Real Estate and Economic Development: an overview

One of my recent posts, "Bulls, Bears & Fools" received a comment from an Anonymous person a couple of days ago that I thought I would share and respond to here in a post. The comment was as follows:

"You put up some good points but has a number of weakness, for e.g. promotion of real estate growth is not good for economic development, it might increase economic growth but does not produce any economic output....so end of the day in real terms such development is useless....there are many other weaknesses in your arguments from a Development Economics standpoint however i dont the time required to talk about them here and plus shower free knowledge in a blog, how brilliant it might be" [sic]

My response is as follows.

Thanks for the comment, Anonymous. There may well be many weaknesses with some of my points, the lack of hard data being my primary weakness. I always hope readers will point out weaknesses and challenge me as you have done.

While your points were slightly besides the point of my original post, please allow me to address your main (and only) point that real estate is (a) “not good for economic development”, and (b) “does not produce any economic output” while somehow “increases economic growth” (to use your own words).

Your first point is perhaps just barely debatable (if not academic), and your second point is, besides being contradictory, not consistent with reality or facts. In fact, you couldn’t be more wrong if you tried.

Real estate basically encompasses land and any permanent fixtures on land. Real estate development encompasses trading and developing land and permanent fixtures on land (including residential, industrial, and commercial properties). In short, this would include companies involved in: labor, construction, brokering, property sales and management, architecture, financial services and investments, appraisal, etc., not to mention all the people and businesses that need a roof over their heads to live and trade under (e.g., retailers, transporters, hotels, restaurants, government, banks, hospitals, etc., etc., etc.)

From a “Development Economics standpoint” (to again use your words), real estate is one of the prime indicators of economic growth, investment, and output. In fact, you will be hard pressed to find a more tangible investment or indicator for economic development and/or output. In fact, in most nations (developed or underdeveloped) a significant portion of national wealth is in the form of real estate. There is also a strong positive link between the health of the real estate market and the overall job market.

And in the Bangladeshi context specifically, where increasing urbanization is taxing our urban centers beyond the point of tolerance for city dwellers (traffic, load shedding, crime, pollution, etc.), I would argue that real estate development in underdeveloped rural areas of Bangladesh is vital to our future social and economic stability as a nation (of course, concurrent with infrastructure development like roads, electricity, and so forth).

Or perhaps I can convince you with some evidence which I gathered online in just under 2 minutes of Googling.

According to the Bangladesh Bureau of Statistics (BBS), the real estate/renting sector was estimated to contribute Tk. 349,151,000,000 (34915.1 crores) to Bangladesh’s GDP in 2006-7, or 7.74% of total GDP, and growing at 3.77% per annum. By the way, that didn’t include the construction sector which was estimated to perhaps contribute another Tk. 367,701,000,000 (36770.1 crores) to GDP, or about 8.5% of total GDP. To put it another way, at the current exchange rate, those two sectors alone could contribute around USD $10.69 billion directly to our GDP. Or in yet another way, over 15% of our total GDP.

And to put it in yet another and final way, I wonder if the laborers who toil on construction sites all over Bangladesh would agree with you that real estate produces no “economic output”? Or the bank employees who process and issue mortgages? Or the ready-made garments industry that needs to build factories?

If you are working with an alternative definition or understanding of “economic output” or “economic development”, I would strongly encourage you to add to your comments and help us stimulate further debate. I might have misconstrued or misunderstood your comments.

To bring this all back to the original point of my original post: we should be more concerned about the state of “real” economic activity (e.g., real estate) rather than the volatility and probable bubble in the stock market (which is, again, more an indication of returns on financial capital and speculation than “real” economic output). And therefore by extension, our policy makers and economic advisers should focus on policy that stimulates “real” investment in sectors like real estate, rather than try and influence the stock market. Of course, the private sector in the form of Bangladeshi corporates will have to take a leadership position in concert with the public sector.

Perhaps you’ve also seen the recent news in the American economy regarding the subprime lending/mortgage crisis.

It’s regrettable that you didn’t have the time to “shower” us with your “free knowledge” or elaborate your points further in your comments. That’s what will keep this blog from becoming, in fact, quite "brilliant". In the meantime, I humbly suggest you study economic development and investment a little bit further, and then use your knowledge to contribute to our economic development.

• Tweet
• Share
• Share
• Share
• Share