ECONOMYNEXY - A light rail transit (LRT) system planned for Sri Lanka’s capital Colombo could inflate property prices and rents along the route but investors should be careful in accepting price rise projections, a property consultancy said.
Already, the suburb of Malabe, where one terminus of the LRT into Colombo’s main business district will be located, enjoys projected, year on year land price increases of 16%, Jones Lang LaSalle (JLL) said in a report, citing online data.
The price per perch in Malabe was already approaching a million rupees, they said.
This was owing to “good access to the southern expressway, and the proliferation of high tech IT and business parks providing excellent employment prospects for graduates from nearby educational institutions.”
Work on the first phase of Colombo’s Light Rail Transit (LRT) is scheduled to commence by 2020 at a cost of USD1.7 billion funded by Japanese government loans, and re-payable over 40 years, at 0.1% interest, and with a 12-year initial grace period.
The first line - travelling from Fort/Pettah to Malabe - promises a considerably reduced travel time of about 30 minutes between the two termini.
“As is expected, with any major commercial development promising to bring with it added convenience and ease of travel, property prices en route are expected to spike,” JLL said.
JLL cited numerous global studies on the impact of infrastructure improvements on property values, saying whether road or rail, there is very close correlation demonstrating value increases of between 6 and 12% from such diverse geographies as Brazil, Sweden and Dubai.
“An ideal example is London, and the M25 orbital motorway, which opened in 1986. Over the 30 year period, since its opening, real estate values, for property in its vicinity, have risen a staggering 551%, or an average of 6% per annum, compounded.”
However, JLL said it would still be prudent to consider two other interesting facts that emerge from such studies that may influence a decision in investing in real estate where infrastructure developments are in the pipeline.
“Firstly, commercial real estate, and lands, benefit from higher rises than residential real estate when road and rail improvements are delivered.
“Secondly, and perhaps, even more importantly, rental rates rise more than sale values in the residential sector.”
Studies in Dubai have shown that property sale values, within 0.5km from metro stations, actually fell, and the optimum distance for values to rise, was 1.0 to 1.5 km, while rental rates rose sharply for properties within a 0.5 km radius of these transport hubs.
“It can then be concluded that while there is more often than not a distinct correlation between improved infrastructure and property prices, there are other holistic factors to be considered that may just sway this relationship,” JLL said.
“Accordingly, owner/occupiers and buy to let investors would do well to conduct their own research before accepting sales pitches that include price rise projections, at face value.”
(COLOMBO, 06 August, 2018)