Market surveillance - Real Estate


Market dips with economic growth slow-down

Land and property transaction rates have slowed down over the past month across all sectors according to Real Estate analysts at Bartleet TranCapital. The property market in Colombo is said to be at a standstill with only those who are desperate to sell their property willing to part with it for below market rates. The majority of sellers in Colombo prefer to hold-on and ride out the current economic uncertainties along with the interest rate hike according to the source.

Activity in the suburban areas have also slowed down according to the analysts as property developers have had to adapt to the changing market conditions. For instance, the developers are now tending to block-out land and sell these as an alternative to selling plots with built houses. This trend can be observed in areas outside Malabe and Athurugiriya in the Western Province as the developers make a profit on the re-sale whilst at the same time providing affordable land plots to buyers.

Another short-term phenomenon is that potential buyers are re-thinking their options as the prevailing interest rates remain very high and offer a luring alternative to investing in property. However, investors should also realize the drawbacks of holding on to a depreciating currency that has lost steadily against the US dollar and heavily against the UK pound since tsunami aid inflows faded out in 2006.

Perhaps of more concern is for those first-time buyers like newly-weds who are facing higher home loan rates than was the case in recent times. This factor too has contributed to the slowing down of activity in the sector over recent months.


Current environment may offer some bargains

Nevertheless, commentators have advised those looking to buy land or property to do so as it is and will remain the best long-term investment in Sri Lanka. With ongoing subdued behavior in the market, both the share price indices have been sliding now for many weeks. The second week of July witnessed market turnover hit its lowest level in two years (Rs.47.45 million) reflecting the lack of participation by investors according to BMS Research.



STOCK MARKET WATCH


For those with a keen eye on the real estate market, a number of bargains will be available. Essentially, those who need to sell their property due to financial concerns, moving abroad or any other pressing matter, will take a price that is likely to be below the long-term market rates. Commentators from Boomi ( ww.boomi.lk), Sri Lanka’s largest online real estate market facilitators, buying interest has continued unabated from ex-patriots living in all corners of the globe as they are completely unaffected by domestic economic concerns. Daily visitors to the web-site are recorded to be topping 100,000. Most properties that appear on the site are located in Colombo (445 ads), followed by Kandy (154 ), Gampaha (146), Nuwaraeliya (82), Galle (77), and Badulla (69).


Advertisements appearing on Boomi by Category

Property Type Number

Houses 349
Lands 319
Apartments 54
Commercial Buildings / Office Space 42
Boarding’s 3
Hotels / Guest Houses 406

Source: Boomi – www.boomi.lk



Need for reforms and professionalism

Despite concerns regarding the drop in the rate of economic growth during the last quarter, a number of sectors including real estate is expected to weather the conditions. Moreover, as the evidence suggests, foreign participation in the real estate market runs high, and will not be affected by domestic rates and loan schemes. However, the real-estate industry has a number of burning issues that need to be resolved in order to follow the path of matured markets.

An emerging issue in the Real Estate sector of the island is the lack of representation for the industry’s brokers who operate sans a trade union or any professional body. Consequently, exploitation of brokers is said to be widespread as unethical sellers refuse to pay the agreed fees. Due to their lack of official representation, many professionals also do not receive legal coverage. As this industry has a greater turn-over than many of the leading sectors in the country, brokers have claimed that it is high-time that those working in it are brought under formal legislation and protection.

It could be argued that the industry is currently in a transitional stage as it moves out of the ‘sleazy’ phase of development towards a more professional vocation. New initiatives like the Real Estate study program introduced at Sri Jayawardenepura University for those seeking to work in the sector will serve towards professionalizing the industry. However, a lot more work is needed, particularly with respect to protecting the rights of brokers who get less than half the rates of their counterparts working in developed nation real estate markets, such as the US.


NEWS IN BRIEF

Proposed changes to land tilting and land development legislation

After Land Reform in the early 1970's the State owned over 80per cent of land. Meanwhile the time had come to reconsider the social and economic basis for the land management regime of the 1930's when the Land Development Ordinance was enacted. Ownership of the lands through bankable titles will empower the rural peasantry and will enable them to decide their own destiny and that of their children. Granting bankable titles would help to improve the livelihood of rural peasantry where, at present, poverty exists at unacceptable levels. Further, agriculture has become more mechanized and a shortage of agricultural labor is being offset only by rapid agricultural mechanization. In this context a need has arisen for consolidation of land to be economically viable farms. The issue of land and title disputes and thousands of land cases clogging the legal system was also an economic, productivity and development issue which an efficient system of land titling would address.

Sri Lankan builders looks to prolong housing boom

The construction industry has hit high points in recent years, driven by a boom in new high-rise apartments, office blocks and homes by the upper income segment. The sector started its upward trend after budget deficits were brought down starting from 2002 and mortgage rates fell from about 22 percent to 11 percent. Meanwhile the ceasefire brought expatriate money into apartments too. In 2004, the country returned to high fiscal deficits but maintaining a low interest rate by massive money printing which was 65 billion rupees to finance the budget and 38.5 billion rupees were printed in 2006. By 2006, a property boom was in place due to money printing and providing a negative effect on the inflation which had shot up to 20.5 percent in January 2007.

Due to the inflation and the upward trend in the interest rates industry analysts have noted there are signs that the building boom is ending on the middle and lower income segment which is currently around 350,000 units but can reach 650,000 units over the next few years. An emphasis will also be given to more affordable housing which will avoid a slowdown. The Chamber of Construction Industries (CCI) is now gearing up in promoting affordable housing technology in partnership with the non-governmental organizations.

State Mortgage, HDFC to cash in on construction boom

Many leading banks such as State Mortgage and Investment Bank (SMIB) and Housing Development Finance Corporation (HDFC) Bank are looking at funding major housing projects including individual and corporate sectors to promote the housing sector in the country.

Meanwhile, the SMIB has funded more than Rs. six billion worth of loans and the recovery rate is quite satisfactory despite the high interest rates in most banks in the country. The Bank’s current interest rates are lowest in the market, which are around 15 per cent, irrespective of geographical locations in the country. The SMIB Bank provides loans by evaluating the project to avoid recovery problems and much emphasis is given to the low and middle income segment according to the head of SMIB.

Additionally, the HDFC is also focused on funding middle and low-income category housing and it has experienced a big demand due to the boom in the industry. At present this niche market is responding not on a need-based, but on a future speculative basis which is a quite an artificially driven market. There is scope in the low and middle income category housing demand and HDFC Bank provides loans for the sector at a reasonable rate, according to the head of HDFC.

Construction industry employs first batch of trainees of Handwork Centre

Handwork Centre Kalutara is one of the first industry-run vocational training centers in Sri Lanka. This has been established by FCCISL and NCASL with support from the governments of the Netherlands and Germany. The Institution has managed to train and find employment in the fields of construction companies for jobs in professions like building woodwork craftsman, air-conditioning craftsman, industrial electricians and steel fabrication craftsman of a batch of 28 young people from the Western Province who have been placed in through the handwork center.

Peradeniya University to find solution to Kandy’s traffic woes

The Supreme Court has directed the Civil Engineering Department of the Engineering Faculty, the University of Peradeniya to find alternative ways of easing the traffic problem in Kandy ,when a Fundamental Rights Application was filed by a resident of Old Peradeniya Road against the proposed one way traffic system. Although the two roads were parallel to each other, they had only four inter-connections. It was made to understand that the dearth of inter-connections made it extremely difficult for around 28,000 students of 10 schools and 5,000 people who would frequent the number of private channel centers and a hospital along old Peradeniya road to get into the other road and vice-versa.

BOI signs deal for 60 storey-Colombo’s tallest tower

BOI has signed an agreement for a new 60 storey building with NEB Rapid Infrastructure Projects Pvt. Limited of Bangalore, India amounting for US$ 120 million which will be the tallest of the sky scrapers in town and located in Battaramulla, the project is expected to be completed by 2011. The tower will cater to a mixed spectrum which will house office space, commercial and residential sections.

Meanwhile, NEB is also involved in the project for a MRTS where a detailed project is currently being conducted by the Singapore Land Transport Consortium, which will integrate the building project to a metro network which in return will serve 12,000 people per hour per direction and ease traffic congestions. Another economic benefit will be a massive savings on fuel consumption. Many Asian capital cities are now moving into metros and have benefited considerably in the long-term.

Carsons Real Estate launches Amadiya

Adding to the development of the real estate Carson’s Real Estate Management Services launched its first project, Amadiya in Athurugiriya recently. With a history and tradition dating back to its origins in the 1860s. Carson Cumberbatch is today a rapidly expanding conglomerate with businesses spanning across Sri Lanka and the South East Asian region. The Group owns prime real estate properties in and around the Capital City which are currently built-up and let-out commercially and has recently extended the business reach to include the “Develop for Sale” Market, focusing on housing units including high rise Apartments.

Starline Enterprises ventures into construction

Starline Enterprises, is now diversifying into the real estate business from disposable packaging. The company has completed couple of new houses and also renovated a few more in and around Moratuwa, Katubedde and Ratmalana. The latest in the pipeline are sixteen houses which will be located in an acre of land in Thelawala, redecorated with a host of trees planted in a well organized manner and be named as “Thuru Sevana Homes”. Each will consist of three to four bedrooms varying from 7.5 to 9.0 perches. All modern facilities including hot-water, fitted pantries, air-conditioned master bedroom etc. will be available in each house. Recreational and open areas too would be available for the relaxation of the occupiers. All houses will have a central entrance and the provision of central security on a 24 hour basis would ensure high security for all houses and their occupants.


Key Sources: Bartleet TransCapital Real Estate, Boomi, Lanka Business online.

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