Budget FY26: Housing sector may take a hit, flat prices set to rise

Infograph: TBS

Impact on real estate

• Tax on apartment purchase to rise 3-5 times
• Apartment prices also set to rise
• Tax rate on investing black money will be up to five times higher
• VAT on services provided by housing companies to rise to 10%.
• Import duties on raw materials used in construction to rise to 10%

The proposed budget for the fiscal year 2025-26 brings little good news for the housing sector. After reviewing the budget, stakeholders have said it may further increase the risks already facing the sector.

Due to an increase in VAT on services provided by housing companies, buyers of flats and commercial spaces will now face higher costs. Currently, VAT in this sector is 7.5%. In the upcoming fiscal year, it will rise to 10%.

The budget also proposes to increase import duties on raw materials used in construction — particularly for rods and angle bars — from 7.5% to 10%. This means that Tk1,700 in tax will be payable per tonne of rod under the new budget.

Furthermore, while the proposed budget retains the opportunity to invest undisclosed (black) money in housing, it comes with a significantly higher tax burden — up to five times more than before. 

In previous budgets, no government body was allowed to question such investments, but that indemnity has now been withdrawn. Additionally, if undisclosed assets are detected by the tax department, the penalty will be higher than the existing rate, according to the new proposals.

Industry insiders believe these changes will worsen the already precarious state of the housing sector.

Although the source tax on land and apartment registration has been reduced, the overall tax on purchasing land and apartments in various areas has been increased by up to five times, which industry players see as having a negative impact on the housing sector.

The sector has been under strain since the start of Covid-19. Added to that, the Russia-Ukraine war has driven up import costs for construction materials, causing prolonged difficulties for the industry over recent years.

Developers oppose the new measures

Liaquat Ali Bhuiyan, senior vice president of the Real Estate and Housing Association of Bangladesh (Rehab), said, "Investors need to feel secure. If they know there's nothing to fear, they'll be willing to invest. But if their investment can be questioned, no one will come forward."

He added, "If taxes are raised indiscriminately and conditions made stricter, the housing sector will collapse. No one will want to buy an apartment if the tax burden is this high."

Government officials have said the objective behind these conservative measures is to discourage the use of black money in real estate and to align the tax burden more closely with market values.

Currently, in upscale areas like Gulshan, Banani, Baridhara, and Motijheel, regardless of the apartment's value, a buyer must pay Tk6,000 per square metre in tax for apartments larger than 200 square metres, and Tk4,000 for smaller units.

In areas like Mirpur, Mohammadpur, Dhanmondi, Mohakhali, Lalmatia, Uttara, Bashundhara, Siddheshwari, Karwan Bazar, Banasree, Bijoynagar, Wari, Segunbagicha, Nikunja, and parts of Chattogram (Panchlaish, Khulshi, Agrabad, and Nasirabad), the tax on undisclosed income is Tk3,000 per square metre for flats smaller than 200 square metres and Tk3,500 for larger flats.

The proposed 2025–26 budget suggests increasing taxes in these areas by five times.

In other areas, current taxes range from Tk500 to Tk1,500 per square metre, and the budget proposes tripling these rates.

According to this new structure, if someone invests black money to purchase a 200 square metre apartment in Gulshan, the current tax would be Tk8 lakh. If the fivefold increase is enacted, the tax would rise to Tk40 lakh.

After the last budget, the Centre for Policy Dialogue (CPD) reported that the average effective tax rate on black money investments in the housing sector across various areas was only 2.38%.

In the 2022–23 fiscal year, the government allowed widespread whitening of black money — with indemnity — across sectors including real estate. Over Tk20,000 crore was whitened that year, and most of it was reportedly invested in the housing sector.

However, for the 2023–24 fiscal year, no concrete data on investment in housing from black money has been provided by the NBR or Rehab.

Real estate entrepreneurs have strongly opposed the new budget proposals. They argue that these changes will further harm an already struggling industry.

Naimul Hasan, former director of Rehab, said, "If there's no scope to invest undisclosed funds in housing or the stock market, that money will be laundered out of the country — just like in the past. If investment opportunities exist here, the money stays in the country."

Current tax structure

Currently, in areas like Gulshan, Banani, Baridhara, and Motijheel, buyers must pay Tk6,000 per square metre in tax for apartments over 200 square metres, and Tk4,000 for smaller ones.

In mid-tier areas including Mirpur, Mohammadpur, Dhanmondi, Mohakhali, and others, the rate is Tk3,000 for flats under 200 square metres and Tk3,500 for larger flats.

The proposed budget recommends increasing these taxes fivefold in these areas.

In other regions, where current taxes range from Tk500 to Tk1,500 per square metre, a threefold increase is proposed.

A senior official from the National Board of Revenue (NBR), speaking on condition of anonymity, told The Business Standard that several opportunities for investing black money have already been scrapped by the current government. "Though a few options remain, the restrictions are so tight that it will likely discourage black money holders."