Real estate prices rise by record high in Sri Lanka

The recently released Q2 data of the House Price Index of LankaPropertyWeb has revealed that the overall selling prices of apartments increased by 45.17 per cent when compared to Q2 of 2021.

According to developers and real estate agents that LankaPropertyWeb has been in contact with, these price increases are largely a cause of the demand created for real estate as a hedging against inflation, shortage in raw material and skyrocketing construction costs, the real estate company said in a media release.

Mainly the devaluation of the Rupee against the US Dollar and the shortage and high priced raw materials have shifted people’s behaviour since March 2022, with them preferring to buy houses or apartments rather than build a home. The uncertainties of obtaining raw materials and rising interest rates for home loans have also contributed to this behaviour.

A study on the overall asking prices of houses in Sri Lanka showed prices had increased by 21.85 per cent when compared to Q2 of 2021. Houses for sale in the North-West Province recorded the highest increase of 31.2 per cent from Q1 of 2022, followed by Colombo house prices that had risen by 13.9 per cent during the same period.

Meanwhile, the prices of apartments for sale in Colombo had increased by 32.9 per cent in Q2 of 2022 when compared to Q2 of 2021. This phenomenon took place simultaneously as the country has battled the pandemic since Dec. 2020 and foreign exchange issues that worsened towards the end of 2021.

According to LankaPropertyWeb’s Development Consultancy and Research team data, the top five searches for apartments for sale were from Colombo 6, Colombo 5, Rajagiriya, Colombo 3 and Colombo 2, respectively.

Meanwhile, data from the Construction Industry Development Authority showed that the average price of a 50Kg cement bag sold by public and private dealers has increased by 187 per cent from June 2021 to June 2022. The same increased by 98 per cent from January 2022 to June 2022.

Home loan interest rates that recorded the lowest at 7 per cent p.a after decades during Q3 2021, have also been increasing with its current highest being at 22 per cent and negatively influencing property buying decisions of first-time homebuyers.

In addition to this, LankaPropertyWeb’s recent studies on the Land Price Index (based on asking prices) also show that the rate of land prices increasing on a quarter to quarter basis in Colombo city has slowed down over the past quarters. Lands for sale in Colombo 3, 4, 5, 6 and 7 recorded the slowest percentage increase in prices in the last five years. The rate of prices increased in lands for sale in Colombo 9, 13 and 15 at a peak of 113 per cent, 87 per cent and 47 per cent respectively during Q1 2018 to Q1 2022. This was mainly due to the construction of many mixed development projects that are expected to drive prices further in the future.

“With the Central Bank’s decision to float LKR in March 2022 and due to the inflation surge to a record high, we saw a rapid increase in demand for completed condos in primary and secondary markets as well as for the houses as a hedge against economic calamity. Especially expats' interest in Sri Lankan real estate increased to gain in the Rupee devaluation. This behaviour was further recorded on the LankaPropertyWeb portal that in fact saw a surge in search traffic from countries such as the UK, Australia, USA, Canada, and UAE,” said Tharindu Jayarathne, Head of Research at LankaPropertyWeb.