Sri Lanka’s real estate market and the property sector are slated to outperform in the medium term due to the economic prospects after the war, according to analysts.
Sarath Rajapakse, Director Capital Trust told the Business Times that since the property sector is one that is very vulnerable to any recessionary pressures, as soon as the global economic crisis broke out property sector got a beating, but it will be one that will turn around fast. “Two things have happened – the global economic recession is easing and Sri Lanka was only marginally affected by this and Sri Lanka is recovering fast and there are investments flowing into this country. Just as the property sector receives a beating during a recession they are the first to recover and recover significantly during a recovery phase,” he said.
Srimal Liyanage, Lead Analyst, Investor for Securities, a Kuwait investment company said in an e-mail communication from Kuwait that after the end of war there is lot of opportunities emerging in the country. “With the global economy seeing some turning around, many investors will gradually start moving out from the wait and see strategy and trigger their expansion plans,” he said.
He said this will result in an increase in demand for commercial properties. “At this point there is a short supply in commercial properties to meet the expected demand. Therefore within the next five years the demand for commercial properties will exceed the supply,” he said.
He said that the property sector has underperformed in the second half of 2009 when compared to the All Share Index.
“The property sector showed a decline in 2009 due to the economic difficulties faced by the investors. They were focusing on cost reduction and long term investment and expansion opportunities were kept a side (wait and see strategy). During the period 2003 to 2006, Commercial properties of the country increased 75-80% in value, however was slowed down drastically after that due to industry reaching maturity,” he noted, adding that from 2006 to 2008 the sector only recorded a marginal growth of 5-10% and estimated to have recorded a decline in 2009.
Jaliya Wijeratne, Director SMB Securities said that the high leverage in the property sector made it more susceptible to the global and local economic downturn. He noted that the substantial reduction in the purchasing power of the urban middle class and upper income groups together with the unhealthy security situation and the low business momentum badly affected the demand for commercial real estate in the Colombo City. “These things badly affected the profitability of the property sector companies and it was reflected in the market performance of the companies as well,” he said.
However, he noted that in the post war scenario, the security issues in the Colombo city have been minimized and Foreign Direct Investments (FDIs) are expected to flow to the country.
“The untapped market in the North and East part of the country will also play a critical role. The real estate market too will benefit from this climate of hope and renewal. As a result, the future outlooks for the residential and commercial real estate sectors are positive,” he said.
He also noted that despite the supply of premium office space is limited in the Colombo City, World Trade Center (WTC), Access Tower, HNB Tower and few other buildings located in Colombo are providing high quality office space.
“The major residential real estate development projects which are under construction are Trillium Residence in Elvitigala, Colombo-05 (300 units), Fair Way Residency, Rajagiriya (71 units), Emperor Colombo-02, Ceylinco Celestial Residencies, Hydepark Corner, Colombo-02, Ocean Edge Residencies, Kollupitiya (49 units), Iceland Tower, Colombo-03 (110 units) and Prominent Residencies - Nugegoda etc. Apart from that, several companies have already commenced building of small scale housing projects. Therefore, the demand for real estate sector will escalate in time to come,” he added. |
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