ECONOMYNEXT – Sri Lanka has good medium term prospects for apartments despite questions over current demand while beach property has risen 10 fold in recent years, an industry official said.
Krishan Balendra, an executive director at John Keells Holdings, which has interest in leisure and property said most of the growth of the real estate market has been seen around the residential sector in Sri Lanka’s capital Colombo and suburbs.
"If we go back 10 years, annually you would have seen in Colombo and the suburbs about 200 apartments being sold annually," Balendra told an investment forum organized by the Ceylon Chamber of Commerce.
"The number of apartments sold in the last few years has been about 2000 annually.
"It is debatable whether that kind of trend can continue. But over the medium term we are confident that it would even increase."
Balendra said outside Colombo, steep prices hikes were seen in land with tourism prospects.
"Outside Colombo we have seen significant increase in land rices primarly in locations good for tourism," Balendra said.
"Especially in the beach we have seen in some instance 10 fold increases in some cases.
"But volumes are still small. The estate market really is dominated by Colombo and the suburbs."
Sri Lanka’s apartment prices shot up after 2015, when the central bank failed to raise rates as credit demand picked up and the government budget deteriorated with a new administration coming into power.
When interest rates are low, the present value of long-term assets go up, generating an ‘asset-price’ bubble. The Central Bank then printed large volumes of money to keep rates down artificially, eventually generating a balance of payments crisis.
Interest rates have since risen, and budget deficit has reduced, but the collapsed rupee has also pushed up prices of all goods and real assets.
Central Bank Governor Indrajit Coomaraswamy had said he wanted to prevent any perceived bubble in apartments from bursting and spilling over to the rest of the economy. Businessmen seem to be leveraging their businesses to buy property, he said.
The first sign that banks may be becoming cautions came when last year’s budget proposed that domestic banks lend to foreigners to buy apartments in Sri Lanka. The central bank’s administrative controls on vehicle credit may have also diven more credit to property speculation. Admin controls have been abandoned in more stable economies in favour of price signals for this reason, analysts say.
Two apartment developers had said that the top end of the apartment sector may be priced high, and at least two large projects may have failed to get off ground, but in lower levels real buyers were still purchasing actively to live.
Balendra said more people were getting use to an apartment lifestyles in Sri Lanka and was willing to give up spacious houses and gardens.
Higher vehicle ownership and traffic jams were also making people own apartments which are ‘more centrally located" he said.
Compared to other cities in Asia like Bangkok, Kuala Lumpur or in newer cities in Vietnam, 2000 apartments a year was ‘a very small number’, Balendra said.
However prices in Vietnam are much lower than Colombo.
In Sri Lanka housing construction costs are higher partly due to import duties on steel and other building materials, which have been slapped by the elected ruling class to give excessive profits to a few industrial oligarchs.
Other industry officials say a trend is also starting where some high income families are starting to maintain an apartment in the city while having a house in the suburbs or further away, which is also a trend seen in developed nations. (Colombo/June05/2017)