ECONOMYNEXT – Sri Lanka real estate and apartment developers who were already facing difficulties had got into further trouble after Easter Sunday blasts, opposition legislator Bandula Gunewardene said.
"Land and real estate firms have seen even less demand after Easter Sunday," Gunewardene told parliament.
"Some of these companies were already in trouble."
"Do you know that senior officials of some of these companies are in jail?" he asked State Minister for Finance Eran Wickramaratne without naming companies.
Gunewardene said a banking crisis in the US (the so-called Great Recession) was also linked to failed property firms.
The US Fed had kept interest rates artificially low for an extended period of time after 2001 in the so-called ‘mother of all liquidity bubbles’ generating mal-investment in a scale not seen since the roaring 20’s bubble it fired to eventually generate the Great Depression.
Wickramaratne said the main victim of the Easter Sunday blasts was the tourism sector but there could be collateral damage on other sectors.
But Sri Lanka’s banking sector was strong, he said.
In the 2019 the government had also settled areas to a number of construction firm, which are also engaged in property and apartments, helping the cashflows of the sector.
Sri Lanka experienced a strong recovery in property prices as the economy recovered in 2015.
During the year the central bank printed large volumes of money through term repo terminations and generated another balance of payments crisis, requiring corrective action.
Interest rates were allowed to move up in 2016 by the central bank, halting further mal-investments and the development of an even bigger property bubble was prevented, analysts say.
Some property firms, especially some who had got into high profile projects, were already in difficulties by that time, industry officials say.
But as economy recovered in 2018, money was again printed and another period of monetary instability followed within a few months, and the rupee collapsed from 153 to 182 by the end of the year amid liquidity shortages, killing the recovery stone dead.
Instability was worsened by a political crisis in October 2018 generating liquidity shortages and capital flight, becuase Sri Lanka’s peg with the US dollar is not credible. (Colombo/June04/2019)