Sri Lanka Real Estate: Cautious Optimism



Roshan Madawela

Despite the severe battering taken by the stock market and a sharp downward turn in the LMD Business Confidence Index, one market in Sri Lanka remains unfazed. Real estate is proving to be the investment of choice for a growing number of people as illustrated by the overall upward movements in the market. To some it’s a sign of the poor shape of the economy that people are steering clear of conventional financial sector based investments. To others it’s an indication that the country situation is certain to improve at some point in the future, near or far.

Small-time investors spur demand for individual plots

Senior consultants at Bartleet Real Estate Brokers have indicated that a strong surge in demand for small housing plots has been noted in recent weeks whereby individuals have sought to purchase land and property with their surplus funds as a preferred investment option. In some cases investors have even borrowed from banks to fund their acquisitions as real estate continues to remain a sound investment at a time when markets are proving to be volatile. Middle to upper-middle income economic classes are the most active in this area of the market according to the real estate team.

It is also observable that many of these buyers are looking to pick-up on lands and property in neighborhoods that are adjacent to areas that have been developed by property developers. The work of these property developers is playing an increasingly vital role in the market by making surrounding areas more attractive, cleaner and safer, thereby extending periphery benefits to the entire locality. By putting a ‘smile’ on the neighborhood, they attract interest from buyers who are looking to acquire a real estate investment in the surrounding areas at a slightly lower rate than what is on offer within the developments themselves.

Another factor that affects the market is the quality of infrastructure. Some of the leading growth areas in the Western Province worth highlighting are located in the suburbs of Kotte and Kaduwela. The entire stretch from Battaramulla to Kaduwlea is known to be in high demand due to comparatively advanced infrastructure in terms of roads and by-roads. Transport quality is playing an important role as the development of new highways tends to uplift the connecting areas. For instance, Homagama is now more attractive to ‘house-hunters’ as a result of the recently completed Malabe-Godagame highway that complements the long serving High-level Road.

An accurate prophecy

Whilst the Economist Annual Report forecasts are notorious for getting it’s predictions wrong, for Sri Lanka at lest, they appear to have given an accurate prophecy. It said that 2007 will be a year of misery for many parts of the island, particularly for the North and East. The report also reckoned that many large development projects would nevertheless make progress and that the south would benefit most of all. Not far off the mark.

Formerly an under-developed town in an under-developed environment, Hambantota is set to receive an unprecedented boost as the town is set for a complete revamp. In the pipeline are a new harbor, an international airport, and a 50 acre townscape equipped with an international conference hall that will dwarf the BMICH, an information center, court complex, public offices, car park and a new tourism project that will rival the Nuwara Eliya season. The agreement to commence construction was signed in May and the Koreans are expected to foot a large part of the Rs2.3 billion new-town-planning segment of the overall Hambantota project.

It is worth noting that the reigning President is from Hambantota and his rule could extend until 2017 by which time the deep-south town could be transformed into a Colombo like city. Moreover, even after the completion of the President’s maximum term in office, the town could be further boosted by his rival, a son of former President Premadasa who is also based in Hambantota. Once current plans are in motion, there will be little doubt that the region’s real estate market will witness a significant boost.

Additionally, a special 243 acre economic zone is expected to be built in Matara district with the first phase of work due to start later this year. The zone will be located in Godagama and will be served by the new Colombo-Matara expressway. With the backing of the Board of investment, the new project is set to accommodate some 100 companies whilst providing 25,000 new employment opportunities in the Southern Province.

Stocks down, currencies stable

The markets as a whole were well down during May as a series of security related incidences knocked the stuffing out of investor confidence. The ASPI fell from 2787.30 to 2506.32 whilst the MPI dropped from 3845.38 to 3543.83 during the month. Whilst the Land and Property sector stocks picked up during the third week of May a dramatic slide followed. The final week witnessed the sector positioned at number two on the ‘top sector losers’ table, shedding 2.66 per cent according to market data (BMS Research).




As forecasted by Bartleet Mecklai and Roy (BMR) analysts last month, the rupee maintained its value at between Rs110.80 and Rs111.00 for much of the month. Expatriates and foreign currency earners can expect to see the currency trade at between Rs110.6 and 110.9 during June. The strengthening is due to Central Bank attempts to control inflation by mopping up funds and converting dollars into rupees according to BMR’s senior analysts.

Regulatory changes

The Minister for Enterprise Development and Investment Promotion has requested the Board of Investment (BOI) to establish a land database for the benefit of local and foreign investors. The database will collect information in the 11 export processing zones that fall under the BOI with the aim of making it easier to obtain data on empty and used land in the zones. Currently, the process of acquiring information on land for building factories is said to take up to six months.

Meanwhile, the Minister for Land and Land Development has requested his officials to expedite the planned changes to the land registration process. Under the new initiative, a one-page certificate of ownership is to be issued, replacing the land deed system. The change is set to reduce delays and complexities associated with land registration and will be welcomed by banks and other institutes in the real estate sector. The Ministry is also expected to re-survey all land in the country.

The Colombo Municipal Council (CMC), widely criticized for being inefficient and corrupt is also severely short of staff in the Treasurers Department according to CMC sources. The department is said to be lacking 16 revenue inspectors 66 management assistants and numerous other officials. Some Rs4 billion is handled each year in the various sections such as Solid Waste Department, Road and Drainage Department and Construction Department. However, the audits are not being conducted at present due to the lack of staff.

Forecast, growth with caution

Overall, the growth rate of real estate in Sri Lanka is strong despite a slight slowing in the rate of increase during May according to sources on the ground. One observable pattern is that developers have been slower and more hesitant in taking decisions regarding new projects. No doubt that caution has arisen due to the prevailing situation across the island that has cast a shadow of uncertainty on the economy.

Nevertheless, major constructions that have been pipelined are set to be completed despite the spike in volatility. For instance, the second phase of the Hyatt construction has got the green light and is set to last for a period of 15 months. The seventy story building, to be located in Galle Road at the center of Colombo will dominate the skyline of the city once completed. The investors hope that official opening will be in 2009.


Source: Bartleet TransCapital Real Estate Brokers

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