• Sri Lanka is less appealing to overseas investors
• Property one of the most secure assets to invest in
• Property crunch unavoidable with current framework 
• Housing shortage cannot be rectified overnight

In Sri Lanka, the dream of owning a home is more than just a desire; it’s a cultural ideal deeply embedded in the hearts of its people. From generation to generation, families pass down the aspiration of having a place they can truly call their own. It symbolises security, stability, and accomplishment, representing a significant milestone in one’s life.

However, this cherished dream often collides with the harsh realities of the country’s economic landscape. The Sri Lankan economy, like many others worldwide, is marked by its unpredictability. Fluctuating property prices, soaring inflation, and an array of economic uncertainties have combined forces to create a formidable barrier to homeownership. For ordinary Sri Lankans, this economic rollercoaster ride has made the pursuit of their dream home an increasingly elusive endeavour.

In an exclusive interview with Iconic Developments Chairperson Rohan Parikh, The Sunday Morning Business delves into the pressing issues and trends shaping Sri Lanka’s property market. 

Amidst concerns of a looming property crunch, Parikh offers insights and perspectives on the challenges and opportunities that lie ahead. Further, he addresses topics ranging from the impact of fluctuating property prices to the role of technology in modern condominiums during the course of the interview. 

Following are excerpts of the interview:

Many have expressed concerns regarding a property shortage. Can you share your perspective on this matter?

I share these concerns. The number of emerging construction projects has significantly dwindled. Even prospective projects face considerable cost increases due to recent tax reforms, including VAT. Considering these factors, alongside the relatively stable but substantially reduced currency exchange rate, currently hovering around 50-60% of its previous value, we are inevitably headed towards a housing shortage. Frankly, there is no other way to put it. 

Given the current framework, this outcome is practically unavoidable. If the existing restrictions and taxation policies, both direct and indirect, persist, many developers will encounter challenges in initiating new projects. This, in turn, will result in a housing scarcity. While I refrain from using the term ‘crisis,’ it is indeed a shortage. Crisis implies a different magnitude of issue. I would, in fact, encourage avoiding the term ‘crisis’ as it conveys a different severity. Additionally, this situation is anticipated to drive housing prices upwards.

Mitigation strategies should revolve around incentivising the property sector. It’s vital to understand that property projects are extensive, involving processes such as land acquisition, acquiring permissions, securing funding, and more. 

Even in the face of a housing shortage, it’s not something that can be rectified overnight. Prevention is often the wisest approach. Currently, we are undeniably on the brink of such a shortage, likely to occur within the next six months.

Mitigation efforts should also focus on revisiting incentive policies. Regrettably, the Board of Investment has eliminated all incentives for real estate investment, making Sri Lanka less appealing to overseas investors.

I believe it is essential to reevaluate the VAT policy concerning apartments. Apartments involve high-value transactions and imposing a 15% tax on both an apartment and tomatoes are vastly different scenarios. Many VAT systems globally employ tiered rates, with distinct rates for various item categories. I cannot think of a major real estate market burdened with such a high indirect tax on real estate.

Property prices have become a concern for many first-time buyers, primarily due to the economic challenges faced in Sri Lanka. What advice would you offer to those looking to enter the property market for the first time during this economically challenging period?

I believe that property prices, from our perspective, are fundamentally influenced by overarching economic issues affecting various sectors of the Sri Lankan economy. We’ve witnessed a period of substantial inflation, primarily triggered by currency devaluation. This phenomenon has been pervasive, impacting food prices, oil prices, clothing costs, and more.

Remarkably, property prices, when viewed from a dollar value perspective, have actually decreased. The properties we previously priced at, let’s say, $ 100 per square foot, are currently valued at approximately $ 85-90 in dollar terms.

In dollar terms, property prices have, in fact, decreased. However, we’re currently navigating a phase typical after a significant inflationary shock, which affected the Sri Lankan economy. In such circumstances, it takes time for prices to adjust and for individuals to adapt. This adjustment is already underway in the economy. Salaries and interest rates will adapt to the new inflation level.

Therefore, I don’t have specific advice for first-time buyers. This situation primarily pertains to economic management and I believe the Government is working to alleviate the impact of the inflation that has occurred over the past 12 months.

In the context of economic uncertainty, what strategies would you recommend for people considering property investments, particularly those focused on long-term returns?

As I have been emphasising, even before the currency crisis, property remains one of the most secure assets for preserving value. Individuals who invested in properties, particularly those who purchased with us, approximately 150-200 buyers in the current project, haven’t suffered losses during the currency crisis. 

They purchased at a lower rate and the dollar value of their units has appreciated due to inflation. In fact, their property values have doubled because of inflation. Property represents a genuine asset, known as a ‘real asset,’ and it excels as a store of value because it doesn’t depreciate.

Considering the fluctuation in property prices, how can prospective buyers ensure they are making prudent investment decisions? Are there specific locations or property types that currently offer stability or profitability?

I believe the period of fluctuation is essentially over. It has passed. It encompassed a phase of heightened inflation and pricing adjustments. We have now transitioned beyond this stage and stability has largely been achieved.

However, I would advise prospective buyers to focus on the underlying price in terms of dollars. The raw materials required for constructing buildings are globally priced in dollars. Costs for materials such as cement and steel are generally governed by global pricing. Consequently, developers’ construction expenses are dollar-based and property pricing is influenced accordingly. 

For instance, in certain neighbourhoods, the going rate is approximately $ 180 per square foot, while in others, it ranges from $ 200-225 per square foot. By converting these figures into Sri Lankan Rupees and assessing whether pricing aligns with historical dollar values, prospective buyers can make more informed decisions.

How has the demand for smart and technologically-advanced features in condominiums evolved in recent years?

One significant change, which is quite evident, is the imperative need for buildings to be Wi-Fi capable. High-speed connectivity has become a necessity, no longer considered an extra feature. This poses a complex challenge in apartment buildings, given their concrete structure with numerous walls that can obstruct signals. To ensure extensive Wi-Fi coverage and minimise dead spots, we have made substantial investments in internal cabling and related infrastructure.

Furthermore, home automation is a particularly exciting development. Products like Google Nest and Amazon’s Alexa, coupled with the advent of AI, offer a wide array of possibilities. This allows homeowners to customise their home experiences extensively. From a developer’s perspective, our focus is on providing the essential infrastructure required for homeowners to implement automation according to their personal preferences.

Instead of asking, ‘Do you want your curtains to be automatic,’ we provide the flexibility for homeowners to choose. Your house is equipped to accommodate automated curtains, and you can decide whether or not you want this feature. It’s about empowering individuals to embrace smart technology on their own terms, rather than dictating which smart technologies they should use.

Is there anything else you would like to share, possibly related to ongoing projects?

Certainly. We have recently made our remaining inventory available for sale, consisting of approximately 20-30 units. Upon selling these units, our current project will be considered complete.

We are delighted with the overall performance of this project. Despite the various challenges we have faced, including the aftermath of the terrorist attacks, economic crises, and changes in government, our customers have responded positively to our product. We eagerly anticipate our next project.

Could you provide some details about your upcoming project?

Our next project is fully prepared and ready to launch. Unfortunately, the current policies do not favour the initiation of a new project. We eagerly await improved policies that will support our project’s launch.