Construction boom or bust?

A combination of an uncertain economic scenario with rising interest rates and costs of borrowings, rising conflict and abduction-for-profit, is affecting the real estate market and dampening the condominium housing boom.

Developers said property and new apartment prices were coming down while expatriate Sri Lankans are having second thoughts on investing on condos.

They said among the more than 100 top Sri Lankan businessmen who are believed to have left the country due to threats of abduction-for-profit (ransom) were some property developers and investors.

The land value in Kollupitiya has dropped from six million rupees per perch to 4.5 million rupees due to this situation.

The Premier Pacific International Pvt Ltd, one of the big developers in the city, this week offered for sale a 153-perch block it owned at Sri Sangaraja Mawatha – in an apparent indication of the condo crisis.

The Sunday Times FT spoke to property developers, real estate agents and residents of the complexes. The drop in demand of property is felt by all players in the real estate market. Nethru Nanayakkara, a realtor, said there is a definite drop in demand o apartments and condominiums. He estimated it at around 30%, adding that it was a very conservative estimate. “The interest rates are also very high so developers find it difficult to borrow from banks as well,” he added. Nanayakkara also noted a drop in the expatriate market. He explained that they buy the property to sell off later but as the situation stands, it is very difficult to get a profit.

He said the Wellawatta property market which attracts many Tamil expatriates, is currently stagnating as there are no buyers and land values have dropped.

Shan Kumarage, project co-ordinator of the online real-estate portal “Bhoomi”, also noted a drop in the market. “Going by the feedback we get from the brokers and buyers there is no market at all for residential property,” he said.

Another property developer who spoke to The Sunday Times FT on the condition of anonymity said that local investment has dropped due to the abductions that were taking place in the country. “Tamil and Muslim businessman, who are afraid to invest money in Sri Lanka, are taking their money to India and Malaysia” he said. “The expatriate Sri Lankans are also reluctant to buy property in Sri Lanka as there is no guarantee of their investment, whereas in India there is a 30% guaranteed return of investment and the currency is also stable there unlike the fluctuating Sri Lankan rupee.”

A senior official of the ICC Housing Pvt Ltd said that they are monitoring the current property market situation before venturing into new projects although they have successfully completed their Iceland Residencies project which is a new generation condominium. He added that the condominium construction industry was experiencing some difficulties during the past three months.

However Ceylinco Homes International officials said its Rs 14 billion Celestial Development project which upon completion in December 2009 will house the Hyatt International Hotel and 176 luxury apartments, has already pre-sold 80% of the total 500,000 square feet of floor space that apartments under this project would take.

Developers of Havelock City Project (HCP), a similar property development project valued at $ 250 million undertaken by the Shin Kwang Group which envisages the construction of a total of 1,080 luxury apartments, are however not in a hurry in pre-selling the apartment complexes. Officials there said the pre-sales would coincide with a marketing campaign that is being planned.

Separately residents who bought apartments at certain complexes are facing difficulties obtaining what was promised to them.

A representative of the Premier Pacific Pinnacle Residencies Association, speaking on behalf of all the residents of the complex at Duplication Road told The Sunday Times FT that the terms on which the apartments were promised to them are not being kept. She said the developer, Nimal Perera, head of the company here which is unable to meet its financial commitments, was forced to obtain a tenant for the premises on which the mall and the food court was located. That tenant – had wanted the mall and the food court removed from the premises. The residents, who were promised many facilities at the inception, are now left without any. Also, two years after moving into the premises, she has still not been given the title deed to her apartment. Perera was unavailable for comment despite leaving many messages at his office. A telephone number of the company listed in their website went to a private house!

She added that although many letters have been sent to the owner of the complex, there has been no response from him thus far. According to her, although the Condominium Management Authority (CMA) was also informed as to the discrepancies in the terms, the CMA has not been able to provide them with any relief. A senior CMA official said that unless a proper management system is introduced and implemented, these problems can escalate and get out of control.