Uncertainty in Sri Lankan property market
Some time back it was stated by leading business leaders and property gurus that real estate is a good investment with better returns. Having said that, times have changed, and are changing fast. There is uncertainty in the property market in Sri Lanka since the beginning of this year, noted Ravi Abeysuriya, Group Director of Candor Group of Companies.
“The property market looks really bad in Sri Lanka since the beginning of this year. Property developers are finding it difficult to pay back loans and most of the construction projects are on hold. Enough and more property developers have gone bankrupt,” said Mr. Abeysuriya.
In an interview on the sidelines of the Lanka Property Show held at the Kingsbury Hotel in Colombo last week Mr. Abeysuriya said the real estate market in Sri Lanka that used to have 100 per cent return is gradually decreasing. “In today’s context you cannot make money; neither the apartment developer nor the buyer. People who buy apartments to sell cannot sell them at huge gains due to cost excursion. Rental income is also coming down, drastically,” he added.
He also mentioned that there is a bubble in the market when buying a property with the intention to sell it at a higher price. This is not yet seen in Sri Lanka since the land prices keep going up. At some point the bubble will burst where none of the apartments could be sold. Majority of apartments are bought by expatriate Sri Lankans, close to 90 per cent out of the 65 per cent of sold apartments, he noted.
Sri Lanka is not able to attract foreign investments due to an uncertain tax structure. Imposing 15 per cent VAT on an apartment sale is a poor strategy to the Sri Lankan property market. The pressure is coming from the IMF to increase more taxes as revenue for government. The 15 per cent VAT on apartments is likely to come into effect from April this year, stated Mr. Abeysuriya.
He also reiterated that there is no independent data available on the actual sales of luxury apartment segment in Sri Lanka except the numbers given by the developers who sell apartments. Today most developers break the construction into two segments and claim that 60-65 per cent of one block of the property is sold-out to entice sales. The data obtained by the Central Bank is based on the land index survey and not on the actual sales done by developers. This is a very critical aspect that is missing where buyers tend to pay the full amount at once for the apartment.
He also noted that any approval can be obtained by bribing officials at government institutions related to land and property. Bribing and getting approvals have existed in the property sector for many years. “Even if an apartment complex starts building next door without your concern, you have no say because there is some kind of backing from some government official,” stressed Mr. Abeysuriya.