By Shenali De Silva
Colombo’s skyline has undergone a dramatic change during the past five years, and has the potential to become a driving force for economic growth. This is by bringing large numbers of people in close proximity, fostering innovation and generating prosperity.
Speaking to Shenali de Silva of the Ceylon Chamber of Commerce, Krishan Balendra, Executive Director of John Keells Holdings and Co-Chair of the Ceylon Chamber’s National Agenda Committee on Finance and Capital, speaks of key drivers which would fast-track the transformation of Colombo to an international tourist and business hub.
At the outset of the discussion Krishan tells us of multitude of developments in both the commercial and residential space and how these developments are positioning Sri Lanka as the most attractive capital city in South Asia.
“Shangri-La has opened recently, we are developing Cinnamon Life, two 5-star hotels, ITC and Ritz Carlton, are under construction, and the Grand Hyatt will eventually get done. Then you have the entire Port City project which is an exciting development. Where I see this going in the medium term is that it will position Colombo as the most modern and liveable city in South Asia. Most people already say it’s the most attractive capital city in South Asia.”
However, these projects alone are not likely to drive the transformation of Sri Lanka vis-à-vis the development of Colombo. Krishan tell us of the key developments which are essential to creating the right ecosystem in order to facilitate the transformation of Colombo as one of the most vibrant cities in the region.
well-trained workforce is the need of the hour
With such mega developments in the horizon, Krishan states that the need of the hour is skilled and well-trained labour – especially in the construction and hotel sectors. He further stated that while vocational training and education to develop such skills locally is important – in the short term – in order to meet the demands of the sector, Sri Lanka will likely have to source labour from overseas.
“Getting enough people to work in these hotels and malls are going to be the problem. There is certainly a shortage of labour in the construction sector. If you go to the major construction sites you’ll observe there being a lot of Chinese, Indian, and Bangladeshi workers, so it’s evident there’s a shortage there. And we are seeing that there is even going to be a difficulty for hotels to source labour, so the authorities may need to allow foreigners to come in for certain roles in hotels. They allow it at the moment for specialist roles like executive chefs and general managers, however, we may have to broaden that. So the main thing the country needs is a well trained workforce. We need to gear ourselves for that, whether it is vocational training, whether it is the university system or other training colleges so that we are training the workforce for the jobs that are going to arise,” says Krishan.
Better airports and better highways for better accessibility
Apart from developing our labour pool, Krishan also observes that development to the Bandaranaike International Airport and highways to Kurunegala and Kandy are likely to significantly improve accessibility to such cities which attract a large number of tourists.
“The critical infrastructure needs is a bigger airport, we need a bigger terminal at the Colombo airport because it’s getting congested. We also need the highways to Kandy and ideally even to the north because that is a big bottleneck. While the Southern Expressway has made the south much easier to access, if there is a new highway even up to Kurunegala it really makes the rest of Sri Lanka much more accessible so those are the two critical infrastructure needs,” says Krishan
Sri Lanka needs triggers to attract foreign investment to the real estate market
While observing that there have been mega developments in the City, Krishan also observes the scarcity of foreigners investing in apartments and commercial space. Commenting on this, Krishan says: “What we don’t see is foreign investment interest in the real estate market in Sri Lanka, and we need a few triggers to spark this.”
One such trigger could be granting residency visas for foreigners who invest above a certain threshold. The other trigger could be when some of these projects are completed and Colombo becomes a more attractive place to visit and live in.
Krishan also observes that countries such as Vietnam and Thailand have benefited from such foreign investment and are seeing overwhelming demand in the real estate space. “If you look around Asia, countries like Vietnam and Thailand have had to bring a cap on how much foreigners can buy in any new apartment development, because there is so much foreign interest. They don’t want the locals to get crowded out so they are capping the amounts foreigners can buy.”
Better lending schemes for locals to access prime property
Access to prime property, especially in central Colombo has been nearly impossible for middle income earners and small and medium enterprises due to the significantly high cost of both residential and commercial property in the City. As there is likely to be an oversupply of space in the short term, and in order to ensure that there is steady demand for such property developments, access to capital is of paramount importance to both these classes.
Krishan states that the lack of mortgages and long-term lending facilities need to be addressed in order to bridge this gap. Commenting on this, Krishan states: “I think the peculiarity is that the amount of mortgages are very low. Mortgages as a percentage of assets in the banking system is only 7%, in other countries it is substantially more. In the more developed counties it’s over 30%. The reason it has been so low in Sri Lanka is because the interest rates have been so high and volatile over the last 20-30 years. Therefore, we need a lower interest rate regime and we need banks to be able to source funding at a long term rate.
“If the banks are to lend to you and me at a fixed rate for 25 years, they need to be able themselves to raise funds at a fixed rate for 25 years. So they need to be able to issue bonds and so on for 25-30 years to be able to fix their cost of funds. So there is a maturity mismatch there, they cannot lend for 25 years at a fixed rate if they can’t borrow for 25 years at a fixed rate. Fundamentally, the issue is that the interest rates are too high. It is encouraging that we are starting to see the fiscal deficit coming down and the economy stabilising. If this can be sustained for a period of time, you may see interest rates settling down, where even the long term yields are at single digits.”
Addressing such critical infrastructure and socio-economic needs would surely fast-track the development of Sri Lanka as a prime destination for both business and tourism, says Krishan confidently. Speaking of the opportunities for development, Krishan states that the Cinnamon Life project and the Port City Project are likely to provide access to markets such as the regional conference market which has yet been untapped.
Speaking of the Cinnamon Life Project, Krishan stated: “Having run Cinnamon Grand and Cinnamon Lakeside, we knew that Colombo can’t cater to a big regional conference, or even a big Indian wedding. Our hotels are too small, the ballrooms are too small. So Cinnamon Life had a purpose for being developed. It has large ballrooms, large breakout rooms, and meeting rooms and even an exhibition area. So we have an 800-room hotel and it’s really designed to bring in a market that doesn’t come to Sri Lanka, the whole regional conference market.”
Krishan concludes by stating that the benefits are not limited to the construction sector or the large conglomerates, rather the spillover effects are going to significantly impact small and medium enterprises. He specially highlights restaurants, bars and shopping as the areas most poised for growth.
“In seven to eight years Colombo is going to be a much more vibrant city and that just means that it’s going to be economically vibrant. There are going to be a number of service providers who can benefit from it. Not only the construction service providers, it’s going to be across. People who have standalone restaurants, bars and shops are also going to benefit because of the higher volume of people visiting Colombo.”