ECONOMYNEXT – An overwhelming majority of Sri Lanka’s luxury apartments have been bought with cash reserves rather that debt, though supply is increasing now with several projects under construction, industry specialists said.
Sunil Subramanian, Head of Transactions at the Sri Lanka unit of James Lang LaSalle, an international property consultancy said annual demand for luxury apartments have grown to about 550 to 600 units from half that a few years ago.
There were now 3,700 units of luxury apartments (priced around 300,000 US dollars or higher) that will be completed in the next two to three years.
Steven Mayes, Managing Director of JLL in Sri Lanka says about 95 percent of the apartments are purchased with equity and only about 6 percent are bought with debt.
In development markets it was the opposite, he said.
Subramanian says there is no major problem in the sector but developers will take more time to sell all the apartments than they took in the past as supply is increasing.
There was a limited amount of high net worth individuals who had the cash to buy.
Apartment prices in Colombo have almost doubled over five years, with land prices going up and the rupee collapsing as the central bank printed money in 2015 and 2016, and pushing cost of materials higher. Land prices also go up when the cental bank prints money keeping interest rates down, bloating the present value of long term assets. Interest rates have since risen.
About 95 percent of the buyers of luxury apartments were Sri Lankans and only the balance were foreigners.
Among Sri Lankans, about 60 percent were resident, and 35 percent were non-resident Sri Lankans, Mayes said.
Finance Minister Ravi Karunanayake proposed that domestic banks advance foreigners money to buy apartments in the last budget, though the move is yet to be implemented.
JLL officials said the proposal was to provide up to 40 percent credit to foreigners, who will make loan repayments through foreign remittances. (Colombo/June14/2017)