Policy barriers, inflation weigh on Dhaka’s property market

Farrukh Khosru:

Bangladesh’s housing market, particularly in the capital Dhaka, continues to reel under mounting pressure, as soaring construction costs, restrictive urban policies, and rapid urbanisation deepen the country’s affordable housing crisis.

Despite a slowdown in new developments, residential property prices remain on a steep upward trajectory, exacerbating the burden on urban dwellers. The absence of reliable official data on property values has further obscured market transparency, though anecdotal evidence and industry reports consistently point to rising costs across the board.

The Bangladesh Bank, in collaboration with the International Monetary Fund (IMF), is currently developing a Residential Property Price Index (RPPI) for Dhaka. However, as of April 2025, the data remains unpublished, leaving market participants to rely on estimates and trends observed by developers and real estate associations.

Construction costs have surged in recent years, pushing the price of even modest flats beyond Tk 75 lakh (approximately $61,475). While prices for key materials such as rods and cement have recently declined, completed flats continue to reflect legacy costs, compelling sellers to maintain elevated price points. The Real Estate and Housing Association of Bangladesh (REHAB) notes a significant shift in buyer interest towards more affordable secondary markets—a trend that, in turn, is driving up prices in those areas as well.

In April 2025, the average price for a two-bedroom apartment stood at $35,970 in Dhaka and $37,826 in Chattogram. Prime locations such as Gulshan, Banani, and Dhanmondi have witnessed price hikes of 25 per cent – 40 per cent over the past two to two-and-a-half years. Square foot prices range from Tk 25,000–35,000 ($ 205–287) in Gulshan and Tk 17,000 – 25,000 ($139 – 205) in Dhanmondi — an increase driven largely by superior amenities and escalating land acquisition costs.

The housing shortfall is underpinned by Bangladesh’s rapid urbanisation. Between 1974 and 2022, the urban population rose from 8.9 per cent to 31.7 per cent, with Dhaka and Chattogram accounting for a quarter of all urban dwellers. Of the nation’s 35.6 million dwellings, just 22.5 per cent are permanent concrete structures, while nearly 60 per cent are mud homes. The United Nations estimates the country’s housing deficit at six million units, projected to swell to 10.5 million by 2030, with a staggering 70 per cent of demand concentrated in the affordable housing segment.

Despite the technical capacity to deliver 100,000 new apartments annually, developers are producing only a fraction — approximately 8 per cent — of the needed supply. Industry stakeholders have blamed the Detailed Area Plan (DAP), introduced in 2022, for stifling development. The DAP, which restricts building heights and density in line with urban models from developed countries, is widely criticised as ill-suited to Dhaka’s unique infrastructure challenges. Both BTI’s FR Khan and REHAB president Md. Wahiduzzaman have called for urgent reforms, citing a 50 per cent drop in development plan approvals since the DAP’s implementation.

Apartment sales have also plummeted, falling from an average of 15,000 annually between 2020 and 2022 to just 9,500 in FY2024 and a mere 4,000 in the first half of FY2025. Meanwhile, over 1.7 million people continue to live in slums, underscoring the acute need for inclusive housing policies.

Factors Driving Price Hikes in Dhaka’s Prime Areas

Rents are also on the rise, driven by high inflation and lax rent control enforcement. In Dhaka, average monthly rents have climbed to $ 173 for one-bedroom units, $189 for two-bedroom, and $247 for three-bedroom flats. The nationwide House Rent Index increased by 5.97 per cent year-on-year in Q4 2024, with Dhaka posting a higher rise of 6.2 per cent. With 45 per cent of urban households renting, the squeeze on affordable rental housing remains a critical concern for middle- and lower-income families.

The mortgage sector remains underdeveloped, with housing loans comprising just 2.7 per cent of GDP. However, the market has expanded significantly, with flat purchase loans rising 31 per cent in 2024 and 106 per cent over the past five years. Despite this growth, loan accessibility remains limited by high interest rates — ranging between 9 per cent and 18 per cent — as the Bangladesh Bank maintains a tight monetary policy to combat inflation.

The broader economic environment remains fragile. Real GDP growth slowed to 4.2 per cent in FY2024 and is projected to dip further to 3.8 per cent in FY2025. Inflation averaged 9.7 per cent, well above the central bank’s target, fuelled by food prices, rising energy tariffs, and depreciation of the Bangladeshi Taka. Political instability following the July 2024 protests and former Prime Minister Sheikh Hasina’s fall has further dampened investor confidence, leading to sovereign credit downgrades by Fitch, Moody’s, and S&P.

Looking ahead, while a modest recovery is anticipated from FY2026, Bangladesh’s housing sector remains mired in structural and regulatory hurdles. Calls are intensifying for amendments to the DAP and the enforcement of rent control laws as policymakers and stakeholders seek to address the country’s growing need for affordable, sustainable urban housing.