The people of Bangladesh are well into their second year of the COVID-19 pandemic with, so far, no end in sight. Yet, peoples’ lives are moving forward and investments are being made. But in a time of economic uncertainty, where to invest can become a difficult question to answer. “Where can I invest that is safe?”, “Is there a chance of my investment falling through?”, “What are my options?.
The end goal of any investment is profit. Be it an investment worth Tk 5,000 or Tk 50,00,000, the investor does so in the hopes of a bigger and greater return down the line. However, some investments offer much more than just profit. Real estate, for example, gives the investor safety & security on top of unparalleled profit!
But usually, a potential new investor in Bangladesh is faced with three popular investment opportunities – stocks, sanchayapatra, or real estate. The decision to invest, even in ordinary times, is not easy, to say the least. However, the pandemic has made the decision even more difficult as it now always feels like economic instability is just around the corner.
In these trying times, people need to invest in something that will give them peace of mind and a sense of relief that the future is secure. The investment they’ve made is the right choice for them and their family.
People often gravitate towards sanchayapatra for investment. They are, without a doubt, one of the safest forms of investment to have. The money someone invests in sanchayapatra stays at the bank, and as many say, “your money earns for you while you get to relax”. But it is important to ask, how much earning actually happens through sanchayapatra?
For the sake of argument, let’s consider someone buys a 3 monthly profit-bearing sanchayapatra worth Tk 1,00,000. At the end of the first year, that person will get a return of Tk 10,000. When the sanchayapatra matures at the end of the 3rd year, the investor will receive a profit of Tk 64,120.
While the return is generally quite handsome and the scheme has nearly zero risks, people often don’t consider the effect of inflation. So, if we consider the same Tk 1,00,000 that was invested in sanchayapatra, with an average inflation rate of around 5.60%, that money would be worth Tk 84,919 after 3 years. With the added profit, the total actual value would be around Tk 1,39,370. And with each passing year and inflation, that value diminishes.
Another great investment option is stocks. The capital market can yield greater profits than sanchayapatra but the risks are also far greater – the 2011 share market crash is a great reminder of that. While the market then went up by 62% and 83% in the previous 2 years, resulting in 8,900 index points, it fell to 5,500 index points in October 2011.
While such crashes are not frequent in Bangladesh’s history, fluctuations in the stock market are common. Political unrest to even many unexpected events & happenings can influence the market in either direction. Prior to the latest round of lockdown, the uncertainty of the pandemic sent the Dhaka stock exchange into a plunge as panic ensued among investors – resulting in 100 points drop. However, just 3 days later, it rose by 107 points as news began to circulate that trading to continue despite lockdown.
In contrast, real estate is anything but susceptible to fluctuations. Generally, the perception about the property market is that it only ever goes “up”. In almost all cases, that statement holds true. Real estate is a very limited commodity, and we can hardly make “more”. Most property is recycled and some land may be reclaimed, but there is still a great shortage of homes for everyone – resulting in property prices always increasing.
Between 2010 and 2019, the price of land in Dhanmondi doubled, from Tk 2 crore per Katha to Tk 4 crore. In Shantinagar, the price tripled within the same time frame to Tk 3 crore per Katha. Apartment prices have seen a similar rise. So much so that significant price differences are noticeable even on a Y-O-Y comparison.
When the prices of the properties added to the Bproperty website during the first 6 months of 2020 to those added in 2021 were compared, it was found that some areas saw a nearly 20% increase in price. Properties from Badda, for example, cost about Tk 818 more this year than the previous year.
Over the last few years, once the recovery from the previous financial crisis was in full swing, real estate began to experience a renaissance of sorts. It wasn’t until the onset of the pandemic that the momentum met any resistance. Even then, time-appropriate regulation changes allowed the sector to renew that momentum and even thrive in those initial post-lockdown months.
A number of well-timed and much-requested regulations opened the door for increased real estate investment – starting with the single-digit interest rate. The 9% interest rate ceiling, along with a reduced registration cost enable many new property hopefuls to enter the market. Such regulations are still in place, allowing potential investors to capitalize on the opportunities by investing in real estate.
There is also the scope to invest previously untaxed income into the property market by paying nominal taxes. Over Tk 2,500 crore was legalized through this scheme last fiscal year. And while controversial, this was necessary for the real estate sector to stay afloat. This scope has been extended to this fiscal year as well, with little to no changes.
On the other hand, the tax rate for investing undisclosed income into the capital market has been changed. Currently. Any investor needs to pay 25% in tax, as well as an additional 10% in penalty. Such regulation changes make real estate the better investment option over stocks for those concerned.
Real estate, in Bangladesh, sits somewhere between sanchayapatra and stocks when it comes to investment options. It is quite a safe investment to make, much more so than stocks, especially with organizations like Bproperty who have made real estate more trustworthy and reliable. In addition, property yields great returns – especially in the long run. It is a non-depreciable and tangible asset that can be enjoyed by generations. This makes real estate the perfect investment for this and, hopefully not, any other pandemic yet to come.
Cover photo Credit Bproperty