Real Estate Industry Analysis 4v384q
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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).
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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.
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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
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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 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.
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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.
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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.
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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.
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Direct employment by Real estate Industry – Architects Graduate Engineer Diploma Engineer Management Official Direct Labor
: : : : :
400 2000 8000 14000 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
Using Various Models & Frameworks 3
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PEST Model Analysis Political & 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 (D)
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 5
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) 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
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%
Population growth in Bangladesh 123.1
140
111.4
120 100
89.91 76.4
80 60
Population growth in Dhaka
9.9
10 40 9 8
20
7 0 6 5
6.9
Yr 1974
4 Year 1.68 3 1974 2 1981 1 1991 0 2001 Yr 1974
Yr 1981
Yr 1991
3.43
Yr 2001
Population (in Million) of Dhaka city
Growth Rate of Dhaka
1.68 3.43
14.88%
6.9
10.11%
Yr 1981 9.9Yr 1991
4.34% Yr 2001
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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 & t 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 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.
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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
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
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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 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 :
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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 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 quake. 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
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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.
s c e n a r io o f la s t 2 0 y e a r s 4700 4200
Appartment units
3700 3200 2700 2200 1700 1200 700 200
1984
1989
1994
1999
2004
Year
No. of Appartment
Growth rate
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
325 420 662 840 1275 1540 2140 1530 1850 2298 2320 2430 2684 2840 3298 3620 3930 4172 4465 5074
24% 57% 27% 51% 21% 39% -28% 20% 24% 1% 5% 10% 6% 16% 10% 9% 6% 7% 14%
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.
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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
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 12
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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.
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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.
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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.
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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 company’s owner is socially recognized then the company can able to stables themselves in the industry.
Bargaining Power of Suppliers
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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.
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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
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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.
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
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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
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Basic Factors: Cheaper labor cost Huge population & growth
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Advance factors: Local production of almost all raw materials 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
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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 ed for 8.3 %. (Source: REHAB)
Related & ed 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, 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.
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•
• • •
•
•
• •
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 ing the housing industry.
Financial 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. 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
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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 t 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. 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
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•
•
•
•
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
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 19
•
•
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
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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.
20
•
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
•
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 [ M] Advanced Development
Arena properties
21
weight
Customer commitment Architectural design Marketing Financial position Supplies Material Brand image Technological Teamwork management TOTAL
technologies rating score
rating
score
0.2
4
0.8
3
0.6
0.15
2
0.3
2
0.3
0.15
4
0.6
1
0.15
0.15
4
0.6
2
0.3
0.1
3
0.3
3
0.3
0.1
4
0.4
1
0.1
0.1
4
0.4
2
0.2
0.05 1
3
0.15 3.55
2
0.1 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 M matrix it is clear how ADTL is far ahed of Arena properties.
Internal Factor evaluation matrix weight
Rating
Weighted Score
0.25
4
1
0.1
2
0.2
0.05
1
0.05
0.2
3
0.6
0.2
3
0.6
0.1
1
0.1
0.1
3
0.3
Internal Strength
comparatively Lower cost Lower supplies expenses Qualified educated labor-force Require less amount of capital equity Internal weakness lack of technology no specific standard format no specific guideline on earth quake TOTAL
1
2.85
External Factor evaluation matrix External opportunities high growth of urban areas growth of population of Dhaka city
weight
Rating
Weighted Score
0.15
3
0.45
0.2
3
0.6
22
foreign remittance investment Change the pattern of family Less effective substitute External Threat housing loan interest rate . bureaucratic process of approval urban population into middle income group inflation & uneven foreign currency exchange Political instability TOTAL
0.05
4
0.2
0.05
3
0.15
0.15
4
0.6 0 0
0.05
2
0.1
0.05
1
0.05
0.2
4
0.8
0.05
1
0.05
0.05
2
0.1
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 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 Industry turn over per year 1250crore Average profit range increased to 15- 30% Industries bank loan requirement is low Projects are financed by customer’s installment
Rating 3 5 4 4
Total = 16 Avg= 4
Industry Strength Average growth rate of the industry 15% Real estate contribution to GDP 14%
4 3
Total= 7
Avg= 3.5
Environmental Stability Political instability Impact of Inflation over revenue Population growth is an important factor
-3 -2 -2
Total= -7
Avg= -2.3
Competitive advantage Around 15 companies control market share Moderate level of competition
-2 -2 23
Market segment is becoming blurred Calculation: Directional Vector Co-ordinates:
-3
Total= -7 Avg= -2.3
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 is 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 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 ment 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.
24
Industry Life cycle scenario of last 20 years Appartment units
4700 4200 3700 3200 2700 2200 1700 1200 700 200
1984
1989
1994
1999
2004
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
25
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.
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 (s & 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
26
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 (D)
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
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/.html
http://www.btibd.net/index.htm
http://www.easternhousing.com
http://www.advanced-bd.com
27
Appendix A Khondker Mustafa Tariq ID= 021 349 030 MGT 489.2
of Reference of Individual Strategic Audit & recommendation
Selected Industry: Real estate industry
28
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 • 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
29
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 ed 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 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 Profile 1.2 Competitor Companies of the Industry in Bangladesh 2. Industry Analysis 2.1 Porters 5 factor models 2.1.1 Intensity of Rivalry 2.1.2 New Entrants 2.1.3 Buyers 30
2.1.4 Suppliers 2.1.5 Substitute 2.1.5 The 6th force Complementary Products 3. SWOT Analysis 3.1 Strength 3.2 Weakness 3.3 Opportunity 3.4 Threats 4. Country Analysis 4.1. Porters Diamond Model 4.1.1 Factors 4.1.2 Demand Conditions 4.1.3 Related & ed Industries 4.1.4 Firms Strategy, Structure & Rivalry 4.1.5 The role of Government 4.2 PEST analysis 4.2.1 Political & Legal 4.2.2 Economic 4.2.3 Social 4.2.4 technological 5. Life Cycle Analysis 5.1 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. Conclusion
Appendix B
Presentation slide on "Real Estate sector of Bangladesh" provided by Dr. Toufiq M. Seraj, President of REHAB
31
32
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.
•
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
1
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 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 Graduate Engineer Diploma Engineer Management Official Direct Labor
: : : : :
400 2000 8000 14000 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
Using Various Models & Frameworks 3
================================================================
PEST Model Analysis Political & 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 (D)
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 5
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) 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
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%
Population growth in Bangladesh 123.1
140
111.4
120 100
89.91 76.4
80 60
Population growth in Dhaka
9.9
10 40 9 8
20
7 0 6 5
6.9
Yr 1974
4 Year 1.68 3 1974 2 1981 1 1991 0 2001 Yr 1974
Yr 1981
Yr 1991
3.43
Yr 2001
Population (in Million) of Dhaka city
Growth Rate of Dhaka
1.68 3.43
14.88%
6.9
10.11%
Yr 1981 9.9Yr 1991
4.34% Yr 2001
6
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 & t 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 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.
7
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
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
8
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 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 :
9
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 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 quake. 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
10
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.
s c e n a r io o f la s t 2 0 y e a r s 4700 4200
Appartment units
3700 3200 2700 2200 1700 1200 700 200
1984
1989
1994
1999
2004
Year
No. of Appartment
Growth rate
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
325 420 662 840 1275 1540 2140 1530 1850 2298 2320 2430 2684 2840 3298 3620 3930 4172 4465 5074
24% 57% 27% 51% 21% 39% -28% 20% 24% 1% 5% 10% 6% 16% 10% 9% 6% 7% 14%
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.
11
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
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 12
•
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 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
13
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.
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
14
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 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
15
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 ed for 8.3 %. (Source: REHAB)
Related & ed 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, 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.
16
•
• • •
•
•
• •
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 ing the housing industry.
Financial 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. 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
17
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 t 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. 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
18
•
•
•
•
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
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 19
•
•
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
•
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.
20
•
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
•
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 [ M] Advanced Development
Arena properties
21
weight
Customer commitment Architectural design Marketing Financial position Supplies Material Brand image Technological Teamwork management TOTAL
technologies rating score
rating
score
0.2
4
0.8
3
0.6
0.15
2
0.3
2
0.3
0.15
4
0.6
1
0.15
0.15
4
0.6
2
0.3
0.1
3
0.3
3
0.3
0.1
4
0.4
1
0.1
0.1
4
0.4
2
0.2
0.05 1
3
0.15 3.55
2
0.1 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 M matrix it is clear how ADTL is far ahed of Arena properties.
Internal Factor evaluation matrix weight
Rating
Weighted Score
0.25
4
1
0.1
2
0.2
0.05
1
0.05
0.2
3
0.6
0.2
3
0.6
0.1
1
0.1
0.1
3
0.3
Internal Strength
comparatively Lower cost Lower supplies expenses Qualified educated labor-force Require less amount of capital equity Internal weakness lack of technology no specific standard format no specific guideline on earth quake TOTAL
1
2.85
External Factor evaluation matrix External opportunities high growth of urban areas growth of population of Dhaka city
weight
Rating
Weighted Score
0.15
3
0.45
0.2
3
0.6
22
foreign remittance investment Change the pattern of family Less effective substitute External Threat housing loan interest rate . bureaucratic process of approval urban population into middle income group inflation & uneven foreign currency exchange Political instability TOTAL
0.05
4
0.2
0.05
3
0.15
0.15
4
0.6 0 0
0.05
2
0.1
0.05
1
0.05
0.2
4
0.8
0.05
1
0.05
0.05
2
0.1
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 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 Industry turn over per year 1250crore Average profit range increased to 15- 30% Industries bank loan requirement is low Projects are financed by customer’s installment
Rating 3 5 4 4
Total = 16 Avg= 4
Industry Strength Average growth rate of the industry 15% Real estate contribution to GDP 14%
4 3
Total= 7
Avg= 3.5
Environmental Stability Political instability Impact of Inflation over revenue Population growth is an important factor
-3 -2 -2
Total= -7
Avg= -2.3
Competitive advantage Around 15 companies control market share Moderate level of competition
-2 -2 23
Market segment is becoming blurred Calculation: Directional Vector Co-ordinates:
-3
Total= -7 Avg= -2.3
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 is 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 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 ment 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.
24
Industry Life cycle scenario of last 20 years Appartment units
4700 4200 3700 3200 2700 2200 1700 1200 700 200
1984
1989
1994
1999
2004
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
25
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.
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 (s & 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
26
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 (D)
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
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/.html
http://www.btibd.net/index.htm
http://www.easternhousing.com
http://www.advanced-bd.com
27
Appendix A Khondker Mustafa Tariq ID= 021 349 030 MGT 489.2
of Reference of Individual Strategic Audit & recommendation
Selected Industry: Real estate industry
28
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 • 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
29
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 ed 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 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 Profile 1.2 Competitor Companies of the Industry in Bangladesh 2. Industry Analysis 2.1 Porters 5 factor models 2.1.1 Intensity of Rivalry 2.1.2 New Entrants 2.1.3 Buyers 30
2.1.4 Suppliers 2.1.5 Substitute 2.1.5 The 6th force Complementary Products 3. SWOT Analysis 3.1 Strength 3.2 Weakness 3.3 Opportunity 3.4 Threats 4. Country Analysis 4.1. Porters Diamond Model 4.1.1 Factors 4.1.2 Demand Conditions 4.1.3 Related & ed Industries 4.1.4 Firms Strategy, Structure & Rivalry 4.1.5 The role of Government 4.2 PEST analysis 4.2.1 Political & Legal 4.2.2 Economic 4.2.3 Social 4.2.4 technological 5. Life Cycle Analysis 5.1 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. Conclusion
Appendix B
Presentation slide on "Real Estate sector of Bangladesh" provided by Dr. Toufiq M. Seraj, President of REHAB
31
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