Condominium developers see silver lining despite Covid-19



By RPA Perera

The Covid-19 has had a drastic impact on the economy of Sri Lanka. That countries around the world are also shaken by the effects of the pandemic is of little consolation. It is interesting to note, however, that condominium developers whose projects are completed or nearing completion with a full inventory are likely to reap significant benefits.

The industry that was hit hard by the Easter Sunday bombings in Colombo in April 2019 began to recover last year. RIU – a multi-sector research firm with a global presence with international offices – in its annual real estate market report 2019-2020, indicates that the market, which remained sluggish in 2019 for various reasons, has started to shrink. recover in 2020.

Looking ahead, RIU CEO and Founding Director Roshan Madawala said, “We can note that the industry has operated with tenacity and resilience over the past 1 ½ years, despite extraordinary economic challenges. Over the next 5 years, Sri Lanka could face an under-supply of apartments and other real estate assets due to a combination of variables that would essentially steer it towards creating a seller’s market. This situation would have been somewhat unthinkable even 24 months ago. “

“The research and data we are analyzing now suggests that the current time is exceptionally good for residential real estate investment,” Madawala continued. “In 2020 and 2021, low interest rates have stimulated the market to improve the absorption rates of the prevailing apartment stock in Colombo. Simultaneously combined with the diaspora’s interest levels reaching an all time high and with the slow reopening of airports, the influx of buyers will be significant. The market is more attractive than ever to people earning greenbacks, pounds sterling and most other currencies, due to the weakening rupee. The amalgamation of these variables and the new reality facing developers, whose costs have skyrocketed due to new import restrictions and, by the current market. Therefore, the likelihood of an insufficient supply is real.

Dr MAK Sriyalatha, Senior Lecturer, Department of Business Economics, Faculty of Management and Business Studies, University of Sri Jayawardenepura, commenting on the effect of import restrictions and currency devaluation on the market real estate, said: “The restrictions and devaluation affect the prices of imported products. commodities and this automatically affects real estate development such as short-term residential housing prices. But units at the LKR price have become much cheaper, making them more attractive to foreign investors. Real estate players with unsold or built but unsold inventory will benefit from selling at higher prices. “

“In addition, interest rates are at an all-time low, with the real interest rate recently being negative. This makes real estate investments more attractive in 2 ways, ie borrowing to invest is more feasible, and the returns generated are more attractive, ”she added.

“The stock price and profitability of pure residential real estate companies with high quality products are expected to improve relative to the price and profitability of commercial real estate developers, as the concept of working from home is widely used. The larger the projects and inventory, the higher the profit. A home of one’s own can not only be an asset, but also provide security, ”said Dr Sriyalatha.

“We live in a VUCA (volatility, uncertainty, chaos and ambiguity) world driven by rapid technological advancements that impact all aspects of human activity and markets,” continued Madawala, CEO of RIU. “However, real estate has traditionally proven to be a safe haven during such times and in 2020/21 Sri Lanka’s real estate market has proven its resilience. Commercial and commercial real estate will however have to navigate a more fluid environment. and more difficult in the short to medium term.

Quality and trust are paramount in the residential real estate industry. Naturally, established players with a good track record have an advantage. The brand, stability and financial strength of developers are all critical as real estate developments are generally long term developments (i.e. take a few years to complete from launch), investors must therefore be comfortable with the stability of the developer and the ability to complete the project. Even under the current circumstances, large players are more likely to withstand adverse conditions due to their greater financial stability.

Industry players who have large projects nearing completion or whose major part of construction and importation of materials are already purchased or purchased, are likely to make significant profits and these may turn out to be reflect in the course of their actions.

Mr. Brahmanage Premalal, Chairman of Prime Lands (Pvt) Ltd, commenting on the demand for condominiums said: “The demand for real estate in Sri Lanka, especially residential condominiums, has continued to increase throughout the year. year, as investors rushed to take advantage. the cut in key rates announced by the CBSL as part of its monetary policy easing measures following the economic slowdown caused by the pandemic. Likewise, the vehicle import ban and the ongoing devaluation of the rupee also seemed to fuel interest in real estate, which I believe was some of the other contributing factors that helped increase the demand for condominiums. Also, as is the case with import controls and rising commodity prices, the real benefit is for buyers as they get much higher returns. We see this phenomenon all over the world because the real investment against inflation and high money supply is investment in real estate ”.

Some industry players are also hoping that the project’s developments in the port city, which are expected to start soon, will result in higher demand, especially for developments in Colombo and the suburbs, as expats will need housing. to neglect construction and development.

A document prepared by the government intended for potential investors describes various development initiatives supporting the theme, Sri Lanka is the rising star of Asia. Among them is the development of luxury beachfront villas in Port City Colombo. An important feature is that foreign investors are allowed to own 100% of the real estate investment. Access to temporary utility sites and facilities (water and electricity) is already available while permanent utility connections are to be provided by June 2022.

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