FINAL DRAFT REPORT BANGLADESH October 26, 2009 Table of Contents 1

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FINAL DRAFT REPORT BANGLADESH October 26, 2009 Table of Contents 1 FINAL DRAFT REPORT BANGLADESH October 26, 2009 Table of Contents 1. Overview ..................................................................................................................................1 2. Housing Demand......................................................................................................................2 3. Housing Supply........................................................................................................................4 3.1 Current State of Housing..............................................................................................4 3.2 Development of the Housing Stock..............................................................................6 3.2.1 Steep Rise in Population Density.....................................................................6 3.2.2 Rise in Cost of Construction Materials ............................................................8 3.2.3 The Development of Residential Infrastructure and Serviced Land in Dhaka................................................................................................................9 3.3 Role of RAJUK ..........................................................................................................10 3.4 Role of Private Developers.........................................................................................10 3.4.1 Indirect Developer Financing Through Installment Loan (Mortgage Finance)..........................................................................................................11 3.4.2 Role of Developers Association, REHAB .....................................................12 3.5 The Secondary Property Market.................................................................................12 4. Housing Finance.....................................................................................................................13 4.1 The Housing Finance Market.....................................................................................15 4.2 BHBFC.......................................................................................................................18 4.3 Traditional Mortgage Lending ...................................................................................22 4.4 Specialized Mortgage Lending...................................................................................23 4.4.1 Delta-BRAC Housing Finance Corporation Limited.....................................24 4.4.2 National Housing and Finance Corporation (NHFC).....................................24 4.5 Islamic Mortgage Finance..........................................................................................25 4.6 Prudential Framework for Housing Finance, and Recent Policies.............................27 4.7 Recent Regulatory Policies on Housing Finance .......................................................28 4.8 Homeowners’ Insurance:............................................................................................29 4.9 Risk Management.......................................................................................................29 4.10 Interest Rates Market Benchmarks.............................................................................30 4.11 Growth potential of the Mortgage Debt Industry.......................................................32 5. Low Income and Microfinance Housing................................................................................33 5.1 The Microfinance Market and Potential Demand for Housing Microfinance ...........33 5.2 Products, Funding Sources, and Challenges in Housing Microfinance .....................33 i 5.3 Government and NGO Programs in Housing and Housing-Related Social Services ......................................................................................................................38 6. Mortgage Market Infrastructure (Regulatory Framework) ....................................................39 6.1 Land Registration and Administration .......................................................................39 6.2 Land Titling................................................................................................................44 6.3 Capacity Building in Housing and Housing Finance .................................................44 6.4 Property Valuation Standards.....................................................................................45 6.5 Constraints for Women ..............................................................................................45 6.6 Foreclosure and Eviction............................................................................................45 6.7 Credit Bureaus............................................................................................................47 7. Policy Framework and State Intervention..............................................................................47 7.1 Strengthening the Regulatory Framework, and Improving Enforcement ..................48 7.2 Efficient System for Land Administration.................................................................49 7.3 Collateral / Lien Registry ...........................................................................................51 7.4 Housing Observatory..................................................................................................51 7.5 Capacity Building for Financial Institutions and Housing-Related Professionals.....52 7.6 Re-Vamping BHBFC .................................................................................................52 7.7 Strengthening Low-Income (Micro-Finance) Housing Lending................................53 7.8 Mortgage Product Innovation.....................................................................................55 7.9 Mortgage Refinancing Facility...................................................................................56 7.10 Enabling Large Scale Developers and Builders.........................................................57 ANNEX –A1 ............................................................................................................................ 58 1. Doing Business - Explore Economies....................................................................................58 1.1 Economic Data - Bangladesh .....................................................................................58 1.2 Starting a Business .....................................................................................................58 1.3 Dealing with Construction Permits ............................................................................59 1.4 Employing Workers ...................................................................................................59 1.5 Registering Property...................................................................................................59 1.6 Getting Credit.............................................................................................................60 1.7 Protecting Investors....................................................................................................60 1.8 Paying Taxes ..............................................................................................................61 1.9 Trading Across Borders..............................................................................................61 1.10 Enforcing Contracts....................................................................................................62 ii 1.11 Closing a Business......................................................................................................62 iii 1. OVERVIEW Bangladesh averaged a healthy growth rate of 6.7% for the last six years. With a GDP at around US$ 62Bn, and a per capita GNI of US$ 490, Bangladesh is the third largest country in the South Asia region. Bangladesh continues to be heavily agrarian economy (19.6% of GDP); however, over the years, the service sector has emerged as the dominant sector in the economy, accounting for more than 52.5% of the GDP. Overall GDP growth in FY09 is projected at around 5.5%. Minimal exposure to global financial markets has staved off most effects of the global financial crisis, though secondary effects can be expected, mainly through lower growth in remittances and export demand. Price increases of construction materials in 2008 have hampered the housing sector, raising the cost of new housing, while land prices have continued their upward trend as well. Bangladesh has also made good progress in recent years in the banking sector, as reflected in the growth of credit and deposits. The commercial banks dominate the financial sector with banking assets of around 52.8% of the GDP. The country’s four nationalized commercial banks (NCBs) dominate the banking system, accounting for more than 52% of assets and operating 65% of the branches (3,384) as of March 2007. 1 The Non-performing loans in the banking sector have declined from 13% in 2007 to 10.79% in 2008. At the same time non-performing loans of state owned commercial banks decreased from 30% to 25%. The country of 154 million is densely populated with one of the lowest land-person ratios in the world (the density is 1,198 people/ km 2). Bangladesh is situated in a zone prone to natural disasters (river erosion, flooding, storms, cyclones, and fires) and constrained by the shortage of high land, making for a limited permanent housing stock. Bangladesh is comprised of 80% of rural population,
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