Feasibility of Apartment Development Project (Real Estate) in Bangladesh

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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

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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.

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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.

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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

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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

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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

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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.

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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)

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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

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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

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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

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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

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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

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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.

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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






with 20 feet road)

3.75




65%





(16,200/6) = 2700 Sft./per floor


Sellable flat size


(1350 + 10%) ≈ 1500 Sft


Ratio (Land owner : Developer) 50 : 50




Signing Money (Developer to Land owner) Tk. 6,000,000 to Tk. 12,000,000 (Approx.)







Page | 2 4

Economy Apartment Feasibility Analysis

Area Adabor






with 20 feet road)

3.5




65%





(12,600/6) = 2100 Sft./per floor


Sellable flat size


(1050 + 10%) ≈ 1150 Sft


Ratio (Land owner : Developer) 41.66 : 58.33





Signing Money (Developer to Land owner) Tk. 2,000,000 (Approx.)







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.


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



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





16 STAIR TILES SFT 1630 70 114100

17 GRILL SFT 3885 100 388500

18 THAI WITH MOSQUITO NET SFT 3350 215 720250



21 WOODEN DOOR NOS 70 10000 700000

22 RAILING SFT 480 400 192000



25 ROOF TILES INCLUDING LIME TRACING SFT 2230 140 312200



28 CAT DOOR 45 2500 112500




32 ELECTRICAL 2000000






G. TOTAL 31368535

Page | 3 1

Construction Cost of Economy Apartment in Adabor

SERIAL NO.


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



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





16 STAIR TILES SFT 1500 48 72000

17 GRILL SFT 2800 80 224000

18 THAI SFT 2613 380 992940



21 PLASTIC DOOR NOS 36 6500 234000

22 RAILING SFT 450 250 112500



25 ROOF TILES INCLUDING LIME TRACING

SFT 1780 110 195800



28 CAT DOOR 40 2000 80000




32 ELECTRICAL WORKS 1000000






G. TOTAL 18447616

Feasibility of Apartment Development Project (Real Estate) in Bangladesh

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