Real estate beyond investment

Luxury condominiums have changed the face of Sri Lanka’s real estate industry over the last few years, with high-rise apartment buildings now dominating the Colombo skyline. Driven by its own unique strategy, Blue Ocean Group differentiates its apartments and property services through innovation. S. Thumilan, Group Chairman-Blue Ocean  Group of Companies, speaks about the industry’s potential and on increasing investor confidence.

Q: Blue Ocean Group of Companies has a large portfolio. Could you tell us a little about the group and the journey so far?

A: Over the years the dynamic Blue Ocean Group of Companies has grown into a versatile conglomerate. The evolution of the group is significant because the Group has achieved growth and profit harmoniously and not by taking part in the aggressive competition in the field. Blue Ocean Group of Companies engage in Real Estate, Construction, Engineering, Trading, Education, Corporate Consultancy and many other fields.

With a diverse portfolio, the Group takes bold strides as it strives to uphold its reputation for ethical, innovative and constructive practices in businesses not only in Sri Lanka but also in the Asia Pacific region.

We are the largest developer in Sri Lanka and we maintain BOI and ISO certifications, in addition to meeting other international standards. Currently, Blue Ocean alone is conducting over 23 projects while our company Link Engineering is engaged in several government projects.

Link Engineering is one of the first few construction engineering companies in Sri Lanka which boasts of approximately four decades of experience in the field and comprises of high profile Chartered Architects, Engineers, Accountants, Professors, Doctorate holders, Interior Designers and other industry professionals. They have enjoyed many renowned accolades for their excellence in construction over the years and continue to do so at present with much expectation for the future as well.

We, steer our modern vision in diversified fields and specialise in creating architectural building designs and fully undertake the development of high quality residential, commercial, industrial and governmental constructions, and also provide essential services, such as Engineering, Quality Controlling and MEP Solutions all under one roof. The base of many of Blue Ocean Group’s endeavours is our need to be the most respected, ethically sound and socially responsible company. Covering all aspects of construction, our services include an umbrella solution to contractors and customers. Our focus is to reach potential markets through international networks and expanding to existing markets. These key markets include the Asia Pacific, Europe, Middle East and East Asia regions.

Q: Over the past few years, several high-rise luxury apartment buildings have been built. Could you comment on this?

A: The real estate sector is a good avenue to attract international investment and foreign exchange to help the country prosper. For example, Dubai has quite a small domestic population yet they have a massive real-estate sector, especially in terms of high-rise apartments, and they invite foreign nationals to purchase these for both business and pleasure. Again, it was the same scenario in Australia and a key policy in helping Australia deal with the financial crisis. This is because the Australian real estate market attracted quite a bit of Chinese foreign exchange.

Sri Lanka has the potential to create such prospects. Our proposition is to market these high-rise buildings as a second home. Apartments are ideal, because in Sri Lanka, foreign nationals can own an apartment. They are popular because frequent travellers and those who stay long periods prefer their privacy and the flexibility to cook their own meals and do their own laundry. When I travel on business, I prefer the same. Also, there’s the security issue, where some travellers just don’t want to have the hotel hold their passports, especially during long stays. Therefore, you can’t have restrictive policies or a restrictive mind-set. In order for Sri Lanka to grow, you need to open up the real estate market. Attracting people to live and own apartments in Sri Lanka will create demand across the board - for example, for the education, food and beverages and retail sectors.

To create a demand for Sri Lankan real-estate, one must attract foreigners to the Island. The best example is Dubai. Most of the high-rise apartments in Dubai are empty because these are owned by foreign nationals. But this is an investment for them as when these nationals come to reside in this holiday or business apartment, they spend their money in Dubai. It is marketed as tax-free investment to attract foreign investors, but at the end of the day, to start a business in Dubai, one must have a sponsor from Dubai. In addition, you pay for medical facilities and economic licences among other things. So the country still receives an income, albeit in a roundabout manner.

Q: In terms of quality and industry standards, how does Sri Lanka compare with the international market?

A: Sri Lanka does meet international standards, but as contractors and being in the real estate industry, we do face certain challenges. One of the main factors, I believe, is the over-protection of local manufacturers. Of course, we need to protect local industry. However, there must be a balance in ensuring local manufacturers are competitive not just in the local market but internationally.

At the end of the day, our real estate, especially luxury apartments are competing against Malaysia, Singapore and Dubai. Therefore, from design to finish, it needs to be on par with the international market. Customers who purchase these properties at a premium price require an excellent finish. If the local market cannot produce what we want, we will import these goods, from tiling to bathroom fittings - we want the best. However, if the government imposes taxes on imports to protect local industries that are not performing to international standards, then our cost of production increases needlessly. This artificial price increase makes Sri Lanka’s real estate market less competitive in the international sphere. Therefore, all the local manufacturers should be globally competitive. The government must support this endeavour and minimize over-protection. 

If the government, encourages foreign works participate and with locals like it is happening in field of construction, there will be a significant increase in productivity. This is because when they work together, they share knowledge and learn new skills. Again, Dubai is a prime example, as their workforce consists of many nationalities, and productivity in Dubai is greater, thus contributing to the country’s growth. This is the reason Blue Ocean Group works with many international companies. We want to be aware of the latest innovative methods and how best to do things.

Q: Could you comment on Sri Lanka’s construction and land costs?

A: As I mentioned earlier, quite sadly, Sri Lankan construction costs are continually on the increase. Although project management is key in construction, it is difficult for us to budget for future price hikes. The volatility of the prices is quite discouraging, especially in our efforts to attract foreign investment. A recent example is the increase in Value Added Tax. It has been increased from 11 to 15 per cent, which is a four per cent hike. In the construction industry, this is a significant increase and has an adverse impact on on-going projects. Usually, we account for a safety margin when budgeting for a project. However, if the random mid-year increases in taxes continue, then we must keep a safety margin of about 20 per cent. This drives the cost of the apartment high and makes the real estate industry uncompetitive.

It’s the same with employee salaries. Mid-year, there will be regulations stipulating a 2,000-rupee increase in wages. These changes should be brought in during the Annual Budget. Once the budget has been finalised, amendments of this nature should be at a minimum issue.

Q: How has the 2016 Budget impacted the property market?

A: The removal of duties on certain imports is a big plus because it drives the cost of production down. However, the new residence visa to attract investors to Sri Lanka is too high. There might be a reason for such policies, but they must be reasonable and practical. Our rules and regulations must match international regulations if we are to compete with other countries and attract foreign investment. I hope everything in the Budget and new reforms will be gazetted soon to promote investor confidence.

Q: What more needs to be done for Sri Lanka’s real-estate market to continue to grow?

A: The 2016 Budget has laid out some promising policies in this regard, so we are quite hopeful. There is much more that the government can do to boost investor confidence.

We also need the government’s assistance in addressing the shortage in skilled labour in Sri Lanka. Most of the youth here are driving three-wheelers and taxis. So either there should be a plan on meeting this shortage within Sri Lanka itself or we must look into bringing international labour to Sri Lanka. In the construction industry, the shortage of workers is an issue of significant concern.

This is not a huge concern but it must be highlighted: media responsibility. News in Sri Lanka is over-sensationalised. I understand there are serious concerns; however, there should be a certain balance in the good and bad. The constant negative reporting tarnishes the country’s image in the international sphere, which makes attracting investment to Sri Lanka all the more difficult.

Q: What do you believe is the future of real estate in Sri Lanka?

A: We reached this far at a time when the task of construction developers has become a great challenge due to the steep rise in prices of construction materials caused by direct and indirect taxes. Especially, the prices of imported construction materials have gone up very much, even BOI approved companies feel the heat. Shortage of skilled manpower, delays in approvals from authorities and frequent changes of rules and regulations make the task very much enduring.

Of course the reliability of the developer is a key factor that determines the success of the project. The developer’s credentials and past track records are of paramount importance and needs to be given due attention prior to making investments in the real estate market.

Given the advantages of combining a most dynamic destination, proximity to the highlights of city living and luxurious lifestyle within the apartment itself given its accent to indulgent details and stringent international standards. Blue Ocean apartment will assuredly be a ground-breaker in this fast developing metropolis of Colombo, Sri Lanka.

For details contact: 0094 777 546 546 / 0094 112 722 217 or www.blueocean.lk.