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In the absence of foreigner interest, UDA marketing prime real estate to local investors
With laborious approval processes, policy vagaries and negative credit ratings among the factors blamed for scant foreigner interest, the Urban Development Authority (UDA) is marketing its hefty portfolio of prime real estate to local investors.
The ‘UDA Investment Forum 2021’ that takes place at Water’s Edge on Thursday targets Sri Lankan businesses who are welcome to submit bids for the 45 land parcels and projects, singly or with foreign partners, officials said. In the past year, the UDA has managed to sign agreements with five investors, all of them local. Another three are being evaluated.
The finalised projects are the proposed Baddegana Bird Park for Rs 1.7bn by Colombo Bird Park Private Limited (owned by Ajith Gallage, who set up the bird park in Hambantota); a 40-floor apartment complex in Thalapathpitiya by ICC (Pvt) Ltd valued at Rs 2.2bn; a mixed development project in Rajagiriya by LOLC for Rs 4.5bn; a car park in Union Place by Access Engineering at Rs 1.2bn; and a car park in Galle by NEM Construction for Rs 1.8bn. All investment figures are as cited in the signed contracts.
Still under evaluation are a US$ 450mn proposal from a Chinese and Dubai joint venture for the Summit Flats land in Keppetipola Mawatha, Colombo; a US$ 125mn proposal for a plot in Thalawatugoda; and a Rs 12bn proposal for a logistics park in Ekala, Ja Ela, for which two bids have been received.
Meanwhile, the Finance Ministry is overseeing the final touches to an e-based “one-stop shop” for investors who still must physically and manually navigate through paper documents and numerous Government offices to secure clearances to take over land and kick off a project.
In May, the Ministry floated a separate body called the Cabinet Appointed Management Committee on Investments (CAMCI) to “evaluate and approve investment proposals to meet the urgent foreign direct investment needs of the country and to facilitate the line ministries and Government agencies for the expeditious execution of such proposals”. CAMCI, however, will handle only FDIs. Other parties still have to follow a process that includes competitive bidding for the lands on offer.
The Committee is chaired by the Treasury Secretary. Notwithstanding the national procurement guidelines, the CAMCI is authorized by Cabinet to “ensure that all matters pertaining to investments are provided end-to-end solutions”, the relevant circular states.
It describes: “This includes evaluating the investment proposals received from investors, which includes clearing the investment proposals received, liaising with investors, engaging in the required negotiations with investors and the associated stakeholders and agencies, deciding on the methodology to be adopted in executing the transactions, and other ancillary activities that is [sic] association in ensuring that credible investments are realized.”
The UDA hasn’t yet submitted any FDI proposals to CAMCI. “Earlier, it was unsolicited proposals,” an official said. “Now it’s not that system. The CAMCI is for FDIs where a single party can float a proposal. It will be evaluated and, if it’s profitable for the country, it will be accepted.”
Officials said this week that they believe there is significant potential for domestic participation as “a lot of investment into Port City is also from local partners”. But they admitted Port City was a competitor in the UDA’s quest to attract investment for its own lands.
“Port City is a planned city with ready infrastructure, roads and detailed plans for land use,” one official said. “The UDA goes with our general development regulations. We usually take over under-utilised lands in various places, such as around the Beira Lake where there were a lot of warehouses.”
Still, land remains a good prospect for Sri Lankan parties, he said, as interest rates are low and it was more profitable to invest in real estate than in any other instrument at present. There is considerable interest in high-rise apartments for the middle-income sector in the suburbs and outside of Colombo. There is less enthusiasm for lands in the Colombo business district particularly as high prices made re-sale difficult.
The UDA gives out properties on 30, 50 and 99-year leases. The car park contracts it signed were on an income-sharing basis after an initial payment to meet land value.
But the economic crisis has impacted the UDA’s efforts and frequent policy changes are a challenge. “Every five years we change policy whether it’s to do with land ownership or tax policy, etc,” said a private sector real estate source. “Unless there is a constant policy for 10-15 years, foreign investors have no confidence to put their money into Sri Lanka.” He did not wish to be named.
“If our policies change when a Government changes, it has an impact on the security of the investment,” a UDA official said. “Any investor takes a risk to get a higher return. We need to reduce that risk and help increase the return.”
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