Investing in the real estate market for flats or apartments in Bangladesh may not always result in the expected rewards. The biggest disincentive is the significant disparity between rental yields and property prices across the country.
To clarify, consider purchasing a 2,000 square-feet flat in Uttara for 2 crore taka. The expected rental income for such a flat would be roughly 50 thousand taka per month. Now, let’s look at the opportunity cost of holding this property, excluding the inflation and time value of money for simplicity. Without investing in the flat, one could have rented a similar property for 50 thousand taka per month, which equates to 6 lakhs taka annually. This adds up to 60 lakhs over 10 years, or 1 crore 80 lakhs over 30 years. Most importantly, it avoids tying up the initial 2 crore taka, preserving savings and financial stability while limiting the risk associated with concentrating all investments in one asset. The freed-up wealth could have been invested elsewhere, potentially earning higher returns over a 30-year period.
Depositing 2 crore taka in a bank and earning a minimum interest rate of 6% would result in an annual return of 12 lakh taka, or 1 lakh per month. Even after deducting the 50 thousand taka rental expense, there is still a 50 thousand taka monthly excess. Over three decades, this adds up to a significant 3 crore 60 lakhs taka. Returns (risk-free) could be increased even more with a well-managed portfolio that includes savings certificates and treasury bonds.
Furthermore, the depreciation of flats over time is a hurdle, particularly when attempting to sell a 30-year-old property, it may deter prospective purchasers. Additionally, the requirement for upgrades or reconstruction can drive up costs. Renting accommodation provides flexibility, allowing you to relocate to more attractive locations as circumstances change.
Many people use loans to finance flat purchases, transforming assets into liabilities because monthly payments often exceed potential rental incomes. Essentially, the conventional perception of owning a flat as a status symbol and indicator of accomplishment may not align with contemporary financial expertise. A land purchase is, in fact, a wise financial move.
(Rewritten)
