Saturation in luxury segments forces developers to next level
View(s):Sri Lanka’s apartment sector has been flooded with cash in recent years from a wide variety of investors and many of them large players but they have shifted focus from the luxury markets and are seeking out higher mid and mid-level markets in line with smaller investors.
The pet game especially by large companies was always to see who could build the tallest tower in town or the most luxurious apartments in Colombo. While the party lasted during the past few years and it was fun for everyone, waning interest in these properties are scaring both bankers and investors who fear being stuck with huge bills. The issue is that the plethora of luxury apartment complexes may not be so attractive right now with this period of high inflation even for the high net-worth families. Industry analysts are almost certain that there’ll be saturation in the luxury segment.
What’s a luxury apartment? It’s one that’s generally priced over US$ 200 per square foot category. But there’re exceptions as Shangri-La apartments are priced at $350-$400 (per square foot). Their selling price ranges from Rs. 17.5 million to Rs. 44 million, according to the recent industry statistics.
In response, developers maintain that many of the fears are overblown. A builder in this segment said this week that the market was slowing but he’s having no trouble selling units.
There are too many of these units coming and analysts insist that there aren’t enough buyers to purchase them. Right now the waning in the luxury market has not yet turned into a full-on crash, but there are some worrying warning signs, such as rising vacant apartment rates. An analyst added that the high-rise premium residential unit segment is thus set to see a particularly testing few years. “The country has an oversupply of premium apartments which is why many builders now want to concentrate on catering to the next tier,” he said.  So compared to ultra-luxury properties or saturated locations, mid-segment apartments in comparatively affordable markets seem to be witnessing high demand. Builders had largely invested in properties across Colombo in a bid to cater to clients at the high end and to provide them with the lifestyle that they are used, in addition to appreciation and healthy returns, but now this segment is easing and developers are downscaling their target segments to ‘affordable’ is what the analyst said.
He added that small-ticket investments provide easier options for exit and better rental returns.