Sri Lanka property developers seek to re-start work, clarity on import controls
ECONOMYNEXT – Sri Lanka’s property developers have asked President Gotabaya Rajapaksa to start work which had been halted to stop Coronavirus and also sought clarity on import controls proposed as the central bank injected liquidity de-stabilizing the rupee.
The Condominium Developers Association of Sri Lanka (CDASL) asked President to allow the commencement of Construction Projects as soon as practically possible and include property firms among those eligible to get credit relief.
Sri Lanka’s politicians have said that all imports other than medicine and fuel would be banned and the public had been asked to grow kollu (horse gram) and other grains and vegetable as the central bank printed money and generated forex shortages.
“There is some ambiguity on imports of building materials and equipment since the authorities have made statements regarding imports being restricted to essential items only,” the CDASL said in a statement.
“A clarification on this would be helpful to avoid further disruption in project supply chains.”
The association also asked for relief from para tariffs on imported inputs and to ease cashflow pressures on developers and contractors.
The developers said allowing foreigners based in Sri Lanka to get apartments with their domestic earnings, without having to remit from overseas and allowing expats to get a part of their finance from domestic banks would also help.
Liberalizing resident visas would also help.
The full statement is reproduced below
April 17th, 2020
H.E. Gotabaya Rajapaksa
President of the Democratic Socialist Republic of Sri Lanka
Re: Relief for the Property Development and Construction Industry
The Condominium Developers Association of Sri Lanka (CDASL) sincerely appreciates all efforts taken by you and your government to curb the spread of COVID-19 and ensure the welfare of our citizens. We are also aware of and appreciate all the measures the government has put in place in its effort to minimize impacts on the economy.
As you may be aware, the property development industry employs hundreds of thousands of people, both directly and indirectly, throughout Sri Lanka. This includes direct employees of development companies, a large number of professionals and technical personnel, as well as vast numbers of construction workers who are highly vulnerable to economic shocks.
The property development industry is the primary employer and revenue source for the majority of professional construction firms, as well as thousands of SMEs across the economy, from small scale building material providers, to manufacturers and installers of a range of finished goods and equipment.
A slowdown in development activity will have immediate impacts on these firms (and their employees) which will only get resolved when development projects are able to move forward. As such, we would like to propose the following measures to help our industry get back on its feet:
1. Permit and facilitate the commencement of Construction Projects as soon as practically possible.
All construction sites in Sri Lanka are suspended, and with them employment and income for many thousands of workers and SMEs. A resumption of work in construction could be done based on clear regulations and restrictions as advised by the government’s health authorities.
2. Include Property Developers among the list of industries/sectors eligible for financial concessions recently announced by the Central Bank to help with working capital/cashflow pressures.
With very large capital outlays for our projects, developers are among the first to go into financial distress with an economic downturn. The cascading effect of suspension of development projects will ripple through the economy at multiple levels as banks, personal investments of homebuyers, and hundreds of thousands of jobs will be at risk. Clear guidelines need to be issued to banks and the financial sector on preferential interest rates, loan moratoriums etc.
3. Direct the BOI to extend the Project period permitted under the BOI agreements for projects which are currently underway and impacted by the shutdown.
All construction sites have been shut down and global supply chains for materials and equipment are severely impacted. Given these circumstances, delays in construction projects are unavoidable, and ensuring BOI concessions are extended to accommodate such unavoidable delays would be critical to ensuring viability of many of these projects.
4. Permit the importation of Project related materials
There is some ambiguity on imports of building materials and equipment since the authorities have made statements regarding imports being restricted to essential items only. A clarification on this would be helpful to avoid further disruption in project supply chains.
5. PAL, CESS and other such levies to be waived on Project related material for a stipulated time period to stimulate the development activities and reduce cost structures.
Relief on para tariffs for project specific imports will reduce cashflow pressures on developers and contractors alike in the current revenue-constrained environment and help projects to keep moving.
6. To encourage new investments greater than a stipulated value by granting very attractive concessions.
Sri Lanka needs new investments to move forward and grow. With a global slowdown, attracting new FDI and launching new investments will be substantially harder. Highly concessional terms will be needed to ensure viability of projects that can be kicked off in the coming year or two. We trust the government will put in place aggressive concessions to stimulate investment in new projects as well.
7. To fast-track the implementation of REITs and related legislation/regulations.
The slowdown of the economy both locally and internationally will inevitably cause a drop in land and property valuations which in turn will substantially expose banks who often use land and property as collateral for lending. Creating an enabling legal/tax environment for the launch of REITs would help mobilize more equity capital/FDI and also stimulate more long-term investment in the real estate space, which in turn could help stabilize property prices.
8. Encourage foreign buying/investment in Sri Lankan real estate
Given the Government’s strategic approach to managing the COVID outbreak, Sri Lanka is emerging among the countries displaying effective crisis management capability and resilience. This is a huge positive and could encourage foreign investment especially in the Property Sector.
With this in view, it would be prudent to fast-track efforts to encourage more foreign buying of real estate, thereby opening the potential for substantial FDI as well stimulate demand in the property market.
Allowing foreigners currently based in Sri Lanka to purchase apartments with their domestic earnings (without having to remit from overseas), allowing expats to finance a portion of their purchase price through domestic banks in LKR provided the major part is remitted from overseas , and liberalizing regulations for long term resident visas are among some of the interventions that would help in this regard.
On behalf of the Condominium Developers Association of Sri Lanka, I would appreciate if you would consider the above points, and take necessary measures to ensure the continued viability of property development as a major driver of employment, economic development, and urban transformation of Sri Lanka.
Condominium Developers Association of Sri Lanka