Condominium market picks up as low interest rates drive sales

As vertical living is increasingly becoming the new reality in the Sri Lankan urban setting with the sprawling high rise buildings taking shape in and around the key urban centres in the country, Sri Lankans are seen scooping up most of these apartment units as they now get a better deal with the prevailing low interest rate regime.

According the Condominium Property Volume Index, which gauges the health of the sector in terms of sales across time periods, apartment sales have picked up during the final quarter of 2020, making gains from the previous quarters after bottoming out in the second quarter due to pandemic related economic shutdowns.

“The market conditions remained favourable during the period, preferably with the low interest rates structure, despite the obstacles that emanated from the second wave of the COVID-19 pandemic,” said the Central Bank which conducted the survey and complied the quarterly report.

Construction and the real estate are two of the sectors which recovered faster than many others from the economic shutdowns during most of the second quarter last year. Project delays tend to wipe out contractors as they run into huge cost overruns and they have to carry huge carrying costs during the idle periods, making them non-viable.

The broader construction sector, which shrank 30 percent in the second quarter in 2020 recovered fast in the third quarter to make up for the lost work to cut the shrinkage in the sector to just 9.0 percent before staging a growth of 1.2 percent in the fourth and final quarter.

However, the real estate took off faster than construction to record a 3.6 percent growth in the fourth quarter, accelerating from 3.4 percent in the third.

The virus added a new dimension elsewhere in the developed world where the ability to remote work generated a wave of demand for houses in suburban and rural settings from the expensive urban living, adding an impetus to the real estate sector there while saving more money for those who withdrew from urban centres.

This was made possible from the successful experiment of the remote working arrangements, which rendered some of the expensive office space redundant, generating massive savings for the employers on their overheads.

However the lopsided provincial level development in Sri Lanka continues to draw people from all over the country to the few urban centres such as Colombo and the suburbs causing a livability crisis.

The survey data showed that more middle income apartments priced below Rs.25 million have been taken up fast.

“Condominium units priced below Rs.25 million in single condominium project category was the most preferred option among the buyers. When considering the sales status of single condominium projects, it could be observed that 96 percent of completed units were sold while 51 per cent of the ongoing units had been reserved. In mixed development projects 55 per cent of the units have been reserved thus far,” the surveyors added.

This makes majority of the condominium buyers the resident Sri Lankans, who make up for 90 percent of apartment sales, while most of them have invested in them for their immediate living. The prime source of funding or nearly 80 percent of the investments come from their own funds while the balance comes from bank financing.

Meanwhile, from the developers’ vantage point, on average 39 percent of the funding requirement is met through pre-sales while 32 percent is met through bank funding. The remaining 29 percent is the developer’s equity.