In the pursuit of their dreams, young people in Sri Lanka strive to achieve two main milestones: owning a house and a car. However, these aspirations are no easy feat, especially with a property market that has witnessed soaring prices.
Defying expectations
According to the Real Estate Market Outlook Report 2023 by LankaPropertyWeb, the average asking price of houses has increased by 4.4%, while apartment prices have increased by 60.4% in the last year.
In 2022, overseas buyer interest in Sri Lankan properties has increased by 40% as expatriates seek to invest in real estate in urban areas. The report attributes the hike to a decline in the rupee’s standing against the dollar, making property investments attractive.
Sri Lanka’s capital is experiencing sustained hikes in land values; the Colombo district saw its Land Valuation Index go up by 14.8% in the second half of 2022, according to the Central Bank of Sri Lanka.
Sri Lanka needs to address the surging demand by increasing the housing supply
Whether one intends to own or rent, the costs remain high, with fully furnished apartments increasingly scarce. The property sector is experiencing rapid growth, and local experts predict that the demand will continue to surge. As urban apartments sell like hotcakes, the demand may soon outstrip the supply, resulting in further soaring prices.
Financial pressure
All of which is likely to exert additional financial pressure on those aspiring to become homeowners, as the economic crisis has rendered loans unaffordable for many. The escalating interest rates have amplified the financial burden.
While the high demand and escalating prices pose challenges for aspiring homeowners, existing property owners stand to benefit, with a lucrative opportunity to cash in on their investments. Those who have already secured properties can capitalise on rising market values, potentially earning substantial profits.
For the prices to stabilise, Sri Lanka needs to address surging demand by increasing the housing supply. However, the economic contraction has caused many development projects to be temporarily abandoned due to lack of investment, scarcity of raw materials, shortage of skilled staff, and inflated construction costs.
The gradual inflow of investments indicates a positive outlook
Additionally, the burden of taxes has further hampered the revival of the construction sector; in particular, VAT and import duties have increased the financial strain on contractors and developers.
In its June 2023 bulletin, the Chamber of Construction Industry of Sri Lanka reported that the sector has suffered its highest slump of 38.3% in Q1 2023, following repeated contractions in recent years.
Tax burden
Despite the challenges, Sri Lanka has shown remarkable progress in its recovery journey. Verité Research, a Colombo-based thinktank, confirmed that the country had met 29 of the International Monetary Fund commitments within a few months of joining the Extended Fund Facility programme, which provides financial assistance to countries working to improve structural weaknesses. This achievement highlights the government’s commitment to economic stability and growth.
The gradual inflow of investments indicates a positive outlook for the construction industry. Long-stalled projects are gradually resuming construction, signalling a revival in the sector, which, as it gains momentum, will contribute to the growing demand for properties.
Brighter future
Sri Lanka has demonstrated resilience throughout its history, overcoming numerous setbacks. While a supply crunch in the property sector seems inevitable in the short to medium term, there is hope for a brighter future. Implementing supportive investment policies promptly will stabilise the construction industry and enable it to meet ever-growing demand.
As the country embarks on its journey towards recovery, the construction industry serves as the backbone, building the foundation for a thriving property market. The sooner the government implements strategies to support the sector – such as easing tax burdens, streamlining permit processes and promoting investments – the quicker Sri Lanka can pave the way for a brighter future. With a revitalised construction landscape, dreams of homeownership can become a reality for many, contributing to the overall growth and prosperity of the nation.
