Lower loan costs, higher incomes boost Sri Lanka housing market

ECONOMYNEXT – Sri Lanka’s rising income levels and lower borrowing costs will help boost the residential housing sector, seen as the next driver of the construction industry, a new research report said.

The residential housing market is set to grow at a compounded average growth rate of 8.5 percent over the next five years, said Kanishka Perera, Head of Research of brokerage Asia Securities.

“We believe the residential sector will be the next driver of the construction industry,” he told a forum where the findings of their report ‘Sri Lanka Construction Sector: Transitioning from Infrastructure to Residential’ were presented.

The Asia Securities report said both near term infrastructure and longer term residential development will result in an increased demand for raw materials.

The prime beneficiaries of this growth would be cement, tile, and aluminum companies, Perera said.

He attributed the anticipated growth to a combination of rising household income levels and lower cost of borrowing.

This means the affordability of home ownership has gradually improved over time

Asia Securities estimates that the loan cost of building a house with a square footage of about 2,000 square feet is around 27,400 a month now compared with 26,100 in 2007, with just a 0.6 percent CAGR.

But median household income levels have increased at a much faster pace of 10.7 percent to 30,800 rupees from 16,700 over the same period, making home ownership more affordable.

Lower borrowing costs were driving housing affordability with interest on home loans falling to nine percent now from 17 percent in 2007 although total building costs have increased along with loan amounts. (Colombo/November 04 2015)
 

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