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Photo courtesy: Imtiaz Alam Beg
Photo courtesy: Imtiaz Alam Beg

A friend of mine recently told me during a conversation that the price of an apartment in Dhanmondi is now Tk 30,000 per square feet (sq. feet). I was absolutely flabbergasted!

I knew that apartments in places like Gulshan, Banani and Dhanmondi were very expensive, but Tk 30,000 per sq. feet just sounded crazy. That morsel of information left me quite intrigued, enough to spend a weekend trolling through the internet for data on land/property prices in Dhaka. It turns out – no such data source exists, at least not online.

However, I am able to offer a bit of anecdotal evidence. When apartments first started going up in Dhanmondi in the late-90s, they were selling for around Tk 3,000 per sq. feet. Assuming that the price was Tk 3,000 per sq. feet in 2000, apartment prices have risen 10 fold in a period of 12 years. That implies an average annual growth rate of about 21%.

That is roughly in line with the findings of a survey conducted by the Real Estate and Housing Association of Bangladesh (REHAB), which showed that land prices (not apartment prices!) had risen by 300% in Dhanmondi between 2000 and 2007 (see link), implying an average annual growth rate of about 17%.

So why is this happening? What is driving up the price of land/apartments so exponentially?

There are two answers – both of them are very intuitive, but one is more obvious than the other.

First of all, land will, and should, always be expensive in Bangladesh. We are a very small country, and there’s (officially!) about 150 million of us packed into this little piece of real estate. Couple that broader demographic story with increased urbanisation and rising incomes, and you have a perfect storm when it comes to real estate inflation.

But there is more to it.

One of the reasons why land prices have risen as much as they have is because of the dearth of investment opportunities for savers.
Banks are offering interest rates of about 12-14% on fixed deposit savings. But with inflation at around 10%, the real (meaning inflation-adjusted) return on fixed deposit savings is not more than 2-4%.

The other main investment option is to invest in the stock market. And we all know what’s been happening there in last couple of years.

The chart below shows annual returns on different investment options for the period between 2005 and 2011. Given how volatile the stock market can be and the low real returns on fixed deposits, why shouldn’t people invest in property to turn a quick buck?

Chart: Annual returns on different investment options

Nofel picSource: Bangladesh Bank, Dhaka Stock Exchange and author’s calculations

So if apartment prices are rising partly due to a lack of investment opportunities, what can we do about it? A simple solution is to increase the investment opportunities available to people.

One way to do that is to allow people to invest their savings overseas. In other words, remove capital controls that prevent people from taking their money overseas.

The Bangladesh Bank is of course opposed to that idea. One of the reasons they commonly cite for their opposition is the negative impact capital account liberalisation will have on the exchange rate. The logic being – removing capital controls will lead to a flood of money leaving the country, decimating our US$10 billion foreign exchange reserves and precipitating a balance of payment crisis that will lead to all sorts of macroeconomic problems.

Whether those risks will come to pass if all capital controls are removed is a matter of serious policy debate. But in reality, we don’t actually need full capital account liberalisation to serve the much narrower purpose of offering greater investment choices to savers by allowing them to invest overseas. It is possible to liberalise the capital account partially without having any impact on our foreign exchange reserves or affecting the US dollar-taka exchange rate.


The answer is to allow trade with a particular country to be financed directly with their currency, and then remove capital controls with respect to that country alone.

For example, when a Bangladeshi trader imports furniture from China, our importer converts taka into US dollar and pays the Chinese exporter in US dollars, who then converts the US dollars into Chinese yuan. So there are transaction costs involved for both parties.

Direct financing of trade with China would mean that our importers can pay their Chinese counterparts either in taka or in yuan. This would remove transaction costs for one of the parties. It would lower the overall costs of trade with China, making it more efficient and thereby encouraging more trade, which is beneficial for everybody, us and them.

Subsequently, liberalising the capital account with respect to China would allow us to convert our savings from taka into yuan and invest the yuan in China, for example in the Chinese stock market. The net result is that it would provide our investors with greater choice in investment options without having any impact on the US dollar-taka exchange rate.

So if the Bangladesh Bank is worried about the negative impacts of removing capital controls, it ought not to be because there are ways of avoiding those negative impacts. It can’t be done overnight and will require careful planning, but it can be done. And we must.

The main benefit of selective capital liberalisation is that it will allow the money that’s floating around our economy causing all kinds of asset price bubbles – be it the stock market or the real estate market – to flow out of the economy and led to a market correction.

Allowing these hoards of cash to leave and pricking the real estate bubble now would be a far superior outcome than a market crash. The stock market crash we witnessed over the past couple of years serves as a powerful reminder of the pain market crashes cause.

The biggest mistake we can make now is to think that everything is fine and that the property price boom we are experiencing can be sustained forever. Property prices, like all other market prices, go up and down. We would be foolish to think otherwise.

I know I said earlier that land in Bangladesh should be expensive, but it doesn’t mean that the price of land can’t fluctuate from one year to another. The last time people forgot that little truism about markets the US housing market nosedived and caused a global financial crisis.

We would do well to remember that!

Nofel Wahid is an applied economist.

15 Responses to “Property prices in Dhaka – the next accident waiting to happen?”

  1. roy

    Just want to add up few more words with the other very good commentators in regards to that topic. I thing some of readers would have been interested to know who are the main buyers with their profession and residence perhaps that statistic will able to make the article more interesting.

  2. Realtor Sammy

    It’s all about surplus supply of money, ever increasing public demand for housing and black money/corruption in every part of federal, state and local governments including police enforcements:

    1. Most banks are lending money to developers,landlords and third parties in Bangladesh on bribe/kickbacks at or before loan origination and funding/closing of real estate transaction. Such behaviors are considered criminals in the USA and will be prosecuted by government agencies.

    2. Living in USA, it is shocking for us to see prices in Dhaka are getting same as New York City, Chicago etc, when Dhaka does not have any working infrastructure. Even drinking water supply is polluted with sewer water.

    3. Banks, registrar of deeds do not even ask the buyer(s), the sources of money. In my research, I find there could be 100-200% counterfeit Bangladesh currency, that is creating this super bubble in Bangladesh Real estate. Anything that goes up , must come down. They say, easy come, easy go. That’s natural.

    Definitely, correction is coming, hopefully at least 70-80% correction. Sooner the better.

  3. Road 32 Guy

    Thanks for posting this article. It would be interesting to get an update from you about how you think Dhaka property prices will behave in 2013/2014.

  4. Zahir Khan

    No, I don’t agree with any of you here. Land prices have risen several folds ABSOLUTELY EVERYWHERE in Bangladesh, IN EVERY SMALL VILLAGE RIGHT AROUND THE COUNTRY. So, land price increases cannot just be explained away by corruption, or the huge amassing of wealth by a few. If that were to be the case, you would have masses of land owned a a few. Go and visit the small towns and villages, where you will find the resident population there owning substantial amount of land amongst themselves. So, more explanation and analysis needed for the general trend in the increase of land prices right round the country. By the way,putting draconian controls on the rich will cause the country to collapse. Stock exchange collapse was not caused by the rich, but by a single idiot who did not even know what a Stock Exchange was, let alone how it worked.

  5. Ezajur Rahman

    Friends – an earthquake would surely correct our land prices!!

  6. Sayem

    Here is my two cents. Yes property price in some parts of Dhaka is more than in many cities in the US and Europe. But this is not surprising at all as one of the commentators mentioned here. In developing countries there are hardly more than 1-2 cities with good job opportunities, good education and health infrastructure unlike in developed nations where development is relatively even throughout the country. As a result most of the people wish to live in those cities in developing countries and as a consequence the real estate price gets sky rocketed. We see the same in Mumbai, Delhi, Bangalore in India, Lagos in Nigeria, Cairo in Egypt where the real estate prices have surpassed that of their Western counterparts.

  7. Munia

    The write-up is not enough informative to establish the fact why the market could collapse. The reason why price will still grow at more than inflation rate:

    – we are 7th most populous country but 93rd in land mass in the world.

    – 6% growth will continue for us in the immediate future and remittance is ever increasing.

    – Perhaps 1% of Dhaka city dwellers own the high priced property and they do not have huge mortgage like western countries which caused their market to crush.

    – Gulshan/Baridhara/Dhanmondi is small area of total Dhaka city but the rest of Dhaka prices still hovering around 4-8 thousand taka per square feet.

    – Dhaka (biggest economic hub) of Bangladesh should be compared with most populous cities where the prices are a lot higher than ours for example a posh area in Mumbai sells per square feet for 40-60 thousand rupees.

    – Internet will enable a borderless economic mobility which will fetch more money for us as we have a talented population resource.

    I don’t think the price will go down but I see that housing affordability will create a social imbalance which should be addressed through decentralization.

  8. Mozammel Haque

    Why is the price so high only in Dhaka? What are the demerits of other towns?

    The main demerit of other town is the property owners of those towns too want to come to Dhaka instead.

    And this capital gives shelter to the rural touts with petty crimes and this Dhaka has become a good opportunity for them to make money.

    Politicians like the channel command from Dhaka.

    Nongovernment and corporate head offices keep all their control in Dhaka.

    Negotiations and deals are made in Dhaka.

    The undisclosed money can be invested in Dhaka-and the easiest sector is to buy lands and apartment.

    The influx of working people and sheltering criminals can only be curtailed by monitoring every movement of citizens.

    The chairman of Human Rights Commission may get hundreds of complaints but this will give no better result rather monitoring will give the result.

    Good article.

    • Ezajur Rahman

      There are other factors for high house prices:

      1. Refusal by the political classes to have an agenda of decentralisation. Selfish!

      2. The vast oceans of untaxed and illegally earned black money. Corruption!

      3. Manipulation of prices by both developers and brokers. Typical!

  9. Sam

    I remember the last time a population thought their real estate market would keep going up, that was Dubai around 2009. Now prices are less than 25-33% of what it was pre 2009. Bangladeshis, especially Dhakaites are going down the same arrogant path. The bubble will burst sooner, rather than later. Mark my words!

  10. aftab

    This is a nice and important article for our nation. Nothing but corruption, corruption and corruption is responsible for this.

  11. Anand

    The only theory I can add here which may reduce the land price is to:

    1. regulate and confiscate the wealth of rich who earned their money with corruption and should be owned to government treasury and again has to be redistributed among poor people. It is like abolition of Landlord System in 1949.

    2. Uprooting corruption from government officials.

    3. Stop private practicing for doctors who are serving in government hospitals as like as teachers who cannot practice private tuition at their home.

    4. Putting limitations and restrictions on maximum fees for visiting each patient.

    5. Every body should pay taxes either local retail businessman to wholesale businessman and industrialists and manufacturers.

    Those can only be possible if local government is strengthened to regulate and taxation office is reorganized to regulate the flow of legal money and law should be enacted and executed if any illegal means of money is found.

  12. SAZ

    The price of land in Dhaka has never gone downwards since the time that Mughal forces, represented by Subedar Islam Khan settled here in 1608! Source: Ford Foundation Publication; ” Dhaka: Past, Present & Future ” (1989 ).


  13. Shams Reza

    Interesting read, here’s my take on the issues discussed above:

    1) I fully agree with you that there is a real-estate bubble, my explanation, a sizable portion of the money that goes in to purchase of real-estate is from the proceeds of corruption, that is why the prices are astronomical. There is a section of Bangladeshi society who have amassed unimaginable wealth through illicit means, they invest all their “spare change” in to the real-estate sector (they were also responsible for the stock-bubble, if I might add).

    Reduce corruption, land prices would automatically go down.

    2) Investing into the stock market “in any country” is not wise, since the global economic outlook is not that optimistic at the moment. Any step would completely jeopardize our foreign exchange reserve (hence value of taka internationally).

    This is tantamount to “economic suicide” by Bangladesh.

    3) Trading with China in Yuan would not be a sound decision. Reality is, it is always the nation with the “powerful currency” that dictates terms. Also the Yuan is not a “reserve currency”, the US Dollar is, and would remain so in the foreseeable future.

  14. rakib

    The article started well, but got derailed with so much of monetary policy. Expected a bit more analysis on real estate and the kind of disaster that is reasonably expected to happen with examples, such as the Thai or Spanish experience. Per sqft prices in Dhanmondi, Gulshan, Bridhara are far more than many cities in the US, no theory can explain the growth. Surprisingly, there is not many studies or analysis either.

    Thanks to the writer for this piece, will expect more on the subject.

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