electricity, Gas & Water connection is required to process by
management. This bureaucrat process requires approximately Tk. 1,000,000 and could
be done within 2 months.
12. Complete Construction of building
Construction process consists of roof casting of every floor. Every roof casting is done
approximately after 30 days. The total construction time depend on land and floor size
of the building. After construction there is some finishing work which made the total
work presentable to the purchaser of the apartment. Finishing work depends on the flat
price. Luxurious apartment developers use expensive finishing materials to make the
apartment gorgeous which also help them to promote their business
Page | 2 1
13. Transfer of the title for purchase of flats/apartment
Developer hand over the flat when the finished their finishing process. If developer fails
to deliver on time they should compensate both land owner and apartment buyer as par
agreement and vice versa.
FEASIBILITY ANALYSIS
The apartment project mainly develops in Dhaka city. The main areas are Gulshan,
Baridhara, Banani, Dhanmondi, Mohammadpur, Lalmatia, Adabor, Uttara, Mirpur etc.
Considering the land and apartment price the Dhaka city is divided into three categories.
Category Area Flat price per Sft. (in BDT)
Luxury Gulshan, Baridhara, Banani, Dhanmondi 12,000 - 20,000
Standard
Bashundhara, Uttara, Niketon, Lalmatia,
Eskaton, Moghbazar, Shantinagar, Wari,
Mohammadpur
5,500 – 11,500
Economy
Adabor, Mirpur, Nikunjo, Badda,
Rampura, Banasree, Khilgaon, Bashabo,
Azimpur, Jhigatola
3,000 – 5,000
The demand of apartments in Dhaka city varies with different demographics of people.
People living in Gulshan want to buy those flats which are more than 2500 Square feet. On
the other hand people living in Adabor prefer to buy flat between 900-1500 Square feet.
The profit margin is not same in all area also as the price and demand varies. Floor Area
Ratio (FAR) & Maximum Ground Coverage (MGC) also played an important role in the
feasibility of the project. In a situation where road width is 6 to 24 meter, then FAR will be
added to 0.05 for every 0.30 meter additional road width. Financial feasibility of three
categories (Luxury, Standard and Economic) is given below.
Page | 2 2
Luxury Apartment Feasibility Analysis
Area Gulshan
Avg. Apartment Price (per Sft.) Tk. 16,000
Avg. Land Price (per Katha) Tk. 30,000,000
Sample Land Size 10 Katha
Market Value of the land Tk. 300,000,000
FAR (Floor Area Ratio for 10 katha land
with 25 feet road)
4.25 + 0.25 = 4.5
(0.25 added for 25 feet road)
Maximum Floor area (10 x 720 x 4.5) = 32,400 Sft.
MGC (Maximum Ground Coverage for 10
katha land with 25 feet road)
65%
Maximum Floor Size (10 x 720 x 65%) = 4680 Sft. / per floor
Maximum # of floor (Total FAR/MGC) (32,400/4680) = 6.92 floor
Minimized floor size to make 7 floor in
order to maintain FAR
32,400/7 = 4630 Sft./per floor
Neat flat size (each floor having 2 flats) (4630/2) = 2315 Sft
Sellable flat size
(adding approx. 10% common space)
(2315 + 10%) ≈ 2550 Sft
Total # of flats 7 x 2 = 14
Ratio (Land owner : Developer) 50 : 50
Flat Ownership (Land owner : Developer) 7 : 7
Price of 7 flats (7 x 2550 x 16,000) = Tk. 285,600,000
Feasible signing money for land owner (300,000,000-285,600,000) = Tk. 14,400,400
Signing Money (Developer to Land owner) Tk. 15,000,000 to Tk. 30,000,000 (Approx.)
Construction Cost Tk. 57,000,000
Utility Connection Tk. 1,000,000
Consultancy fees including architectural design Tk. 2,000,000
Management and office overhead costs Tk. 3,000,000
Total Cost Tk. 93,000,000
Profit Before Income Tax (285,600,000-93,000,000)=Tk. 192,600,000
Page | 2 3
Standard Apartment Feasibility Analysis
Area Lalmatia
Avg. Apartment Price (per Sft.) Tk. 8,000
Avg. Land Price (per Katha) Tk. 13,000,000
Sample Land Size 6 Katha
Market Value of the land Tk. 78,000,000
FAR (Floor Area Ratio for 6 katha land
with 20 feet road)
3.75
Maximum Floor area (6 x 720 x 3.75) = 16,200 Sft.
MGC (Maximum Ground Coverage for 6
katha land with 20 feet road)
65%
Maximum Floor Size (6 x 720 x 65%) = 2808 Sft. / per floor
Maximum # of floor (Total FAR/MGC) (16,200/2808) = 5.76 floor
Minimized floor size to make 6 floor in
order to maintain FAR
(16,200/6) = 2700 Sft./per floor
Neat flat size (each floor having 2 flats) (2700/2) = 1350 Sft
Sellable flat size
(adding approx. 10% common space)
(1350 + 10%) ≈ 1500 Sft
Total # of flats 6 x 2 = 12
Ratio (Land owner : Developer) 50 : 50
Flat Ownership (Land owner : Developer) 6 : 6
Price of 6 flats (6 x 1500 x 8,000) = Tk. 72,000,000
Feasible signing money for land owner (78,000,000-72,000,000) = Tk. 6,000,000
Signing Money (Developer to Land owner) Tk. 6,000,000 to Tk. 12,000,000 (Approx.)
Construction Cost Tk. 32,000,000
Utility Connection Tk. 1,000,000
Consultancy fees including architectural design Tk. 1,500,000
Management and office overhead costs Tk. 2,500,000
Total Cost Tk. 35,300,000
Profit Before Income Tax (72,000,000-49,000,000)=Tk. 23,000,000
Page | 2 4
Economy Apartment Feasibility Analysis
Area Adabor
Avg. Apartment Price (per Sft.) Tk. 4,000
Avg. Land Price (per Katha) Tk. 5,000,000
Sample Land Size 5 Katha
Market Value of the land Tk. 25,000,000
FAR (Floor Area Ratio for 10 katha land
with 20 feet road)
3.5
Maximum Floor area (5 x 720 x 3.5) = 12,600 Sft.
MGC (Maximum Ground Coverage for 10
katha land with 25 feet road)
65%
Maximum Floor Size (5 x 720 x 65%) = 2340 Sft. / per floor
Maximum # of floor (Total FAR/MGC) (12,600/2340) = 5.38 floor
Minimized floor size to make 6 floor in
order to maintain FAR
(12,600/6) = 2100 Sft./per floor
Neat flat size (each floor having 2 flats) (2100/2) = 1050 Sft
Sellable flat size
(adding approx. 10% common space)
(1050 + 10%) ≈ 1150 Sft
Total # of flats 6 x 2 = 12
Ratio (Land owner : Developer) 41.66 : 58.33
Flat Ownership (Land owner : Developer) 5 : 7
Price of 5 flats (5 x 1150 x 4,000) = Tk. 23,000,000
Price of 7 flats (7 x 1150 x 4,000) = Tk. 32,200,000
Feasible signing money for land owner (25,000,000-23,000,000) = Tk. 2,000,000
Signing Money (Developer to Land owner) Tk. 2,000,000 (Approx.)
Construction Cost Tk. 18,500,000
Utility Connection Tk. 1,000,000
Consultancy fees including architectural design Tk. 1,000,000
Management and office overhead costs Tk. 2,000,000
Total Cost Tk. 22,500,000
Profit Before Income Tax (32,200,000-22,500,000)=Tk. 9,700,000
Page | 2 5
SWOT ANALYSIS
Critical Appreciation of Real Estate Sector can be done by analyzing its Strength, Weakness,
Opportunity and Threats. Significant features of this industry have been summed up in the
following SWOT Analysis.
Strength
Expanding market and intensifying profitability.
Good purchasing power of target customer group.
Governments’ keen interest to solve housing problem with the rapid increase in urban
population
Open market economy, recent housing policy might favor substantial growth of housing
industry.
Weakness
Increased price of construction materials will be difficult to pass on to the customers,
because the agreement in respect of price and construction standard is made 2 to 3
years before the actual handing over of the apartments.
The industry as a whole does not follow any standard business rules. So, there remains
scope of unethical practices by some of the developers.
Delay of getting utility connection due to the shortage of water, gas and electiricity
which stretches the hand over time and incurs loan interest.
Opportunity
Real estate sector is highly profitable investment opportunity for individuals as well as
financial institutions.
This sector gives a wide scope for foreign investors.
Urban population is developing favorable attitude towards apartment living. Although
the present market of apartment houses is limited within the high income group of the
society, there exists opportunity for middle and lower middle income group also.
Page | 2 6
Threats
Political instability and unrest directly or indirectly threatens all the business sectors
including Real Estate.
Bureaucratic complexities imposed by RAJUK, DESCO, WASA and many other
government and semi-government agencies.
No cooperation rendered by National Board of Revenue in Relation to the taxation and
import facilities.
CONCLUSION
It is a recognized fact that the condition of the Real Estate Development sector is one of the
barometers of the national economy. Housing is indeed one of the most important priorities
of any government. Though the Real Estate Development sector of Bangladesh is growing
rapidly all over the nation, there is still the scope as well as need for improvement. Many
construction projects are left incomplete moreover; most developers cannot hand over the
apartment to the customer due to the unavailability of connection of gas, electricity, water
etc. People who have invested their money face uncertain future; and many related
industries will face consequences of this depression in the immediate future.
One of the major constraints to the private housing market is the lack of trust between the
plot owner and the builder. Unless a reputable professional (architect or engineer) is used,
the owner spends a great deal of time personality ensuring that the correct materials are
provided and that, with help of knowledgeable person, that the construction is sound. At
present therefore, there is little reliability on the standard of construction by speculative
builders and a verifiable basis for their market worth. And last but not the least because
most developers undertake many projects at the same time, they are not able to effectively
and efficiently handle all of them and some of the projects and clients are neglected. For
example there have been complaints that some developers there have been complaints that
the developers are usually not present in the construction sites due to their busy schedules.
If this is not checked then the bond between the client and the developer will not grow and
the industry may see a decline even before it can rise.
Page | 2 7
REFERENCES
I. REHAB (Real Estate Housing Association of Bangladesh).
II. “Bangladesh Gazette” by Ministry of Housing & Public Works
III. Brueggeman & Fisher. Real Estate Finance & Investment
IV. "Prospect of Private Housing Sector” by Toufiq M Siraj (Managing Director, Sheltech Ltd.)
Page | 2 8
APPENDIX
Page | 2 9
Construction Cost of Luxury Apartment in Gulshan
SERIAL NO.
ITEM OF WORK UNIT QUANTITY RATE IN TAKA AMOUNT IN TAKA
1 CEMENT BAG 12340 360 4442400
2 SAND LOCAL CFT 32480 10 324800
3 SAND SYLHET CFT 10930 20 218600
4 VITY SAND CFT 22520 5 112600
5 M.S. ROD KG 139630 50 6981500
6 PICKED JHAMA BRICKS NOS 256000 6.5 1664000
7 BRICK FIRST CLASS NOS 245400 6.5 1595100
8 SINGLES 5950 85 505750
9 STONE CHIPS CFT 6420 110 706200
10 GRANITE/ MARBLE WORKS SFT 3660 600 2196000
11 TILES FLOOR SFT 26560 130 3452800
12 BATH ROOM TILES WALL SFT 15400 120 1848000
13 BATH ROOM TILES FLOOR SFT 2670 130 347100
14 KITCHEN ROOM TILES WALL SFT 1380 120 165600
15 KITCHEN ROOM TILES FLOOR SFT 2650 130 344500
16 STAIR TILES SFT 3260 130 423800
17 GRILL SFT 7770 100 777000
18 THAI WITH MOSQUITO NET SFT 6700 380 2546000
19 MAIN DOOR WITH DOOR FRAME NOS 28 30000 840000
20 INTERNAL DOOR WITH DOOR FRAME 110 20000 2200000
21 WOODEN DOOR NOS 80 8500 680000
22 RAILING SFT 960 400 384000
23 STAIR RAILING SFT 870 400 348000
24 PAVEMENT TILES SFT 6000 120 720000
25 ROOF TILES INCLUDING LIME TRACING
SFT 4460 170 758200
26 PLASTIC PAINT SFT 162560 12 1950720
27 WEATHER COAT SFT 32380 10 323800
28 CAT DOOR 85 2500 212500
29 ENTRY POINT GRANITE 635 600 381000
30 GROUND FLOOR FALSE CEILING 4250 100 425000
31 SANITARY WORK 3500000
32 ELECTRICAL 3000000
33 CIVIL WORK LABOUR 5700000
34 TILES WORK LABOUR SFT 74800 14 1047200
35 MAIN GATE NOS 1 300000
36 PILING LABOUR BILL 600000
37 LIFT, GENARATOR, SUB STATION 5000000
G. TOTAL 57022170
Page | 3 0
Construction Cost of Standard Apartment in Lalmatia
SERIAL NO.
ITEM OF WORK UNIT QUANTITY RATE IN TAKA AMOUNT IN TAKA
1 CEMENT BAG 6170 360 2221200
2 SAND LOCAL CFT 16240 10 162400
3 SAND SYLHET CFT 5465 20 109300
4 VITY SAND CFT 11260 5 56300
5 M.S. ROD KG 69815 50 3490750
6 PICKED JHAMA BRICKS NOS 128000 6.5 832000
7 BRICK FIRST CLASS NOS 122700 6.5 797550
8 SINGLES 2975 85 252875
9 STONE CHIPS CFT 3210 110 353100
10 GRANITE/ MARBLE WORKS SFT 1830 500 915000
11 TILES FLOOR SFT 13280 70 929600
12 BATH ROOM TILES WALL SFT 7700 65 500500
13 BATH ROOM TILES FLOOR SFT 1335 70 93450
14 KITCHEN ROOM TILES WALL SFT 690 65 44850
15 KITCHEN ROOM TILES FLOOR SFT 1325 70 92750
16 STAIR TILES SFT 1630 70 114100
17 GRILL SFT 3885 100 388500
18 THAI WITH MOSQUITO NET SFT 3350 215 720250
19 MAIN DOOR WITH DOOR FRAME NOS 24 20000 480000
20 INTERNAL DOOR WITH DOOR FRAME 100 25000 2500000
21 WOODEN DOOR NOS 70 10000 700000
22 RAILING SFT 480 400 192000
23 STAIR RAILING SFT 435 400 174000
24 PAVEMENT TILES SFT 3000 80 240000
25 ROOF TILES INCLUDING LIME TRACING SFT 2230 140 312200
26 PLASTIC PAINT SFT 81280 12 975360
27 WEATHER COAT SFT 16190 10 161900
28 CAT DOOR 45 2500 112500
29 ENTRY POINT GRANITE 320 500 160000
30 GROUND FLOOR FALSE CEILING 2125 100 212500
31 SANITARY WORK 2500000
32 ELECTRICAL 2000000
33 CIVIL WORK LABOUR 3500000
34 TILES WORK LABOUR SFT 37400 14 523600
35 MAIN GATE NOS 1 150000
36 PILING LABOUR BILL 400000
37 LIFT, GENARATOR, SUB STATION 4000000
G. TOTAL 31368535
Page | 3 1
Construction Cost of Economy Apartment in Adabor
SERIAL NO.
ITEM OF WORK UNIT QUANTITY RATE IN TAKA AMOUNT IN TAKA
1 CEMENT BAG 4810 360 1731600
2 SAND LOCAL CFT 12660 10 126600
3 SAND SYLHET CFT 4260 20 85200
4 VITY SAND CFT 8780 5 43900
5 M.S. ROD KG 54450 50 2722500
6 PICKED JHAMA BRICKS NOS 100000 6.5 650000
7 BRICK FIRST CLASS NOS 95700 6.5 622050
8 SINGLES 2320 85 197200
9 STONE CHIPS CFT 2500 110 275000
10 GRANITE/ MARBLE WORKs SFT 300 600 180000
11 TILES FLOOR SFT 10360 59 611240
12 BATH ROOM TILES WALL SFT 6000 40 240000
13 BATH ROOM TILES FLOOR SFT 1040 45 46800
14 KITCHEN ROOM TILES WALL SFT 540 40 21600
15 KITCHEN ROOM TILES FLOOR SFT 1040 49 50960
16 STAIR TILES SFT 1500 48 72000
17 GRILL SFT 2800 80 224000
18 THAI SFT 2613 380 992940
19 MAIN DOOR WITH DOOR FRAME NOS 24 15000 360000
20 INTERNAL DOOR WITH DOOR FRAME 100 10000 1000000
21 PLASTIC DOOR NOS 36 6500 234000
22 RAILING SFT 450 250 112500
23 STAIR RAILING SFT 411 250 102750
24 PAVEMENT TILES SFT 2500 60 150000
25 ROOF TILES INCLUDING LIME TRACING
SFT 1780 110 195800
26 PLASTIC PAINT SFT 64000 9 576000
27 WEATHER COAT SFT 12600 7 88200
28 CAT DOOR 40 2000 80000
29 ENTRY POINT GRANITE 250 450 112500
30 GROUND FLOOR FALSE CEILING 2000 100 200000
31 SANITARY WORK 1050000
32 ELECTRICAL WORKS 1000000
33 CIVIL WORK LABOUR 1037000
34 TILES WORK LABOUR SFT 33773 12 405276
35 MAIN GATE NOS 1 50000
36 PILING LABOUR BILL 200000
37 LIFT, GENARATOR, SUB STATION 2600000
G. TOTAL 18447616