JLL Sri Lanka says absorption in condos will meet construction in mid term

Double- digit growth in the domestic real estate sector over medium term was projected recently by officials who said that the kind of supply in apartments now being built are larger than what the average rate of absorption is - which is the reason why there seems to be a glut in the high rise sector.

Many analysts say that local condo sales – especially in the luxury category are in a tight bubble ready to burst.

“The concern over the current situation probably means that the absorption could take slightly longer than what it is right now. We see no major concern,” JLL Lanka (Pvt) Ltd Transactions Head Sunil Subramanian told reporters when the company launched a comprehensive new report titled ‘Sri Lanka – Land of Real Estate Opportunities’ recently.

Analysts say that right now the crisis in the luxury market has not yet turned into a full-on crash, but there are some worrying warning signs, such as rising apartment vacant rates. An analyst added that the high-rise premium residential unit segment is thus set to see a particularly testing few years. But this sector will catch up in time, Mr. Subramanian noted. He said that now some 3000 units are being developed in the luxury category and these projects are due for completion in the next 2- 3 years. "As the country ramps up its prominence among South Asian markets, GDP growth will be paralleled with growing salaries and there will be a consummate demand for superior quality housing," he said.

The publication addresses a strong demand for accessible, in-depth analysis into the domestic property market. Through the new report, JLL aims to create a dialogue on the varied challenges that local and international investors face when engaging in real estate transactions in Sri Lanka, in addition to enumerating on the unprecedented scope of opportunity for valuable investments in the country’s rapidly developing property sector.

Steven Mayes, Managing Director, JLL Lanka (Pvt) Ltd told the Business Times on the sidelines of the launch that firm policies aimed at making it easier for foreigners to invest in the country and opening up new sites for property investment and new sources of real estate financing bode well for the market’s trajectory in the coming years. “This marks a significant milestone for the domestic market, which we believe holds the potential to become one of the South Asian region’s most promising success stories.” He stressed that the country must attract high- end travellers and noted that foreigners who wish to purchase condominiums in Sri Lanka should be allowed to raise 40 per cent of the cost from a domestic bank. “And I hope the budget proposal pertaining to this will be ratified," he said.

Up to now over 95 per cent of buyers in luxury condos are from Sri Lanka and out of that 65 per cent are Sri Lankan expatriates, he said.

Grade 'A' commercial office space in select core markets in Colombo is quite scarce, analysts say adding that there’s 500,000 square feet (sq) required at present for Grade A properties. In a bid to take advantage of pent-up demand for Grade A office space, most of the large-scale mixeduse projects currently under way in Sri Lanka include a considerable office component, analysts say. For example, Shangri- La’s One Galle Face project, which is expected to be completed by 2018, includes 60,000 sq metres of new space.

Mr. Mayes added that the nearly one million square feet of Grade A stock has seen 95 per cent occupancy levels and that opportunities are emerging in Grade B office sector to meet demand from IT companies and technology start-ups.

He added, “There are challenges that need to be addressed, of course; Sri Lanka is prone to limited but notable downside risks, largely arising out of the currently subdued levels of Foreign Direct Investment and a high fiscal deficit. Nevertheless, we see strong demand for Grade A commercial office spaces. Coupled with the major growth potential over the medium-long term catalyzed by major infrastructure development projects like the Colombo International Financial City and the Western Region Megapolis, we believe that the overall outlook for the Sri Lankan real estate sector is strong.”

He stressed that the country must attract high-end travellers and noted that foreigners who wish to purchase condominiums in Sri Lanka should be allowed to raise 40 per cent of the cost from a domestic bank. “And I hope the budget proposal pertaining to this will be ratified," he said.