50% of Colombo condos sell out pre-construction : report

Most condominiums (considered luxury real estate) in the country's business capital of Colombo experience an average preconstruction sale ratio of around 50%, according to a report by the local office of global big four audit firm KPMG, in conjunction with Research Intelligence Unit (RIU).

The report titled 'Sri Lanka Real Estate Market Brief', said that "more prestigious developments like the Empire, Emperor, Lumiere and Trillium tend to sell around 80% of their units by completion of construction. Meanwhile, the established buildings like Royal Park and Iceland Residencies have very few apartments available for sale or re-sale."

The report further revealed that "around one quarter of apartments in two new high-rise projects scheduled for construction by one of Sri Lanka's main condominium developers have been reserved even before construction has started. Out of the 226 apartments built in the first phase, only 10 remained to be sold."

At the same time, it also emerged that this was not always the case with regard to the apartment segment in general. The report quoted Priyantha Perera, Group Director of Sierra Construction and Chairman of the Contractors Association of Sri Lanka, as stating: "Currently, we have too many apartments in Colombo where the market is oversupplied. Most people who buy these apartments do so for renting out and very few actually live there. If we take Colombo 06 for example, we find that since the dawn of peace, people who originated from the north have now returned to Jaffna and surrounding areas. This has resulted in a slackening of demand for high-end properties that were previously experiencing strong demand from locals and expats."

Additionally, the report also cautioned that, as most condominium sales were due to Sri Lankans currently living abroad, this may not be a sustainable source of future sales. However, also added was that "we can note that on the supply-side, developers have been actively expanding the number of condominium projects that silhouette the landscape. For the most part, RIU research indicates high levels of occupancy with pre-sales moving fast enough to encourage further entry of players and projects."

With regard to land prices, the report indicated that "Colombo 1 areas, like Main Street, can fetch values of around Rs. 9-10 mil- lion per-perch whilst Sea Street sells at around Rs. 8 million. Five million rupees may currently buy you one perch in Colombo 3, four million for Colombo 4 and Colombo 6. Parts of Colombo 5 like Thimbirigasyaya market at around Rs. 3.5 million per perch whilst properties in Colombo 8, Borella, average at around Rs. 4.4 million. The Research Intelligence Unit forecasts double digit growth in the post 2013 period." Also revealed, there was a rising demand for housing, which was currently estimated at around 90,000 units per year.

Meanwhile, the report also commented that an "overwhelming factor that impacts the land market is the heavy presence of the state and the dynamics within various state bodies, especially in Colombo 01 and 02. For example, according to RIU sources, the D.R Wijewardene Mawatha and Banking Square areas of Colombo 01 used to be owned by various state institutions like the [Colombo Municipal Council] and the Ports Authority.

However, now many such lands are being vested under one state authority - the Urban Development Authority (UDA). Many lands in this area have been vested already and others are currently in the process of being transferred to the UDA. Typically the UDA'S policy is to give out these lands to investors, both foreign and local, on 66 or 99 year leases which is in accordance with the government's policy, as stipulated in the recent budget. The UDA has recently invited investors, both foreign and local, to engage in discussions for a number of such developments." Also cited, "RIU sources indicate that the UDA received US$ 23 million for a 99 year lease of the two acres of land on Sir James Peiris Mawatha."

Further, the report also went on to add: "Consequently, the private land values in Colombo 01 and Colombo 02 can be expected to experience significant appreciation... In the current climate, investors predominantly from China and India are set to give a complete makeover to the Colombo 01 and 02 areas over the next two years."

It also stated that "the future land market in the inner city area is likely to be drastically transformed towards an exclusively highend area" and that "those that do hold private property in the inner city areas are likely to witness significant appreciation in prices."