• Overall selling prices of apartments increases by 45% in 2Q: LankaPropertyWeb

• Price increase contributed to demand created for real estate as hedging against inflation

  The recently released second-quarter (2Q) data of the House Price Index by LankaPropertyWeb revealed that the overall selling prices of apartments increased by 45.17% when compared to the same period last year. According to developers and real estate agents that LankaPropertyWeb has been in contact with, these price increases are largely a cause of the demand created for real estate as a hedging against inflation, shortage in raw material, and skyrocketing construction costs. The devaluation of the Sri Lankan rupee against the US dollar, as well as shortages and high prices of raw materials, have shifted people’s behaviour since March 2022, with them preferring to buy houses or apartments rather than build a home. The uncertainties of obtaining raw materials and rising interest rates for home loans have also contributed to this behavior. A study on the overall asking prices of houses in Sri Lanka showed prices had increased by 21.85% when compared to 2Q 2021. Houses for sale in the North-West Province recorded the highest increase of 31.2% from 1Q 2022, followed by Colombo house prices, which had risen by 13.9% during the same period. Meanwhile, the prices of apartments for sale in Colombo had increased by 32.9% in 2Q 2022 when compared to 2Q 2021. This phenomenon has been taking place since the start of the pandemic in December 2020, and was heightened by the foreign exchange issues that worsened towards the end of 2021. According to LankaPropertyWeb’s Development Consultancy and Research team data, the top five searches for apartments for sale were from Colombo 6, Colombo 5, Rajagiriya, Colombo 3, and Colombo 2, in that order. Meanwhile, data from the Construction Industry Development Authority showed that the average price of a 50 kg cement bag sold by public and private dealers has increased by 187% from June 2021 to June 2022. The same increased by 98% from January 2022 to June 2022. Home loan interest rates‌, which recorded their lowest at 7% per annum after decades during 3Q 2021, have also been increasing, with its current highest being at 22%, thus negatively influencing property-buying decisions of first-time home-buyers. In addition to this, LankaPropertyWeb’s recent studies on the Land Price Index (based on asking prices) also show that the rate of land prices increasing on a quarter-on-quarter basis in Colombo city has slowed down over the past quarters. Lands for sale in Colombo 3, 4, 5, 6, and 7 recorded the slowest rate of increase in prices in the last five years, while the rate of prices increasing in lands for sale in Colombo 9, 13, and 15 were at a peak of 113%, 87%, and 47%, respectively, during 1Q 2018 to 1Q 2022. This is mainly due to the construction of many mixed-development projects that are expected to drive prices further in the future. Elsewhere in the Western Province (except Colombo 1-15), per-perch prices of lands for sale in Ingiriya and Horana, which once had the lowest rate of price increases, have seen the highest increases, and lands which had the highest prices, such as prime Colombo areas, have seen the prices stagnate or drop between 2Q 2021 and 2Q 2022. “With the Central Bank’s (CBSL) decision to float the rupee in March 2022 and due to inflation surging to a record high, we saw a rapid increase in demand for completed condos in primary and secondary markets, as well as for houses, as a hedge against economic calamity. Expats’ interest in Sri Lankan real estate especially increased amidst the rupee devaluation. This behavior was further recorded on the LankaPropertyWeb portal, which in fact saw a surge in search traffic from countries such as the UK, Australia, the US, Canada, and the UAE,” added LankaPropertyWeb Head of Research Tharindu Jayarathne. In addition to this, according to a press release by the Prime Minister’s office dated 31 May 2022 regarding proposed tax reforms, the exemption granted on Value Added Tax (VAT) on residential condominiums will be removed from 1 October 2022. This is expected to drive prices in the future when buying apartments directly from the developers, and considering the probability of VAT being imposed in the near future. Thus, now is a good time for buyers willing to invest in apartments to plan ahead before VAT is reimposed, LankaPropertyWeb noted.