Bangladesh Bank on Sunday cautioned all concerned of a painful crash in the country's overheated real estate sector and admitted that a large chunk of credit meant for industries and small and medium enterprises have been diverted to the capital market.
In its half year monetary policy statement, the Bangladesh Bank said that the country needs a properly priced capital and real estate markets to avoid instability and jitters.
Bangladesh Bank in a statement said that "Overheated, overpriced markets typically collapse in crashes hurtful for all; the crashes are more painful the longer the price corrections are delayed.”
It was particularly worried about forming of a bubble in the housing sector, which the BB said was not driven by credit and where the central bank's monetary and credit policies have limited impact.
The Bangladesh Bank said that "Appropriate cooling off interventions have assumed urgency in the overheated real estate markets to avoid an eventual painful crash.”
Real estate prices in the capital Dhaka have shot up by more than 300 times since the country's independence, prompting some experts to forecast an imminent bubble burst in the market.
Despite its limited role in the property market, the Bangladesh Bank last April asked the country's 40 plus commercial banks not to extend loans to land purchase in an attempt to rein in sky rocketing prices.
It said the best way to contain the bubble would be through fiscal measures, especially by collecting capital gains tax based on actual transaction values of the land rather than on much lower fictitious values.
Realtors typically undervalue land price in order to evade taxes. According to some analysts, the government lose tens of billions of takas in land revenue due to the decade old malpractice.
The Bangladesh Bank said the capital market must be steadied following the January crash, driving home the message that its stability is important for sustaining the country's economy on a high growth path.
(Sourced from www.thefinancialexpress-bd.com)
