A tangible revival in the property market is yet to be seen from the downturn seen last year, but a major correction in the equity markets will witness a boom in the property market in the medium term, analysts said.
“The property sector is definitely better than three months ago. Many people have their money in the equity markets and are not moving it elsewhere. Once we see a major correction in the share markets there may be a property boom again,” Deshan Pushparajah Assistant Manager – Corporate Finance, Capital Alliance told the Business Times.
An analyst noted that banks really started cutting rates and pushing housing loans only in the second quarter of 2010, which will translate into demand in the next half of this year. “As the real estate sector is highly sensitive to economic indicators, the higher interest rates, sky high inflation and several other adverse macro economic factors prevailed in 2009 led to the slowdown in the sector, where both residential and the commercial property development were affected,” he added.
He said these reasons also pushed people to invest in the stock market and that the rate cut in banks will interest them in the property segment. “The residential and commercial buildings and land prices in theory should go up as inflation and interest rates go down, but whether prices will move up will be driven by the supply as well,” he further said, noting that to a certain extent the Ceylinco crisis has also dampened the upward trend in prices.
“Many of the (Ceylinco) group’s companies still hold large amounts of inventory and they’re under pressure to settle commitments. However given the decrease in land prices witnessed in the previous years, prices will not rise to a level that could be deemed a bubble,” he added.
As per the Central Bank data, housing loans provided by the banking sector in 2009 amounted to Rs.167.8 billion reflecting a contraction of 1.5% compared to 2008.
The analyst said that the demand for commercial properties (especially high end market) was also dampened as most of the companies opted for shifting their offices to less costly premises in the light of the adverse economic environment.
A property broker said that the condominium market will be mainly driven by locals living abroad, especially the Diaspora. “Also the many Tamils who were living in the South have decided to move to the North and East driving rentals and the property values down (in the South),” he said.
He also noted that the government’s intention to clear land parcels in greater Colombo and shift many government offices and military installations out of Colombo could depress commercial property prices in Colombo in the short run.
He said that commercial property and housing/land prices will be driven in the long run by the income levels and economic growth.. “As this improves land prices will go up but this will be a gradual process. Further banks are still fairly conservative in terms of lending, hence we will not see a market driven by excessive lending as well.” |
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