Builders say ‘buyer beware’
View(s):While many analysts warn of a property bubble owing to excessive credit coupled with low interest rates in home loans, etc, most detractors say that this is ‘just perception’.
“For a bubble, there should be cheap credit. We can’t see any cheap credit. When purchasing an apartment most buyers finance their own equity. About 40 – 50 per cent, maximum 60 per cent is funded through bank loans,” Prime Lands Group Chairman and Co-Founder Brahmanage Premalal noted to the Business Times. He said that as long as people are buying for their use with their own money then there cannot be an issue.
When queried on where this cash for funding their apartment purchases may come from, he said the upper middle class segment in the country has stopped investing in the Colombo stock market for an example. “These people need to park their cash somewhere and most choose apartments,” Mr. Premalal added. But a real estate analyst had a slightly different take. “When speculators treat real estate like the stock market, they buy purely for capital appreciation as an investment; they use borrowed money that is leveraged from banks. It’s only when the borrowed money comes that a bubble happens because then they have a short time to sell and they have to sell cheap. That often creates a bubble for the banks,” he told the Business Times. He said that the country’s residential real estate market is likely to face a serious bubble in another five years.
Mr. Premalal said that their apartment sales are mostly generated from the diaspora. “We see that 30 per cent sales are from the diaspora and less than 10 per cent are foreign buyers.” A year ago the construction sector was geared at 10 per cent. Mr. Premalal noted that there are hardly any non performing loans at banks in the housing market.
When it comes to the success of an apartment project, he said it’s all about location, location, location. “And it’s all about a particular builder’s reputation and his pricing,” he said noting that it’s a case of ‘buyer beware’ at the end of the day. Citing a few examples of their apartments at some prominent locations, he said that most are sold out.