Realtors deny influx of luxury apartments

• Says main issue now isn’t oversupply but dipping land availability and traffic congestion
• Urges Government to look at luxury condos as an indirect export as industry cannot depend on locals forever
• Says to enable legislative environment to facilitate foreigners to buy apartments
• Foreign purchasing in luxury apartments markets drastically down mainly due to no proper marketing by BOI

By Shehana Dain

Local realtors last week renounced claims that the luxury apartment market is on the verge of an overspill, stating that pre-sales look strong and the market is intelligent enough to adjust.

Indocean Developers Director Pradeep Moraes stressed that there was no glut at the moment and stressed that it would not be so in the near future while communicating his thoughts at a panel discussion at the Capital Markets Conference organised by Edu Consult.

Indocean Developers Director Pradeep Moraes, Research Intelligence Unit Director Roshan Madwala, Moderator Financial Services & Capital Markets Industry Senior Member Naushervan Beg, Steradian Capital Director Hardy Jamaldeen and BDO Partners Tax Services Senior Manager Dinusha Perera at the head table

“There has been talk going around on the lines of ‘will this bubble burst?’ and all sorts of doubts, but I certainly don’t think so because it’s a little known fact that luxury apartments in Sri Lanka are 90% equity-based. When we talk about a glut I think we are looking at Colombo from a wrong prism; we are looking at it in relation to what Colombo was 10 years ago or we are looking at how it will be after 10 years. The more appropriate comparison is to look at Colombo with other capital cities in the region,” he said.

Noting that the main issue at the moment was not a market flood but the reducing land bank and ever-increasing traffic congestion which reduces demand attractiveness, he then gave insights into the pricing mechanism of luxury condos around the world. Moraes said average prices in Sri Lanka were way more reasonable, stating that one square foot in the upcoming Altair residencies averaged at $ 340, thus giving the local market a competitive edge.

Furthermore, he highlighted the fact that the industry could not expect Colombo to sop up the luxury units for many years to come, noting that not much has been done to sell units to foreigners.

He pointed out that during his tenure at JKH and while being involved in the marketing study of Monarch Apartments, the team predicted a split of 65% foreign and 35% locals to take up the units. He however mentioned that currently the situation has virtually reversed as the real estate market is divided between 35% expatriate Sri Lankans, 10% pure foreigners and 55% locals.

“The market is not that deep in Sri Lanka; we cannot continue to depend on local buyers. We have to look at real estate as a form of indirect export, there is a lot of potential for that. We should at least be able to sell 50% of our inventory by sources outside. It’s something even the Government should look at,” he added.

According to Moraes there are around 4,500 mid and high range apartments to come on board.

“It would be that sector which would be of appeal to investors, therefore we keep the lower end out of it. If we have an average of 1,500 square feet per apartment and we charge a modest $ 300 per square foot, that alone gets you $ 2 billion; if you get half of that coming from aboard, its $ 900 million.”

Moreover he asserted that for this to materialise, Sri Lanka should be offered as a real estate destination and one of the major obstructions at the moment is that the BOI, which claims to be a one stop shop, is actually a ‘full stop shop’.

“Most of the facilities and promises that are offered by our officials to foreigners are observed in breach and a lot of these are more controlling than facilitating. We need to position Sri Lanka as a real estate destination. A couple of years back there were many factors that hindered this. We were asking people to come and buy apartments, but will we give them a visa? Yes, but for a month. Now thankfully the situation has changed and it has been extended to three years at a purchase price of $ 250,000. This is still not enough and more articulation needs to be done in visa matters,” he said.

Moraes opined that realtors should get together as an industry and showcase the face of the Sri Lankan real estate market to the world.

“As developers our prime responsibility is to build for stakeholders to sell which we can manage. What we need is an enabling environment. We are grateful for several changes that were brought in such as the abolishment of the Mansion Tax and the draconian and senseless law called SIA account. The enabling environment has to be nurtured, polices have to be consistent and the changes to the law have to be enacted fast,” he emphasised.