real estate industry analysis
TRANSCRIPT
Opening : The Real Estate Industry
Urbanization is an outcome of both population growth and migration. As urbanization
increases, more and more people are becoming city dwellers. Bangladesh is not any
exception to this picture. In Bangladesh, the problem of urbanization is further forced by
limited land supply in urban areas & lack of proper planning. The ever increasing urban
population is creating an increasing demand for shelter. But being a government of the poor
developing country, it is almost impossible for the government to ensure housing for all. As
Government sector become ineffective, people have taken their own initiative to ensure
their fundamental need for shelter. As the globalization process also have influence over our
society, there is an emerge of the new housing concept of real estate business in
Bangladesh.
Industry Profile
Earlier Period of Real EstateIndustry
Real estate business especially apartment projects has started in seventies in Dhaka City.
But from early '80s the business started to grow and flourish. At present, more than 250
companies are active in business. But still 95% business is dominated by of top 15/20
Companies. Present market is growing at the rate 15% per year.
The concept of real estate construction business is introduced in Bangladesh by ‘Eastern
Housing Ltd.(EHL). During 1964, EHL started the real estate business at Bangladesh
(former east Pakistan).
The second company in Bangladesh (former east Pakistan) real estate industry was
Ispahani Group, which is one of the oldest business houses in the Indo-Pakistan sub
Continent, established 200 years ago. But in present they have no more operation
activities in Bangladesh real estate industry.
During 70s there were 5 real estate companies had operated this business. From the early
80s the business has stared to flourish and in early 90s in reached at one of the highest
growing sector in Bangladesh. In 1988, there were 42 real estate developers worked at
Dhaka city.
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At that time the leading real estate companies felt the necessity of forming a trade
association to strengthen the role of the real estate industry & ensure the ethical practice in
construction. ‘Building Technology & Ideas Ltd’ (BTI) took the leading step to establish
the association of the real estate companies. In 1991, Real Estate & Housing association
of Bangladesh (REHAB) was formed with 11 members real estate companies.
Present scenario of Real estate Industry
In October 2005, the total member of REHAB is exactly 200. During May 2005 it was
178. But there is also many non-member of REHAB is continuing their real estate
business. By REHAB estimation more than 270 companies (member & non0member) is
in the real estate business in the Dhaka city.
In 2004, REHAB member companies has delivered around 5000-6000 numbers of
apartment units. In last 20 years (1985- 2004) the real estate companies constructed
approximately 47,000 no. of apartment units.
By REHAB estimation, the real estate industry have approximate turnover of 12.50
Billion taka ( 1250crore) per year. This industry provides government revenues of 100
crore taka per year. This industry’s contribution to Bangladesh’s GDP is around 12- 14%
of the total GDP.
Currently more than 1.5 million of skilled & unskilled direct physical labors are employee
in this industry, this indicated that it have a great contribution over Bangladesh economy
& employment.
Direct employment by Real estate Industry –
Architects : 400
Graduate Engineer : 2000
Diploma Engineer : 8000
Management Official : 14000
Direct Labor : 1.5 million[ Source: REHAB, real estate sector at a glance ]
Competitor Companies of the Industry in Bangladesh
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By REHAB’s judgment, Though there is now more than 270 real estate companies, but still
more than 80% of total real estate business is dominated by the top 18 to 20 leading real
estate companies.
In the recent period the leading real estate companies are –
East West Property Development (Pvt.) Ltd., a sister concern of Bashundhara Group
Building Technology & ideas ltd.(BTI)
Navana Real Estate Ltd
Concord Real Estate & Building Product ltd.
Advanced Development Technologies Ltd.
Bashati consortium ltd
Sheltech(Pvt.) Ltd.
Eastern Housing Ltd
Sagufta City Developers Ltd.
Suvastu Development Ltd.
Asset development & housing Ltd.
BRAC Concord lands limited
RANGS Properties
Mohammadi Housing ltd.
Also the other companies that are operating business successfully are Assurance
Developments Limited, Rupayan Real Estate company, Urban Design & Development Ltd.,
Globe Construction Limited, ANZ Properties Limited, DOM-INNO Builders Ltd, Abode
Properties ltd, Tropical Homes Ltd, Assort Housing & Engineering Ltd. Manama
developments, Anna Corporation, Family Living Ltd, Prasaad Nirmaan ltd, Agrani
Apartment Ltd, Xenovalley Model Town Limited, Dhaka Shelter (Pvt) Ltd.,Shahjahan &
Group, City Axis Ltd, Western Developers Ltd., Kashba Housing Private Ltd., United
Pacific Builders Ltd., Everest Holdings and Technologies Ltd., Japan Garden Cicy Ltd.,
Atlantic Developments Ltd., Century Reality ltd, Ideal Home Bulders Ltd, Borak Real
Estate (Pvt) Ltd. Russell Lodge Holdings Ltd., Amin Mohammad Lands Development Ltd,
ABC Real Estate Limited, Keari ltd., The Structural Engineers Ltd., Nagar Homes Ltd.,
Union Development & Technologies Ltd., MEGA Bulders ltd, Sky View Foundation
Ltd., Neer Limited, Habitat Builders Limited, Development Entrepreneurs Ltd. etc.
INDUSTRY ANALYSIS of REAL ESTATE
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Using Various Models & Frameworks================================================================
PEST Model AnalysisPolitical & Legal Force
Economic force
Social & Demographic force
Technological force
Economic Force
Bank loan & Interest rate’s influence over real estate:
Bank loans to the customers & it’s interest rate :
Definitely it has a positive effect on the growth & prosper of the real estate business. In
Bangladesh the housing & construction loan to customers are basically provided by DBH,
IDLC, HBFC etc. For this housing loan facilities many middle income groups can get the
opportunity of having own living permanent shelter, which basically opened a new horizon
of business for the real estate companies. But the matter of fact is that the rate of the interest
for the housing loan is very much high which is not easily affordable for the middle income
group. So basically the high income group is mainly exploiting the opportunities. Currently
the average compounded interest rate 13% - 15%, which is too much high compare to the
other foreign countries.
Bank loans toward real estate companies :
The more well established companies are less dependant on the bank loan, as because those
establish companies can finance their projects by own capital & most of the amount actually
comes from the customers’ advance installment payment. So the fluctuation of interest rate
do not affect the business of the established companies. Only if their customers make
problems in depositing the installment then they may need the access for the loan. But for
the small & unknown companies some times they have to rely on the bank loan as they may
can not sale their apartment units in advance.
Inflation & Fluctuation on general price level :
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For the uneven fluctuation of the price of supplies materials for the construction, the real
estate companies also have to increase the price of the apartment. The main raw materials of
construction are basically cement, steel, ceramic mosaic, paints etc. we have seen that due
to the inflation the price of these material is ever increasing, and so the price of the
apartments are also going upward every year. But surprisingly it is found that there is a
paradox of economic theory. Though the price is increasing steadily , but it does not have
negative effect on sales amount, rather than it is found that the demand as well as the
construction, sales & the profit margin of the companies have increased now then
previously. So we can say that the increasing price level though have impact on the total
cost of the companies but it has rarely any impact on the sales & revenue of the companies.
Impact of changes foreign currency exchange :
The basic supplies of real estate is cement & steel. The most of the raw materials for
producing cements are imported from foreign countries, mostly from India; again the raw
materials of producing steel is coming from the scraps of the foreign ships. So the instability
in foreign currency exchange definitely have impact on the price of cement & steel. But as
we see in the earlier point that these only effects the costs of the real estate companies, but
have a least impact on the revenue & sales volume as the price increase of apartment
actually don’t reduces the demand & sales of it.
Our country economy & income level :
As Bangladesh is one of the poorest countries in the world, most of the people of our
country is living under the poverty level. Also in Dhaka city, a very significant amount of
the total urban population is recognized as ‘upper income group’.
Source: Strengthening the Role of Private Sector Housing in Bangladesh Economy: The Policy Challenges,
Center for Policy Dialogue (CPD)
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76.4
89.91
111.4
123.1
0
20
40
60
80
100
120
140
Yr 1974 Yr 1981 Yr 1991 Yr 2001
Population growth in Bangladesh
And in the middle income group, it contain 28 % of the total urban population, and the 65%
of the total urban area. In respect of land coverage by income group, the middle income
group is the dominating factor. But this huge percentage of people have not the ability to
afford the luxurious apartments. So this important factor definitely play a leading role on
formulating the business strategy in this real estate industry.
Social & Demographic Force
Population Growth & un-availability of vacant space land :
Along with population growth, urbanization is considered in the keynote as the next most
alarming threat to the housing sector. Now In Bangladesh 25% of the total population
(around 35 million people) now live in urban areas of the country, and this proportion will
be 34% (75 million) by the year 2015. Dhaka, which now have a total population of 10
million, is now the 22nd largest city in the world. It is identified that the consequence of high
rate of population growth in Dhaka, by the year 2015 Dhaka is projected to rank as the 5 th
largest city in the world, where 19 million people will have to find their house.
If we consider the total puulation
of Bangladesh, then we can find
the past trend that the population
growth of our country is alltime
below 2.5 % and have a
decreasing trend. In 1974, the
population growth was 2.26%; in
1981, the growth was 2.48%; in
1991 the groth rate decreased to
2.35%, and in 2001, the groth rate
fall to 1.48%. So from the total
population point of view, the
growth of population in
Banglaldesh is in moderate
condition.
(source: REHAB)
Year Population (in Million)
Growth
Rate( BD)
1974 76.4 2.26%
1981 89.91 2.48%
1991 111.4 2.35%
2001 123.1 1.48%
6
1.68
3.43
6.9
9.9
0
1
2
3
4
5
6
7
8
9
10
Yr 1974 Yr 1981 Yr 1991 Yr 2001
Population growth in Dhaka
But surpricingly the scnario of population growth in Dhaka city is extremely different from
this.
The population growth at Dhaka
city is much more higher than
the growth of total population.
From the table we can see that
the Dhaka city population
growth rate at 1981 was
14.88%, it is really a growth rate
figure. In 1991 the Dhaka city
population growth rate was more
than 10 %, and in recent 2001,
this rate was 4.34%, which is also
much higher than the country
population growth. ( source:
REHAB)
It indicates that the population at
Dhaka city is growing at a high
rate. For this increased number of
people every year new housing is
required, and this population
growth booming at Dhaka city also influenced the booming growth of the real estate
business at Dhaka city.
As the urban population increased so much relative to the total land area of Dhaka, there is a
scarcity of vacant land space for the dwelling. And so the price value of land in posh area at
Dhaka city have increased so much that it becomes too much costly to have a own plot. So
there is an increasing demand for apartment housing at that posh area, where in one piece of
land it is possible to serve the dwelling for many families. As only by apartment system it is
now possible for people to live at modern area in a cheaper mean of cost.
Recent pattern of Family structure :
The family structure is undergoing some qualitative & quantitative change. The families
become small & joint families are facing extinction. Commercialization & urbanization has
resulted into breakdown of traditional large families into nucleated one. In the recent trend
every new couple are interested of having their own tiny small family. As for this social
Year
Population (in Million)
of Dhaka city
Growth Rate
of Dhaka
1974 1.68 -
1981 3.43 14.88%
1991 6.9 10.11%
2001 9.9 4.34%
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change there is a increased demand for new housing, which also influenced the flourish of
the real estate business at Dhaka city.
Reluctant of individual to spend time & energy in building construction :
Now a days, in this fast moving globalizing condition, people have less time to spent on
purchasing & constructing the home individually. As the real estate companies offering the
readymade houses, people are now try to avoid the hassles of constructing the house by
themselves. As one has to face many bureaucratic harassment to start a building contraction,
people are now more interested in apartment purchase.
Remittance flows in real estate industry :
On of the main customers of real estate apartments are the Bangladeshis employed in the
foreign countries. For them it is the most easiest way to own a dwelling place in Dhaka city.
As it is impossible for them to construct house them selves , only by providing the
remittance they can easily have a living place in Dhaka city.
Security Purpose & various services :
One of the main reason of growth of apartment business it security purpose. In a apartment
there is a society, and so people feel more secured & safe life. But the own built house can
not provide such security in people’s life.
Again , many service facilities such as garbage disposal, central satellite TV connection,
roof top facilities, lift, electricity generator and so other apartments services saves time, &
make the peoples life more easier. Monthly Rent of the apartments is also comparatively
higher than the rent of privately constructed flats. That is the other reason of increasing
popularity of real estate business.
Political & Legal Force
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Legal Force in real estate industry :
The legal and regulatory framework concerning the housing and real estate development
includes laws such as Building Construction Act (1952), Town Improvement Act (1953),
Dacca Master Plan (1959) and Building Construction Rules (1984). But these laws are not
adequate to facilitate resolving habitation problems. Other limitations of these rules
included a lack of appreciation about the differences between planning and building rules,
the outdated nature of such rules and the inability of the rules to address the demands of an
expanding city and targeting only the middle and high-income groups. There is no standard
housing plan for Metro Dhaka. The rigid land use zoning of the Master Plan (1959) is out of
date as a basis for development management.
The Bangladesh National Building Code (1993) which was intended to ensure safety in
construction, has not been made mandatory. The Building Construction Rule (1984)
demands a great deal of information from the applicant, but imposes very few compliance
requirements on him. The procedures involved in the enforcement of law such as taking
permission before development and construction were felt to be cumbersome. It was found
that a developer has to apply to nine different authorities for permission, which costs money
and time. Since the housing plans are not detailed, there is ample scope for breach of rules.
Bangladesh does not have any separate code for the design & construction of earthquake
resistant structures. The building earthquake society has recently published a Bengali
translation of the guideline for earthquake resist non-engineered construction, written by the
international association of earthquake engineering.
Till now there is no specific rules & regulations for constructing high rise buildings. But a
new rule of construction of high rise building is awaiting for final approval of the ministry.
Before start a constriction project every developer has to take approval of different agencies
for the specific project. Most of the construction work delayed due to the lengthy & time
consuming & bureaucratic procedure. This process also incurs a handsome amount of
unseen/illegal cost for the developers.
The approvals are required from the following governmental department –
1. Rajdhani Unnayan Kortipokkya (RAJUK)
2. Civil Aviation
3. Ward commissioner of the specific project site
4. Dhaka water & sewerage authority (DWASA)
5. DESA / DESCO
6. TITAS
7. Fire service
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8. Dhaka transport coordibnation Board (DTCB)
9. Department of environment (DEO)
( Sources: REHAB)
Political Force :
As one of the biggest problem of our country is political chaos & instability. This
continuous political problems hampers the continuation of he project and delays completion
of project, and so sometimes the companies become unable to handover the apartment on
the due time and fail to maintain their commitment. This increase the overall cost for the
companies. This political instability also hampers the image of the companies as they failed
to maintain their commitment, and it may have a long run effect on sale & business profit
margin.
Bureaucratic Problem & Unseen cost :
For the last 5 years Bangladesh is being defending champion in being ‘most corrupted
country’. Again to start a construction a real estate company has to take approvals of nine
different government agencies. These picture really indicate how much extra unseen illegal
cost the real estate companies have to bear to start a construction project. Again one another
problem facing the real estate companies is ‘illegal toll collection’ by the local mastan
people where the project work incurs.
Technological Force
Technology plays a vital role in this industry. Compare to foreign countries, Bangladesh
real estate industry is lack behind in implementation of advance & new technology. As in
Bangladesh labor is cheaper, it is used as a substitute of advance technology. But in fact of
Time-frame, manual man power can not be a perfect substitute of technology. Though we
have skilled manpower for constructing high rise building & also architecturally creative
buildings, only for the lack of technological support it is not possible in Bangladesh.
In Japan, to resist against the earth quake disaster, ‘spring’ system technology is used at the
base foundation of the building. Whereas Bangladesh, which is also considering a earth
quake probability zone, don’t have any machine to measure the rector- scale of the earth
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scenario of last 20 years
200
700
1200
1700
2200
2700
3200
3700
4200
4700
1984 1989 1994 1999 2004
Appa
rtmen
t unit
squake. Again in the technologically advanced countries, they use ‘Alukabond’ technology
to build high rise building made by steel.
In Bangladesh some industry leading companies are now taking the help of advanced
technology. As like ‘Bashundhara Group’ started to utilize technological facilities. They are
using technology like- Ready-mix concrete truck, Electronic ground scanning (EGS), vibra
technology, Crain to carry heavy materials from one point to another point. ‘Advanced
Development Technologies’ also have plant for ready –mix concrete supply through special
form of trucks; and enjoying lower cost as it reduces the timeframe for a construction
project.
Porter’s Five Forces Model Analysis
Intensity of rivalry among established competitor firms
Industry Growth : if we analyze the last 20 years picture, we will see that the real estate
industry has a steady positive growth. From the trend we can assume that the industry is still
in the growth stage. As it has on average more than 10% positive growth rate, which
indicates that though new companies are still increasing it has more potential to grow, and
almost all companies can do business in a less competitive condition.
YearNo. of
AppartmentGrowth
rate
1985 325 1986 420 24%1987 662 57%1988 840 27%1989 1275 51%1990 1540 21%1991 2140 39%1992 1530 -28%1993 1850 20%1994 2298 24%1995 2320 1%1996 2430 5%1997 2684 10%1998 2840 6%1999 3298 16%2000 3620 10%2001 3930 9%2002 4172 6%2003 4465 7%2004 5074 14%
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Different customer target sagment :
The market of real estate business sector is highly segmented. This segmentation is mainly
based on the location, price of the land, and size of the apartments. The segmented areas
are:
a) Segmentation - Upper class :Baridhara, Gulshan, Banani,
b) Segmentation - Upper middle class :Dhanmondi, DOHS, Uttara
c) Segmentation - Middle class :Segunbagicha, Shantinagar, Kakrail, Malibagh, Kalabagan
d) Segmentation - Lower middle class : Mirpur
e) Segmentation - For office building : Motijheel, Dilkusha, Fakirapool DIT Extension
Road, RK Mission Road, Shahidbagh, Kawran Bazar, Pantha Path etc
During 90’s company’s mave the apartment for specific strategic groups. As Like ‘Advaned
Development Technolories ltd.’s target market segment was basically upper & upper middle
class family. So during 90’ ADTL’s most of the real estate construiction was situated in
Gulshan , Banani, Uttara & Dhanmondi.
But in recent time as too many companies entered into the industry, to companies strategy
of different market segment ha been blurred. Now all the different market segment
companies are trying to penetrating to the other segment. As like recently for the first time
ADTL has taken project in Baily Road.
Again as the companies recognize the demand of leading group middle income people, most
of the companies are now targeting those customer segment.
Price Differentiation:
The sale price of new residential real estate varies per neighborhood and depends mostly on
construction quality and land prices. REHAB made the following estimates:
Sale prices of Real Estate per sq.ft
High income areas such as Gulshen, Benani Tk.2400 to 3400/ sq.ft
Middle income areas such as Dhanmondi Tk.2000 to 2400/ sq.ft
Other Dhaka neighborhoods Tk.1850 to 2000/ sq.ft
Smaller lower middle income pockets in other areas Tk.1500 to 1600/ sq. ft
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Brand Image & Experience:
Brand image have a moderate impact over the competition within the companies. But it is
not just brand image that will give you a sustained competitive advantage. For example ,
once upon a time Easter housing, BTI had a high brand image. But now they are facing a
strong competition from other new entrant companies.
There may be some importance of Brand image, as for well known, customer can easily rely
on the companies, their most priority is product quality & price. For example Asst
development company does not have the brand image, but they become one of the most
successful company as for their quality work, customer commitment and huge profile
marketing. So brand image is a important factor, but one company can not continue to have
sales only for brand image.
Entry barrier of potential Competitors
Capital requirement can not be a strong entry barrier for potential competitors. With a
financial fund of only 50 lac – 75 lac taka a new company can start their first project. In
this industry for the established company finance fund is not a big problem as they
channel the fund from customers’ advance install amount to the project. If a new entrant
company can manage the sale of the apartments before construction then it may not a
problem & risk to continue the construction.
Economies of scale is an important factor. As the established companies run 7-10
construction projects concurrently, and so they can enjoy the economies benefit at bulk
raw material purchase at comparatively cheaper price.
Government Policy is one of the important barrier for the potential companies. As for
starting a new project a real estate company has to get approval from 9 different
government agencies, which is a time consuming bureaucratic processes. For new
company it will be a greater challenge to get all the approvals in the proper channel.
Brand image is an important factor for the new entrant company. For a new unknown
company it would be difficult to have customer with out any social image. If the new
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company’s owner is socially recognized then the company can able to stables themselves
in the industry.
Bargaining Power of Suppliers
Land: The most important input for a real estate construction is Land. In
Bangladesh there is sacristy of land in the urban area. So the Land owners (supplier of
land) have a high bargaining power over the real estate industry. In a contraction project,
around 45% - 55% of the total cost comes from the land purchasing. So now a days the
developers make mutual agreement with the land owner to construct the building without
purchasing the land, and provides the land owner the pre-decided mount of flats in
exchange of land. By this company can lower its cost, but still it would the most
significant percentage amount the total cost.
Other supplies materials: Real estate is a quality sensitive product rather than
price sensitive. The customers are more concern about what quality materials are being
used. That’s why real estate companies always try to not to sacrifice the quality of the
input material. The other raw materials of a real estate company includes cement, steel,
brick, paints, glass, aluminum, lights, bathroom & toilet fittings, marble, mosaic,
electricity hardware etc. Though for most of the raw materials there are many suppliers
companies available, but still the suppliers have more bargaining power then the real
estate companies as they are equally concern about price rate & quality.
Bargaining Power of Buyer
In this case both the customers & the real estate companies have the bargaining power
overreach other. As in the marker customer demand is still higher than the supply of
apartment units, the developer companies gain the bargain power over the customers. On
the other hand , as there are more than 270 companies are operating in the business, the
customers have more opportunity to switch over, therefore customer gain the bargaining
power over the real estate companies.
Basically the companies which have brand image & goodwill can have the bargaining
power over the customers. On the other side, for new small unknown company the
customers have the bargaining power over developers.
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Threat of Substitute
The basic substitute of apartments is - 1. Self constructed houses , 2. Rent house
Threats from self construction in Dhaka city is low. As in the recent time of
commercialization, not many people want to go to the hassle process self construction. As it
is more costly , it is also most of the time found that there is a in-efficient use of resources.
So ultimately in there is a low threat of substitute of self construction in Dhaka city.
Rent housing is not a ultimate solution & a perfect substation of apartment. Now a day for
purchasing the apartment home loan is available, so instead of providing monthly rent one
can be owner of a apartment by depositing the install payment to the banks. So we can
measure that this business has lowest possible threat from the substitute.
The 6th force complementary product
We can consider ‘Customer Home Loan’ as a complementary product for the real estate
companies. DBH, IDLC are the financial institution that provides the housing loan to the
customer. If the interest rate goes down, there will be substantial increase in house loan
offer as well as higher apartment sales.
Diamond Model Analysis
Factors Endowment
Basic Factors:
Cheaper labor cost
Huge population & growth
Advance factors:
Local production of almost all raw materials
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Highly educated personnel in Architect & Engineering Department
Increase of Urban area
Local Demand Condition
As the population of Bangladesh as well as Dhaka city is increasing, the need for housing is
also increasing. The government can not provide the adequate housing for the ever
increasing population. As a result private sector housing developers emerged.
For the ever increasing population of Dhaka city, at least 50,000 housing unit are required
every year in Dhaka city. But Private developers are providing only 5000-6000 dwelling
units per year in Dhaka city. ( Source: REHAB)
As for urbanization there is a increasing demand for apartments every years. In the near
future there is less possibility of declining of this demand condition. Relating to the demand
condition , still now the total supply is comparatively very less, and so there is still many
scope for further growth of this real estate industry. The growth trends in the construction
and the real estate and housing sector. While comparing the growth of the real estate &
housing with that of GDP it was found that trend growth in the sector for the period FY
1992-2002 was 7.5%, which is much higher than the trend growth in GDP of 4.6 % for that
period. The shares of the real estate and housing sector in the GDP were quite high in the
year 2002 and accounted for 8.3 %. (Source: REHAB)
Related & Supported Industry
The real estate sector has also made substantial contributions to the growth of a host of
backward and forward linkage sectors which include cement, steel, paints, ceramics,
aluminium and many others. There is a catalytic influence of the real estate and housing
industry in development of linkage industries whereby the sector is immensely contributing
to employment and the GDP.
Cement Industry :
There is an exponentially growth of cement industry, which is helping the country to attain
self-sufficiency in this important input. To met the demand for cement now in Bangladesh
there is more than a half a dozen cement producing mills, as like - King Brand cement,
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Holcim, Crown cement (which is also started exporting), Confidence cement, Chatak
cement, Bengal tiger cement production mill.
Paints :
Now in Bangladesh there are many paints manufacturing companies are fulfilling the
demand of wall paints, as like Berger Paints, Asian Paints, Elite paints, Roxy paints, Pailac
paints, Olympic paints are producing wall paints in our country.
Steel :
Steel production is also have been facilitated due to the growth of the real estate industry.
The steel producing companies of Bangladesh are Bashundhara steel mills, Abul Khair steel
mills, Crown steels ltd, paragon steels, elite iron & steel mills, eastern steel ltd and so many
other steel mills.
Brick Fields:
Near the Dhaka city corporation are there are more than 23 brck manufacturing companies.
In Narayangang there are 5 fields, and in khulna there are more than 7 brick manufacturing
fields are available.
Bangladeshi state-of-the-art ceramic industries largely meeting the local demand for
ceramics.
Thai and Kai aluminium meeting demand for door and window frames.
Most of the lighting products used by the real estate companies are locally produced.
In the bathroom & toilet fittings sector, ECN fiber glass, and BISF (government owned)
are trying to meet the demand. Significant amount is imported from China & Italy.
In Glass industry, PHP and other many companies are actively producing to meet the local
demand.
For mosaic material is not very sufficient in our country. Most of them are imported from
Pakistan & India.
Marbles are also imported basically from Spain, Italy & India.
A large number of furniture making and interior design companies supporting the housing
industry.
Financial support for real estate
financial intermediation in the housing sector is not found so adequate because of high
interest rates and limited sources of funds. This is true both for the financing of the
developers and the customers.
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The state-owned House Building Finance Corporation (HBFC) is burdened with bad loans,
and loan disbursement has tended to be low in recent years. Delta-BRAC Housing came
into this market as a private-NGO collaboration, but their interest rates are as high as 16
per cent which is higher than even that of the HBFC by one per cent. The major financing
organizations for housing are the HBFC and the Commercial Banks while financing by
other organizations like Delta-BRAC, National Housing and Micro credit lenders are
insignificant.
• Delta Life Insurance Co. Ltd. 25 percent
• BRAC 25 percent
• Green Delta Insurance Co. Ltd. 20 percent
• International Finance Corporation (IFC) 15 percent
• HDFC from India 15 percent.
(Source: Housing Finance in Bangladesh: Improving Access to Housing Finance by
Middle and Lower Income Groups by Marja C. Hoek-Smit)
Firms Strategy structure & rivalry
Though now there are more than 270 real estate companies are engaged in this business, but
actually more than 80 % of the business is retained by the top 15/ 20 companies. Na d
though the numbers of companies is increasing every year still it can not fulfill the total
demand of the population. As the very minuet percentage of the total population of urban
are is standing at the upper income class , and most of the population are in the middle
income group, who are basically demanding for the housing, so the established companies ,
those previously targeted only the upper class people, are now changes their business
strategy. To expand their customer range these companies are now also focusing on the
middle income people, and constructing relatively small apartments in middle class areas.
In recent news of financial express is that some German & Spanish companies are interested
to enter into the real estate market to construct apartments targeting the middle & low
income groups. But it will not be threat for our local competition. In the past trend also tells
that the foreign developers can t have any special competitive advantage here. As for
example – few years ago one Thailand construction group tried to start business here in
joint venture in with Shamsul Al Amin Group at Ashulia. But unfortunately they can not
continue the project anymore. On the other hand, Bangladesh companies also started their
business international wide. Recently Concord construction company has finished a project
in Singapur. Eastern housing also did some contraction project in middle east area.
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So we can say that the real estate industry is flourishing & it has more opportunity to have
more growth in the long future.
Role of government policy
The present rate of housing interest is very high and provision of housing finance at
competitive rates will prove to be useful. It also observed that lack of mortgage financing is
perceived to be holding back housing opportunities for middle-income groups. Procedural
delays in getting permission from nine different authorities such as RAJUK, fire service,
environment and other authority make the obstacle at the high growing industry.
SWOT Analysis
Strength
The cost of production is less as labor cost is much more cheap than the other
foreign countries
Low supplies expenses as almost all supplies materials for construction are now
available in local production market
Enough educated & qualified labor-force in Architecture, engineering, and operation
management level
Require less amount of capital equity to continue operation
Weakness
Bangladesh don’t have /can not afford the high technology as other foreign
countries.
Lack in increase equity from share market
Bangladesh does not have specific rules & guidelines of standard format
Lack of concern on earth quake disaster, no specific guideline
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Opportunity
In Bangladesh, as a developing countries there is a high growth of urban areas
The population of Dhaka city is growing at much more faster rate, and as urban
population increases it is increasing the demand of new house
As the land price of Dhaka increased , the demand of apartment increased
Most of the foreign remittance comes in Bangladesh are invested in the real estae
industry
Change the pattern of family increases the demand of more housing
Price increase of apartment don’t have negative effect on sales volume.
Less effective substitute in current scenario.
Threat
In Bangladesh the housing loan interest rate for customers is much more higher then
foreign countries. In Bangladesh it is 14-16%, whereas in foreign countries it is on
average 5- 8 %.
The companies have to go in a long time-consuming bureaucratic process of getting
approval of 9 different government agencies to start a construction project
Most of the urban population falls into middle income group those can not afford
luxurious apartments
Due to inflation & uneven foreign currency exchange the price of raw materials is
ever increasing
Political instability increases the cost as well as hurts the growth of the industry
TOWS Strategy analysis
SO strategies
As there is less effective substitute technique is available, and demand is increasing,
so take more amount of construction project at a time
As customers are quality sensitive rather than price sensitive, Improve the quality of
apartment by using best possible raw materials
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Too fulfill all customer requirement provide emesis on architectural structure quality
As family pattern changes & it is becoming smaller, so make the smaller unit
apartment more & this will increase the total number of unit in a specified area.
Aggressive marketing is less required
WO strategies
As people are quality concern, import the latest technologies to provide best quality
apartments
Import earth quake resistance technique from Japan, build the earth quake proof
buildings and the company will able to sale that at higher price, as because the
demand is still high & people have more preference on quality.
ST strategies
Use cheap labor, local manufactured supplies, and try to keep the cost lower, so it
will be possible to achieve the market of middle income group by charging lower
price.
As the middle income group in the urban area is largest in number, By lowering the
profit margin per unit, it is possible to have more sales , and thus there will be
increment in the total revenue.
As price of supplies are ever increasing, by doing backward integration it is possible
to decrease the cost of a project, and thus increase the revenue
WT strategies
Implement price cut strategy by sacrificing best quality material input, and thus
increase the sales volume
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Make tiny apartment units targeting middle income as well as lower-middle income
group.
Critical Factors of Success
To be successful in real estate industry the factors on those the company have to have more
concern are –
Maintain the commitment toward the client
Quality architectural design that meet the customer demand
Efficient purchasing of required supplies
Efficient material management
Effective teamwork management
Retain Brand image by satisfying clients
Marketing Policy & strategy
Competitive Profile Matrix [ CPM]
AdvancedDevelopment technologies
Arenaproperties
weight rating score rating score
Customer commitment 0.2 4 0.8 3 0.6
Architectural design 0.15 2 0.3 2 0.3
Marketing 0.15 4 0.6 1 0.15
Financial position 0.15 4 0.6 2 0.3
Supplies Material 0.1 3 0.3 3 0.3
Brand image 0.1 4 0.4 1 0.1
Technological support 0.1 4 0.4 2 0.2
Teamwork management 0.05 3 0.15 2 0.1TOTAL 1 3.55 2.05
ADTL is one of the leading real estate companies , an don the other hand Arena properties
is a newly entrant company. From the CPM matrix it is clear how ADTL is far ahed of
Arena properties.
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Internal Factor evaluation matrix
weight Rating Weighted ScoreInternal Strength
comparatively Lower cost 0.25 4 1
Lower supplies expenses 0.1 2 0.2
Qualified educated labor-force 0.05 1 0.05
Require less amount of capital equity 0.2 3 0.6
Internal weaknesslack of technology 0.2 3 0.6
no specific standard format 0.1 1 0.1
no specific guideline on earth quake 0.1 3 0.3
TOTAL 1 2.85
External Factor evaluation matrix
weight Rating Weighted Score
External opportunitieshigh growth of urban areas 0.15 3 0.45
growth of population of Dhaka city 0.2 3 0.6
foreign remittance investment 0.05 4 0.2
Change the pattern of family 0.05 3 0.15
Less effective substitute 0.15 4 0.60
External Threat 0
housing loan interest rate . 0.05 2 0.1
bureaucratic process of approval 0.05 1 0.05
urban population into middle income group 0.2 4 0.8inflation & uneven foreign currency exchange 0.05 1 0.05
Political instability 0.05 2 0.1
TOTAL 1 3.1
So from the EFE & IFE matrix of the real estate industry we found that the external factors
is slightly influence over the real estate industry then the internal factors. So how ever the
23
internal stability can have a company, they must provide a greater emphasis on the external
issues. if a real estate company can formulate their business strategy focusing more on the
current scenario of the opportunities & threats then it will be realistic & greater probability
of being successful in real estate industry.
Space Matrix Analysis
Financial Strength Rating
Industry turn over per year 1250crore 3
Average profit range increased to 15- 30% 5
Industries bank loan requirement is low 4
Projects are financed by customer’s installment 4 Total = 16 Avg= 4
Industry Strength
Average growth rate of the industry 15% 4
Real estate contribution to GDP 14% 3 Total= 7 Avg= 3.5
Environmental Stability
Political instability -3
Impact of Inflation over revenue -2
Population growth is an important factor -2 Total= -7 Avg= -2.3
Competitive advantage
Around 15 companies control market share -2
Moderate level of competition -2
Market segment is becoming blurred -3 Total= -7 Avg= -2.3
Calculation:
Directional Vector Co-ordinates: x-axis= -2.3+3.5= 1.2
y-axis= -2.3+4 = 1.7
From the Space matrix
analysis, we found that the
Bangladesh real estate industry
24
scenario of last 20 years
200
700
1200
1700
2200
2700
3200
3700
4200
4700
1984 1989 1994 1999 2004
Ap
part
men
t u
nit
sis financially strong industry, and the companies have competitive advantages in a growing
g& stable industry.
Value Chain
Research & Development:
the Architecture department analyze the current demand requirement ( by getting feedback
from Marketing & sale) and develop new product schema for the new construction project.
On the other hand purchase department make the research on price & quality of the
available supplies products for making purchase decision.
Production:
Value addition is mostly created in production phase where the real estate company have to
emphasis on quality of input, efficient & timely construction process.
Marketing & Sales:
As the demand of apartment units are still high then the supplies, it may required moderate
marketing strategy. Though we can not see advertisement of all 270 companies, but still
now most of the companies are able to sale their apartment units before completion of the
construction.
Customer Service:
One of the main source of retain their brand image is maintaining the customer
commitments.
Industry Life cycle
25
Source: REHAB
Though the real estate companies are increased to 270, still most of the companies are
creating profits from this industry, and for the established companied the profit margin is
increasing. This indicates that this industry is still in ‘growth stage’ where most of the
market share is grabbed by the top 15/20 companies. And there is a moderate level of
competition is going on in this industry, there the companies are increasing the unit price,
but that don’t effect the demand & sales volume of the companies.
finale
By analyzing various industry analysis model we have found out that in Bangladesh real
estate industry is still in booming stage, but not in the mature stage. This industry now have
a stable infrastructure, and have the possibility of growth further more. But the
characteristics of this industry is that it rely more on the external issues, and so the business
strategy will be based more on change in external factors.
In the next part of the project we will focus on the ‘entry strategy’ of the real estate business
by a new real; estate company. In that part we will analysis various strategy using various
model analysis to find out what would be the best strategy for a new real estate company –
‘Crown Shelter’, which is basically a new business setup of ‘Crown Cement ltd’. This
company will do the vertical integration in their expansion of business, and in the next part
we will focus by which strategy they can expand the real estate business successfully.
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Bibliography
An interview with Mr. Md.Ariful Islam, Executive (Planner), REHAB
An short spell interview with Mr. Anwar Hossain,
Vice President of REHAB & Managing Director of 'Advanced Development Technologies ltd."
An interview with Mr. Md. Shahjahan, Managing Director, 'Arena Properties Ltd.'
An interview with Mr. Md. Fariaz, Son of Md. Shahjahan(MD, Arena Propeerties)
An interview with Ms. Zebunnessa Khatun,
Managing Director, ''Advanced Development Technologies ltd."
An interview with Mr. Abdul Gaffur Ahmed,
Director (Accounts & Finance),'Advanced Develpoment Technologies'
An interview with Mr. Fedai Mawla,
Deputy General Manager (Personnel & Training), 'Advanced Develpoment Technologies'
An interview with Mr. Nuruzzaman Elias, Civil Engineer, Private developer & dealer of ABB switch
An interview with Ms. Tasneem Tariq, Student of Architecture department, BUET
A short spell interview with Mr. Dr. Toufiq M Seraj, President, REHAB
A short spell interview with Mr. Muntasir Alam, Faculty of Real estate finance, NSU
Real Estate Sector at a Glance,a one page information summary
provided by Mr. Ariful Islam, Executive (Planner), REHAB
Preesntation slide on "Real Estate sector of Bangladesh"
provided by Dr. Toufiq M. Seraj, President of REHAB
Internet article: “Strengthening the Role of Private Sector Housing in Bangladesh Economy: The Policy
Challenges”, Center for Policy Dialogue (CPD)
A project paper of ‘Real estate finance’ on Mohammadi housing ltd.
Prepared for Mr. Muntasir Alam, Faculty of NSU.
Prepared by Novara Binte Noor, Maruf Akter Mannan, Nowshin Naila, Dil Afroza Akhter
& Munmun Ahmed during Fall semester,2004.
Internet article : “Improving Access to Housing Finance by Middle and Lower Income Groups”
by Marja C. Hoek-Smit
27
http://www.rehabhousing.com
http://www.rehabhousing.com/memberlist.asp
http://www.rehabhousing.com/b_materials.asp
http://www.rehabhousing.com/housing_loan.asp
http://www.barighar.com/
http://www.barighar.com/Steel.htm
http://www.barighar.com/bricksearchfinal.php
http://www.idlc.com/
http://www.deltabrac.com/
http://www.deltabrac.com/dbhloan.html
http://www.bashundharagroup.com/paver/index.html
http://www.bashundharagroup.com/ewpd/index.html
http://www.bashundharagroup.com/ewpd/aboutus.html
http://www.bashundharagroup.com/bc/home.html
http://www.bashundharagroup.com/mcml/products.html
http://www.bashundharagroup.com/bscl/product.html
http://www.bashundharagroup.com/bscl/pictorial.html
http://www.bashundharagroup.com/bcsp/aboutus.htm
http://www.adb.org
http://www.prdomain.com/companies/a/asian_paints/news_releases/200209sept
http://www.bashati.net
http://www.bracconcord.com/contact.html
http://www.btibd.net/index.htm
http://www.easternhousing.com
http://www.advanced-bd.com
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Appendix A
Khondker Mustafa TariqID= 021 349 030MGT 489.2
Terms of Reference of Individual Strategic Audit & recommendation
Selected Industry: Real estate industry
General Objective
My general objective is to gain in depth knowledge about forces that are influencing the real
estate industry in Bangladesh.
Specific Objective
My specific objective is to analyze the external & internal environment of the industry, and
opportunities & obstacles of the real estate industry using various management models to
make a business plan of the distressed or new entrant company of this industry. As I will do
the strategic business plan for a company, the in-depth analysis of the industry using various
management models will help me to understand the dynamics of the industry in Bangladesh.
To analyze the industry we basically take the help of bellow models-
PEST analysis
Porter’s 5 forces model
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Diamond model
SWOT analysis
Industry life cycle
Industry Profile
As Dhaka is the one of the highest densely populated city in the world, there is always
highly crisis of land resources for peoples living. So the concept of real estate business
emarge in our country during seventies , and then in eighties the concept of apartment
housing came into focus as a potential profitable industry; and then during early nineties
apartment housing became popular for various reasons, as it is more socially secured place
& people also don’t get into the hassle of making living home by their own.
For the popularity of apartment housing, the real estate industry has become on of the most
potential profitable business sector in the Dhaka city. So many companies introduced
themselves in this industry, and now this industry has become a mature industry with many
competent companies. REHAB (Real Estate housing association of Bangladesh) is the
union of all the real estate companies of Bangladesh.
As the competition level among the companies in this industries are now so high, for many
companies it is now became very difficult to exist in the industry with a moderate market
share. But again many companies as like ‘Advanced Development technologies ltd.’ are still
in the leading position in the industry. By the opinion of Ms. Zebunnesa Khatun , who is
one of the managing director of ‘Advanced development’, - most of the time their company
sells all the units of a housing project before the project starts in the site. Sometimes they
had to sell before the plan is passed by RAJUK, which is only because of high pressure of
demand.
Though some companies feeling there is high demand & opportunity, actually some
companies are having competitive advantages over the others. In this research I like to
analyze how companies having competitive advantage over others & how the condition &
environment is in this industry.
Research Methodology
I will use both primary & secondary sources to gather information for my project work.
For qualitative information the primary source will include interviews with Mr.
Anwar Hossain (Vice president of REHAB, MD of ‘Advanced Development
30
Technologies Ltd.), Mr. Ariful Islam (Executive planner of REHAB), Md.
Shahjahan ( MD of Arena Properties), Ms. Zebunnesa Khatun (Managing directors
of ‘Advanced development Technologies Ltd.’) and perhaps other managers of
various levels at various departments. And secondary sources will include journals,
publication, Project works & newspaper articles. Internet will also serve as a very
important secondary source.
For Quantitative information, my primary source will be Reports & analysis of
REHAB Association. Again for secondary source it will include journals available
in the Internet.
Proposed Report Outline (Subject to change by future necessity)
1. Opening: Real estate industry.1.1 Industry Profile1.2 Competitor Companies of the Industry in Bangladesh
2. Industry Analysis2.1 Porters 5 factor models
2.1.1 Intensity of Rivalry2.1.2 New Entrants2.1.3 Buyers2.1.4 Suppliers2.1.5 Substitute2.1.5 The 6th force Complementary Products
3. SWOT Analysis3.1 Strength3.2 Weakness3.3 Opportunity3.4 Threats
4. Country Analysis4.1. Porters Diamond Model
4.1.1 Factors4.1.2 Demand Conditions4.1.3 Related & Supported Industries4.1.4 Firms Strategy, Structure & Rivalry4.1.5 The role of Government
4.2 PEST analysis4.2.1 Political & Legal
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4.2.2 Economic4.2.3 Social4.2.4 technological
5. Life Cycle Analysis5.1 Product Life Cycle & Industry life cycle
5.1.1 Current stage of the product
6. Strategy formulation of distressed companies in real estate industries
7. Strategy Recommendation
8. ConclusionAppendix B
Presentation slide on
"Real Estate sector of Bangladesh"
provided by
Dr. Toufiq M. Seraj,
President of REHAB
32
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