Rationalising high- rise construction costs

Rising demand by the affluent for an urban lifestyle with luxury apartments has led to calls to strip away policies that stand in the way of financing affordable housing for less affluent home buyers, officials say.

“There are two challenges for builders and buyers which prohibit access to buying housing. The cost structure of development is higher than that of the region. This is because the materials and industry as a whole is taxed. Then it’s not easy to get credit to fund buying houses,” John Keells Properties, Sector Head, Nayana Mawilmada explained to the Business Times in an interview recently.

There are plenty of people in Sri Lanka that want high quality housing and are just on the margin of being able to afford it, he said. “It is much easier to get credit when buying a car than financing a house,” he said. But it’s not only about creating buildings; he stressed noting that it is also about the banks and trying to create financial products that work. "It's also about pushing wherever we can on the policy front, and so on. And if we start to crack it, we will fundamentally change the fabric of the city. And I think that’s pretty cool.” Growing affordability for the first-time home buyers, supported by government incentives like low interest rates is expected to result in a rise in primary home purchases, especially in the affordable housing segment, the officials said.

Apartment affordability is lower than that of the region, it was observed.

The property sector needs to be streamlined, Mr. Mawilmada said noting that the mortgage to GDP Ratio (ratio of outstanding home loans to GDP) in Sri Lanka is low compared to India which is at 14 to 15 per cent and in the UK it is more than 70 per cent.

John Keells Property Sector President Suresh Rajendra noted that the biggest drawback in growth of this sector is accessibility to funding. "The interest rates are high and there is a general aversion to taking loans. Also the cost of construction is very expensive as there are tariffs and para-tariffs imposed on basic construction materials – at times at almost more than 100 per cent.” Protectionism brings inefficiencies to the market, he said with both agreeing that policymakers need to recognise this, address these issues and make the industry sustainable.

"We are having an early-stage conversations with authorities to lobby on these issues to bring costs down," Mr. Mawilmada said adding that the government needs to regulate this sector and regulate clearer. “Sri Lanka cannot go ahead with the low-density spot because it is spread too thin. If these changes are done it will save tax money. So there should be a mindset shift at a political and at a social level to embrace high rises,” he explained.

CEO and Managing Director of Malaysia’s Impetus Alliance Advisors, Michael Yam joining in the discussion said that high rises in the city is a natural progression. “People will adopt this lifestyle once they experience it. Also in vertical living, one can reduce fixed cost of employment."

Mr. Rajendra noted that now people are more mobile these days amidst an aging population. “Now we will be seeing less people in houses and their needs are changing," he said noting that this is a prime reason to encourage condo living.