Would you believe it if I told you that the price for a plot of land in Dhaka is around the same as in New York City or London?
This was difficult for me to believe as I walked through the streets there. The place looked very much like a developing country that could be had at a bargain — like a flea market or second hand goods shop. There was shit falling apart everywhere, big holes in the sidewalks, traffic so congested that it moved in a singular gelatinous mass at a pace slower than the average adult can walk. But there are no bargains to be had there when it comes to property.
According to the city’s urban and regional planning department, land prices have risen by more than 300% between 2000 and 2007, then at least another 350% by 2013 (and probably another one or two hundred percent since then).
“They are mad for land here. Everybody wants to get a piece of stock in the new country,” an English tech rep who had been based in Dhaka for the long haul explained to me.
This has lead to one of the highest wage-to-housing cost ratios in the world. Bangladesh’s median income is like 50-100 times lower than New York and London, but a piece of property costs about the same.
While in China, another country with an incredibly imbalanced wage-to-house price ratio, people can still afford to buy houses (90% home ownership rate), in Bangladesh it’s another story. Only 60% of urban houses in Bangladesh are owned by the people who live in them, and in Dhaka this rate is just 30%. Even in Calcutta, people statistically have a much easier time affording a home.
The rents are not cheap either. On average, people in Dhaka spend around 35% of their total income on rent.
Why is land so expensive in a country where almost everything else is relatively very cheap? The answer is simple: A) A lack of viable investment options push people into the property market, B) A massive influx of new wealth for a small segment of the population has caused a drastic disparity between the upper, land holding class and everybody else, and C) Investing in property is one of the prime ways of laundering illicitly received funds.
“Bangladesh has a really big black economy,” the tech rep explained. “So when you make money in it what are you going to do with it? Put it in the bank where everybody can easily find it and where it will depreciate? No, you buy land. They do this and the price just keeps going up and up and up. The land that this building is on would probably sell for $30 million.”
We were sitting in a relatively small, single tower apartment block in the Gulshan area of Dhaka — one of the most costly parts of the city, true, but $30 million is still an incredible price to pay.
“With the price of land being so high how can any developer make a profit building anything?” I asked.
“They don’t care about making a profit,” the tech rep replied. “They build because they need something to do with all their money.”
The tech rep then told me about a five star hotel at a golf course that he knew the background story of. He described the place as being immaculate, full of imported marble and just about every other luxury. The only thing that this place lacked were guests.
And the hotel had absolutely no problem with this at all.
“The only function it serves is to turn black money into white money,” the tech rep explained. “They need to be open to keep up appearances but they actually don’t want any guests to come. When they do happen to show up it’s turning white money into white money and they can’t launder as much as they would otherwise.”
This is a hallmark economic transaction of developing countries throughout Asia. We walk by these empty hotels, resorts, etc . . . and we mock them and call them failures and say things like, “How could they be so stupid as to build this here!?!” But we so often completely miss the point.