Govt. intervention sought to prick real estate bubble
The government should intervene to burst the real estate bubble in Colombo to create opportunities for the middle class, a top business leader in the country told a forum in Colombo organised by Guardian Acuity Asset Management to discuss the investment opportunities stemming from the Western Region Megapolis Plan.
“It’s about time we really relooked at some isolated person called the Chief Valuer getting involved in valuing land because he or she is absolutely clueless about the commercial realities about real estate pricing,” Twcorp (Pvt.) Ltd Chairman Thilan Wijesinghe said.
Wijesinghe, a real estate and finance expert, who has held highprofile
corporate and public sector positions, added that the real estate prices now being around Rs.15-16 million per perch in prime areas within the Colombo city is due to government action as well. Over the years, with artificially-kept lower interest rates, coupled with organic and government-induced income increases, many had seen real estate and vehicles as attractive investments.
“My view is that real estate has hit these Rs.15-16 million ridiculous levels because the government failed to release a single parcel of land after the ITC land was released, because the Chief Valuer valued those lands ridiculously. So there was a lot of pent-up demand for middle-income housing,” Wijesinghe argued.
Megapolis Project Investments Head Nayana Mawilmada refused to comment on the role of the Chief Valuer, but also denied that there is currently a real estate bubble, despite claiming that the rental yields are low as well.
“I would hesitate to call it a bubble, but in some areas and some of the transactions you see, it seems a bit exuberant, so I think there’s a natural correction that will happen,” he said.
However, John Keells Holdings PLC Property Sector President Suresh Rajendra noted that the real estate bubble within the Colombo city is likely to continue as long as the luxury apartments remain trendy, but the prices would normalize in the suburbs over a period of time.
“There will always be an asset bubble, but unlike the asset demand for tomorrow, these are for long term. The call that you make is on the growth of the economy because you ultimately want people to be living there,” he added.
Meanwhile, Mawilmada and Rajendra agreed with Wijesinghe’s view that the current land and construction prices only make the luxury apartment construction viable in terms of returns on investment, while pushing the middle class to the fringes of the district.
“In my view, the real estate prices are overpriced at Rs.15 million and it has to be corrected to be commensurate with our stage of current economic development because the budget hotels are not viable at that price and the retail complexes are not viable at that price,” Wijesinghe said.
Softlogic Group Chairman Ashok Pathirage too had recently told Mirror Business that the biggest obstacle to the growth of the retail industry in Sri Lanka is the nonavailability of retail space.
Wijesinghe noted that after the government warped the prices for foreign developers, if the Urban Development Authority (UDA) flooded the market with government-held property, it would have raised billions of rupees for the cash-strapped government, while also correcting the land prices.
“Another way of raising cash is releasing lands far faster than the UDA has been doing. I think the UDA has missed the bus in the last 18 months. The government could have raised billions if it jumped in on the bandwagon and kept the real estate prices at realistic levels,” he said.
He said that with a vacuum created by the government by not releasing land, the private land owners had capitalized on the situation by selling their properties at the prices set by the government.
However, Mawilmada, who was the previous UDA Director General, said that such a move was not possible for the government, since releasing land had to be done through a systematic tender process.
Mawilmada noted that the government holds over 229 acres of land around Colombo 1, Colombo 2 and Colombo 11, especially around the banks of Beira Lake, which could be set aside for investment related to entertainment under the Megapolis Project.