Real Estate Investment Risks and How to Tackle Them

Blog » Investment Decision

real estate investment 070113
July 15, 2017 Investment Decision

Written by: Mohammad Shamsul Amin

Share ButtonInvesting in real estate properties can be profitable as well as prestigious. However, one wrong decision may spoil your life’s hard earned savings and land you in big trouble. So before buying it is important to be aware of the pitfalls in real estate investment so that you can make an informed decision. Here are some important points to consider before buying apartment in Bangladesh to reduce investment risk.

 1. Insolvent Company and Delayed Handover

Sometimes the apartment you bought may be partially completed or not completed at all. This could be because the developer company is fraudulent or financially incapable to complete construction work. In that case, you will not get handover on time as per the agreement and may even have to raise construction money by yourself for construction work. This can be very troublesome for you as you will have to use your own resources and your financial plan, home shifting plan etc are attached to the handover date. So before investing in real estate properties in Bangladesh, you should check out the financial solvency of the developer company as well as its years of experience to know that the real estate company is reliable.

2. Problem with Land or Documents

Some Developer companies use litigated land to make more profit. Or due to inexperience of Developer Company, there can be problems in vetting of land documents when signing joint venture project with landowners. In such circumstances, the misfortune falls upon you. You will face trouble getting home loan approval or transfer and mutation of your apartment. And that is not all; if you want to resell your property, even then it will be difficult. So it’s best to verify that land and property ownership documents are authentic.

3. Decreased Apartment Resale Value

If in the future you wish to resell your apartment, you may not get your desired price for the real estate property. This could be because of various reasons such as real estate market conditions, poor location, buying from non-branded company etc. Sometimes real estate property may decrease in value even if you have bought from a reputed developer company for external factors but this is only temporary. In most of the cases, real estate property ultimately appreciates in value over time.

4. Poor Construction Quality

When buying an apartment in Bangladesh, construction of quality is of utmost importance since it ensures the safety, durability and longevity of the building. Many Developer companies, however, compromise with quality for saving cost and use inferior materials and carry out poor construction work. Combined with use of poor electrical equipments such as lifts, generators, substation, solar panel etc all lead up to costly apartment maintenance and repairs as well as numerous apartment ownership woes.

5. Failure to Comply with BNBC Code

In Bangladesh, it is mandatory for all buildings to be designed according to BNBC code. However, in reality, very few Developer companies design in full compliance with BNBC code. This can increase your risk of hazards in situations like earthquakes resulting in not only building damage but also loss of lives.

6. Unapproved Plan

As per Government rules, before starting construction work, Developer Company has to take plan approval from RAJUK/CDA/Cantonment Board or other concerned government agency. Some Developer companies carry out construction work without plan approval from concerned authority. If government agency does not give the approval as per Developer’s submitted drawings and the company still goes ahead with construction work, then it could land you in big trouble as government may demolish your property in the future.

7. FAR Rules Violation

Developer company cannot increase the construction area from the one mentioned in the approved plan and build a project beyond the approved design plan. But unfortunately some Developer companies in Bangladesh violate this to earn profit. If you buy an apartment where FAR rules are not followed properly, you will experience problems in different stages like home loan sanction, registration, getting notice from concerned government agency to remove unauthorized part of the building and above all, you will keep a disputed property for your next generation.

8. Miscalculation of Common Space Area

The common space refers to shared spaces on a single floor or within the whole apartment complex and is included in the total apartment size as per Bangladeshi Law under Real Estate Act 2010, Chapter-One section 2 (2) which states, “Common space refers to supporting space for the real estate, such as lift lobby, staircase, lift machine room, generator substation, guard’s room, caretaker’s room, space used for common facilities.” If a Developer company in Bangladesh considers other areas beyond these spaces as common space such as driveway, passage, rooftop, underground reservoir etc, then the apartment size will only increase in documents but not in actuality. In such cases, you will face trouble during registration as it is not permissible under Real Estate Act 2010.

9. Project under non-DAP Areas

Before booking your apartment, you should ensure that the apartment property falls under Urban Residential Area in Detailed Area Plan ( DAP) of Bangladesh. If your apartment is situated on Water Body, Agriculture Land, Water Retention Zone, Flood Flow Zone, Rural Settlement Zone, Institutional Zone, Open Space, Overlay Zone, Industrial Zone, Non-confirming Zone etc in DAP and hasn’t been approved by RAJUK, then you will have trouble registering your property and getting utility services and other government facilities.

10. Cancellation of Apartment Booking

After booking your apartment and signing the Allotment Letter and Deed of Agreement, your booked apartment may be cancelled for nonpayment of installment as per the date mentioned in Deed of Agreement or you might find yourself in a situation where you have to surrender the apartment. Whatever the reason, if the booking of your apartment gets nullified, then the Developer Company will deduct 10% from your total paid amount. So before buying, make sure you are financially solvent to afford the apartment.

11. Not getting Home Loan

Before booking an apartment, you might consider taking home loan but if your loan is not sanctioned, then you will have to forfeit 10% of total paid amount to Developer company and cancel your apartment booking. To avoid this you can apply to financier for home loan earlier and after getting primary approval proceed with the booking.

12. Duplicate Sell or Exchange of Booked Apartment

Sometimes Developer companies may sell the apartment you have booked to another buyer or exchange your booked apartment with another one from the same project or a different project. So check the Deed of Agreement and developer company’s reliability to ensure that your booked apartment cannot be exchanged or sold to another buyer.

At the end of the day, investing in real estate properties in Bangladesh is very profitable and not something to be scared of. If you are aware of these issues beforehand you can make a smart investment decision by planning ahead and choosing the right Developer Company.