Despite the country’s property market having faced significant fluctuations on account of the Covid-19 pandemic and the economic crisis in the past, it has the potential for long-term growth due to urbanisation, strategic location, and a growing middle class seeking convenient and cost-effective housing.
Despite recent positive trends such as rising property prices, the market faces challenges, including high construction costs and material shortages. Due to financial constraints and unstable economic conditions, developers are unlikely to start new projects. This anticipated undersupply of condominiums could turn the market into a sellers’ market within months, offering potential returns for developers and early buyers.
Condominium Management Authority (CMA) Chairman Sarana Karunarathna told The Sunday Morning Business that property sector prices in the country depended on and varied according to the locations of the condominiums and the facilities they offered, observing that the rates could not be accurately predicted. He pointed out an example whereby certain middle-class apartments were being sold between Rs. 30-40 million and Rs. 600 million.
“There is no development since all the developers have been held up and most are not commencing new projects. They have changed their minds and started selling land because of the cost of materials to build condominiums, which is a significant problem.
“The developers even have land banks. Yet, some developers have started middle-class sector developments resulting in a decline in the condominium sector for the last two years,” Karunarathna said.
Reasons behind high rates
According to the Condominium Market Survey and Real Estate Property Price Indices published by the Central Bank of Sri Lanka (CBSL), the prices of new condominiums in the Colombo District continued to increase during the fourth quarter of 2023. In terms of prices, a majority (68%) of transactions reported were in the price category of Rs. 25-50 million according to the survey .
Karunarathna stated that the rates of condominiums were high due to developers’ inability to invest money in them because of high material costs. He further noted their inability to import raw materials such as tiles and bathroom fittings and requirement to pay taxes as contributing to the rising rates.
“Only the last unit houses, built in 2018 before the Covid-19 pandemic, are now being sold. The property sector is dragging, which is why there are no significant developments now. There is a vacuum in the market and in development,” he noted.
“Colombo 6 (Wellawatte) has a high demand for condominiums right now. In addition, areas near highways have seen new development taking place, and now the sector is moving towards the suburbs of Kandy, Nuwara Eliya, Ratnapura, Galle, Matara, and certain areas in Gampaha, in addition to the coastal base, Talpe, and a few tourist destinations, mainly in the city of Colombo. Development and promotion have been distributed throughout the country, mainly in the aforementioned areas,” Karunarathna said.
Sector outlook
“New concepts have been introduced, which include retirement plan condominiums and studio-type apartments. A studio-type apartment is built with one room for people who are coming from Colombo for employment. In addition, there are service apartments for foreigners. Therefore, developers will build condominiums to provide short-term residency for both foreigners and locals,” he said.
He also pointed out an example of a renowned developer being involved in condominium projects near highways in Kadawatha which offered calm surroundings and very affordable prices, generally in the range of Rs. 28 million, alongside attractive payment schemes. The payment structure involved the buyer initially paying 20% of the total amount followed by a payment of 1% a month for 40 months, with the remaining 40% being paid at the point of the condominium being handed over, he noted.
“Such approaches have eased matters for buyers, with developers having provided many attractive advantages. Therefore, the next three years will depend on economic stability; the condominium sector will rise again,” Karunarathna stated.
He also noted that some hotels were being built with condominiums. As an example, he pointed out the newly-opened ITC Ratnadipa in Colombo, combining a hotel and housing scheme for the first time in Sri Lanka.
“Therefore, I think condominium construction will reach 2015-2019 levels in the next three years,” he said.
The CMA’s request to buyers
“I request buyers that, upon buying a condominium, they check the titles and select suitable developers because there are many fraudulent developers and buildings that have been built without appropriate licences from the authorities,” said Karunarathna.
“Buying such condominiums has given rise to many problems. First of all, a buyer must check the company’s title and reputation before obtaining their services. That is the most suitable way to ensure the best return for their investment.”
He also highlighted that the CMA was very keen on investors, noting that they had already helped them develop the industry by securing concessions from the Government. He further noted that the Government had intervened immediately to provide the investors relief with their imports, asserting that they were doing their best to rise in the industry.
When The Sunday Morning Business spoke to the former President of the Chamber of Construction Industry of Sri Lanka (CCI) Ranjith Gunathilake regarding the situation of the country’s property sector, he highlighted that the property sector included lands as well as apartments and houses.
He further observed that land values were increasing because the public had only recently realised the value of the rupee. People knew that land values had decreased after having been high, he noted, yet values were on the rise again and had reached the original value or higher.
"However, there is currently no reason for apartment values to increase. Given the instability of the country’s economy, many people invest in apartments in order to rent them out to tenants. However, there is currently limited demand for rental properties outside of tourism and Airbnb, which are not performing well either,” Gunathilake elaborated.
“Moreover, the long-term demand for office and retail spaces, as well as residential rentals, remains uncertain. Consequently, people are hesitant to purchase apartments and no limited number of completed apartments are available. However, this is anticipated to improve somewhere in October or November this year, given that the election situation is fixed and stability is expected.”
However, there is a high demand for condominiums in Colombo 3 and other key areas in the city, he pointed out.
Challenges in the condo industry
Condominium developers are mandatorily required to obtain statutory clearance and approval from the CMA, Gunathilake pointed out. He further observed that the authority’s processes of approval had not been particularly straightforward. Despite their having been rectified, the processes could still be made more attractive for developers, he continued.
“Buyers must always verify beforehand who the developer is, the financial credibility of the developer, and their background. In addition, the buyers must inspect the deadline with the particular developer to determine whether they are going to pay, and whether the certificate of completion has been received and the basic infrastructure facilities have been attended to. This is because a lot of buyers have faced problems on account of not being able to transfer the deeds due to the absence of CMA approval,” Gunathilake added, requesting buyers to heed the above when making a decision to invest in condominiums.
“The property sector must improve shortly because people will need shelter and better facilities. No country wants its property sector to decline. If issues are present in the sector, they are only temporary,” he concluded.