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.

1

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

2

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

3

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 :

4

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)

5

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

9

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,

16

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.

17

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.

18

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

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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

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