Sri Lanka real estate prices seen stabilizing

ECONOMYNEXT- Land and apartment prices in Colombo are becoming stable in a sluggish housing market, as vertical living gets further out of reach for the average Sri Lankan due to protectionist taxes and lack of financing, a property developer said.
 
"There has been a slowdown in the number of transactions in land," John Keells Group Property Sector Head/Executive Vice President Nayana Mawilmada said.
 
"Apartment sales have been sluggish," he said.
 
Executive Vice President Roshani Jayasundera Moraes said with the rupee depreciation and the political crisis in October 2018, the confidence in the market has fallen.
 
Interest rates have also risen.
 
Prices of land and apartments have now stabilized, Mawilmada said.
 
Before that, land prices were seen increasing rapidly.
 
According to ratings agency Standard & Poor, property prices in Sri Lanka have grown since 2009, with steeper growth in 2017 and 2018.
 
"Some market reports indicate that the four-year average growth in house sale prices (adjusted for inflation) is six to eight percent per year, with higher growth in recent years," it said.
 
"We expect it to continue to grow at a similar pace in 2019 too."
 
However, according to advertising data tracked by Lanka Property Web, an online land and housing aggregator, land prices in Sri Lanka had stabilized by December 2018, while in Colombo, prices fell marginally after recording sharp growth since 2016.
 
Prices for a 3-bedroom apartment had fallen by 7 percent in the December quarter compared to the previous quarter, according to the website.
 
Mawilmada said as sales moderate, property developers will become more competitive.
 
Brand names of developers will matter more, he said.
 
He said the 4,000 rooms slated to enter Colombo in the coming years will not create an oversupply.
 
"Overall, 4,000 is a drop in the bucket," he said.
 
"Sri Lanka is 48 percent urbanized, but housing stock hasn’t kept up and is lagging behind," Mawilmada said.
 
"Only seven to eight percent of housing in Colombo district is apartments."
 
"In peer cities, the ratio is not below 50 percent."
 
He said many residents in Colombo are selling their land and instead of buying apartments nearby, keep moving to regions farther and farther away, and become frustrated with heavy traffic into the city.
 
"The traffic is because of housing choice, and it will be reversed."
 
"It’s a question of time, because it’s inevitable."
 
He said demand in the future will be in houses for the middle-income group, although for many, apartments would still be beyond reach.
 
Mawilmada said property developers and banks should negotiate more flexible financing deals with potential apartment owners, such as deferral on interest payments for a few years, to make urban housing more accessible.
 
He said around 64 percent of the apartments at John Keells’ mixed development project Cinnamon Life have been pre-sold due to flexible financing.
 
He said the government could also consider a stimulus program to make housing affordable for the middle-income group.
 
Apartment prices in Sri Lanka are high due to construction costs, which are around 30 percent higher compared to rest of South Asia, he said.
 
Protectionist tariffs on construction material such as steel, ceramics and aluminium is hurting the sector.
 
"When steel comes to us at the site, it’s about 100 percent more than the cost, freight and insurance value, because of tariffs," Mawilmada said.
 
However, profit margins of property developers and construction contractors would become thinner due to competition, he said.
 
With a 15 percent value-added tax on apartments to start on April 1, Mawilmada said apartments would become even more expensive.
 
"It will increase an already high cost structure, and it will push apartments beyond the primary domestic market," he said.(Colombo/March01/2019)