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Sri Lankan Property Market Decelerates After Boom

Sri Lankan Property Market Decelerates After Boom

 

Sri Lanka’s property market is slowing down after an extraordinary year that saw the country’s property prices jump in the second and third quarters of 2013.

The Sri Lankan stock market is small and volatile, which makes real estate a more attractive proposition for investors – but it’s not just a quirk of the Sri Lankan economy that caused the jump. Things are really getting better in Sri Lanka. The end of decades of civil strife brought a ‘peace dividend,’ as the country collectively breathed a sigh of relief and began returning to normal, including buying homes. And Sri Lankans can do that because their economy is booming. The Sri Lankan property price increase is built on an expansion of the real economy of 7.3% in 2013, 6.3% in 2012.

Even that can’t explain the house price rises which peaked at a nominal 20% in late 2013 – early 2014. But as a peripheral ‘peace dividend’ Sri Lanka also invested heavily in infrastructure. Improved transport nets, telecommunications and electricity generation projects have pumped money into the Sri Lankan economy to the extent that the share of the Sri Lankan economy accounted for by construction now accounts for 10.3%, up from 7.6% in 2009.

Both spending and house price rises are focussed on Colombo, the capital of Sri Lanka. The Colombo-Katunayake Expressway, the Outer Circular Highway, the Columbo Port Expansion Project, the Banaranaike International Airport expansion project and the nearby Beira Lake restoration project are oriented toward rejuvenating the heart of Sri Lanka through commerce and tourism. Mass transit systems in the cities are matched by prestige projects like the modernisation of York Street and Fort Railway Station.

‘The price rises were sharpest for apartments in central Colombo and the coastal locations towards the southern part of the city,’ says Ashutosh Limaye, head of research at Jones Lang LaSalle Sri Lanka. Colombo also has the most expensive housing in Sri Lanka, with average house prices of LKR51m (US$390, 000) as at the first quarter of 2014. Compare that with the average house price in Sri Lanka, LKR20m (US$210, 000), or the country’s cheapest housing, in Sabaragamuwa Province, where house prices average LKR9.3m (US$70, 000).

As a result of the already high price of property in Colombo and its rapid rise, ‘only foreigners, non-resident Sri Lankans and high net worth individuals can afford to buy an apartment/property in the central and secondary locations of Colombo,’ observes Mr. Limaye, ‘so foreign buyers are important targets for the real estate developers in Sri Lanka.’ Overseas money is also coming into Sri Lanka in the hands of Sri Lankans living abroad who have begun returning since the end of the civil war.

The Sri Lankan property boom seems to be over for now, though – even though there’s been no troublesome, turbulent correction in the country. That’s partly down to the government’s new foreign ownership property law, enacted in 2013, which banned outright sale of property to foreigners. Currently, foreigners can only lease properties for a maximum of 99 years. However, there may be clouds on the horizon as a 3.9% drop in building permits coincides with still-high apartment prices in cities.

Written by Les Calvert of www.homesabroad.co.uk - overseas property reporter

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