Establish a mortgage market; let people invest in SOEs – Mobius
Dr. Mark Mobius, known to many as the founder of the emerging markets asset class and the best-known emerging markets investor in the world, this week highlighted the importance in developing mortgage markets in Sri Lanka.
Dr. Mark Mobius
“The methodology for property investment is the same around the world,” he said noting that in Sri Lanka there is a dire need to develop a mortgage market where owning property is made easier for potential investors. He was hosted by the upcoming major mixed development, Cinnamon Life in Colombo on Tuesday at the Cinnamon Grand at an exclusive breakfast forum.
Access to mortgage, which is a kind of loan in which a bank or lending institution buys the property or real estate for the borrower, who makes monthly payments with interest until the loan is paid in full, is really tough in Sri Lanka.
The national housing shortage is being estimated by some at 500,000 units, or 9 per cent of accessible stock, and the annual increase in household housing needs estimated at up to 600,000 units. The cost of construction has amplified about fourfold since 1990. But all these numbers are nebulous.
Analysts say that to expand the consumer base for mortgages, it is important to create a rational housing price index to be reflected in the repayment terms and develop related derivatives and insurance products to hedge lenders’ risks. The Central Bank is tracking loans obtained from banks for housing as well as details of units sold by condominium developers, a developer told the Business Times. “Every quarter we need to send the details responding to a request we get from the Central Bank,” he said noting that this has been happening for nearly two years. However it is not clear when they will release the index.
Dr. Mobius, executive chairman of Templeton Emerging Markets Group, who has spent more than 40 years working in emerging markets all over the world, shared his thoughts on Sri Lanka’s growth potential, and key insights from his experience in emerging markets over the last 40 years, drawing interesting parallels with emerging and frontier markets.
Highlighting different ways of raising capital, he detailed privatisation saying, “There isn’t a need to privatise.” He said the degree to which government enterprises are introduced to the market (10 per cent of the enterprise etc) will help the government in the long run. “Exposing them to the strong light of visibility is important,” he said noting that giving a percentage of the Sri Lanka Insurance Corporation to the public is something that the government needs to look at. In addition he highlighted government banks, transportation to the likes of the railways and airports should follow suit. Dr. Mobius stressed that by listing state owned enterprises (SOEs), the ESG (Environment Social and Governance) funds will be attracted to invest in Sri Lanka. “Just increase transparency of state-owned enterprises, by publicly listing the companies. This is a high priority even if they are losing money, because only when issues are made publicly known, where these losses are coming from can be definitively pin-pointed, and as a result, addressed.”
He noted that the capital markets liquidity can be increased by bringing in local pension funds.
He said that the software and tourism sectors have growth potential. “It surprises me why Sri Lanka does not have a cruising industry,” he said adding that this also is a potential growth area in the tourism sector.
Dr. Mobius said that Sri Lanka’s taxes are already skewed as 80 per cent of government revenue comes through consumption taxes which affect the poor. “Sri Lanka‘s tax-free threshold is now higher than in the UK. The government should cut the taxes more. Also there is a need to reduce interest rates more.”
He stressed that inflation is a bad measure as it deals with the basket of goods, the goods change at different instances. “Therefore it’s like comparing apples and oranges,” he said. Dr. Mobius was in favour of a currency board. A currency board is pegged on an international currency and there isn’t much intervention, was his argument.
When asked about what practical steps need to be taken by the new government to get the economy moving with confidence, Dr. Mobius said to cut taxes and ease foreign exchange flows and travel.