The future of real estate

The fast-growing real estate industry in Sri Lanka is swiftly shaping the contours of Colombo’s landscape and skyline. Optimism persists within the booming industry despite some expressing concern over a bubble on the horizon. Worries remain over the market being flooded by too many apartments, pricing and affordability as well as falling rental yields and the lack of regulations.

Chamber of Construction Industries CEO/Secretary General Nissanka Wijeratne stated recently that Sri Lanka needed to be careful when it came to real estate with as many as 49 towers being built currently. Although demand persists for luxury apartments and condominiums, especially for the ongoing projects, he stated that he was unsure whether the demand will go beyond that or whether in fact the market had already reached the bubble.

Additionally, Candor Group Director Ravi Abeysuriya was also quoted as saying rental yields of luxury apartments, which have been experiencing downward pressure recently, will face further complications given the introduction of value added tax from April. Urban Development Authority (UDA) Chairman, Jagath Nandana Munasinghe was also recently quoted stating that the country could face a serious bubble within the next five years.

However, some property developers remain buoyant about the industry and the market’s future in the country. According to industry leaders, luxury condominia projects completed thus far such as Emperor, Empire, Monarch, 7th Sense, 110 Parliament and Fairmount have been sold out while those under construction including Shangri-La, CCC, Cinnamon Life and Clear Point have had a near-50% absorption rate. For Altair, in terms of units 66% have been sold.

Indocean is investing over $ 250 million in 404-apartment complex Altair, in Colombo 2, comprising two tower blocks, one of 63 storeys, which leans onto a taller, 68-storey tower. Shangri-La is investing $ 450 million on two residential towers of 51 floors containing 390 residential units. China’s CHEC is investing $ 1.4 billion to reclaim 269 hectares for the Port City project which will bring in a further $ 13 billion in investments for various projects including 21,000 apartments.

Indocean Developers Director Pradeep Moraes told the Sri Lanka Investment Promotion events in Hong Kong and Australia that there was no immediate threat of a bubble, pointing to the fact that 90% of luxury condominium purchases were equity-based in Sri Lanka.Another significant feature is the fact that the bulk of the investments for luxury apartment development has been from overseas, giving further stability to the market according to Moraes.

2017 Budget moves such as foreigners being entitled to purchase condominia on a freehold basis from the first floor onwards, and a five-year resident visa for purchases of apartments over $ 300,000 may also contribute to keeping the market out of danger.

However, calls for better regulation of agents and developers by chairmen and CEOs from leading real estate companies have been growing in voice. Industry officials have long being calling for a formal system of registrations for brokers, agents and developers to professionalise their services. It will also be important for the regulations to be implemented in order to prevent any single developer hurting the overall industry and to empower the players to lobby the Government as a united force. Developers also need to be evaluated, thus reducing the risk of a project remaining unfinished and protecting the interests of the customers who have already invested or bought apartments.