In addition to skyrocketing energy and food prices, rising rents are swallowing up a sizeable portion of household income for many, even as affordable housing becomes more and more scarce in Colombo.
According to the Household Income and Expenditure Survey 2019, the percentage of the urban population living in rented or leased properties is 11.6%. Colombo had the highest percentage (13.8%) of the population who were tenants.
Speaking to The Sunday Morning, many of those who lived in rented properties in Colombo shared that budgets had to be tightened to manage rent along with daily living expenses.
For those living from paycheck to paycheck, housing costs are the biggest expense.
Manel*, a domestic worker who earns a daily wage, lives in a one-bedroom house that costs Rs. 25,000 per month to rent.
“My husband and I earn a daily wage, but once the rent is paid, nothing much is left. My husband’s entire salary is spent on rent and utilities, while we use my salary for other necessities. With the economic crisis, the owner increased the rent from Rs. 15,000 to the current price.”
Kasun*, a university lecturer who lives in a furnished one-bedroom apartment, pays Rs. 35,000 per month for rent in addition to electricity. Such expenses consume almost a quarter of his income, but with the increase in electricity charges, these expenses have also increased.
However, having started renting his residence at the height of the crisis last October, he noted that he was receiving a better deal than most: “The deal was good and it is acceptable given the facilities available. The agreement is for one year so the rent hasn’t changed, but I’m not sure if they’ll increase it then. Of course, I could have gotten a better deal before the crisis.”
Nilakshi*, who rents an upper floor of a house which she occupies with her husband and child, pays Rs. 35,000 monthly. “The landlord wanted to increase the price, but since my husband lost his job due to the economic crisis, they reconsidered and agreed to continue the rent at the same price as before the crisis,” she shared, noting that almost 30% of her income went towards rent.
Regardless, this situation is unlikely to continue, since the landlord has already mentioned an increase in the rent.
“I have said that I will be looking for another place if they plan to increase the rent; they have increased the rent for the ground floor to Rs. 55,000,” she said, noting that it was nearly impossible to find any rental units at the price she could afford which provided the facilities she needed.
According to her, despite this concession in terms of rent, it is still difficult to manage to do the same activities they used to do pre-crisis. “Earlier we used to go out for dinner at least once a week, but with the situation we just cook at home; we just earn and eat,” she said.
Many of the residents who live on rent noted that they expected the rent to increase following expiration of the period mentioned in their respective lease agreements.
A landlord who spoke to The Sunday Morning noted that since the lease agreements that had been signed with her tenants were still in effect, she would have to consider increasing rental charges upon renewal due to the increased expenses stemming from the economic situation.
Moreover, if the current tenants were to leave, she would consider asking for a greater starting price for the house, she noted.
Demand and supply
With the deepening economic downturn, demand and supply of rental housing has been significantly affected. One housing agent dealing with rentals in the capital of Colombo told The Sunday Morning that the rental market has been significantly affected following the crisis, with both property shortages in certain segments and higher prices.
“There is a particular price range that has massive demand but there are no properties available for rent. The property market between the Rs. 100,000-200,000 range doesn’t have enough properties for rent because everything within that price range has been rented. At present, anything that qualifies to fall within that price range will move beyond that range, due to high maintenance and repair charges.”
However, he noted that when it came to properties that were usually occupied by foreign employees in the country, a massive number of properties were still available for rent.
“When it comes to the apartment market, there are no good options available in the market between Rs. 50,000-150,000; these have already been rented,” he said.
Moreover, the rental costs have surged significantly due to various factors, primarily due increased material costs leading to escalating maintenance and repair costs. “For fully furnished properties, the furniture cost is obviously higher than it was before the crisis. We can’t furnish a house at least within 50% of the price we used to spend earlier on furnishing.
“Further, electrical equipment and repairs are extremely expensive now and there aren’t enough replacements to purchase on the market, when it comes to appliances such as washing machines, refrigerators, and televisions.”
Another agent observed that the current trend was for people to be moving from high-cost rentals to lower-cost rentals. “Additionally, people who lived in central Colombo are moving to the suburbs,” he said, noting also that demand too was down, with people now renting on three-month deposits, when previously they rented on sixth-month or one-year advances.
Both agents expressed pessimism regarding the future trajectory of the rental sector, with one saying that the situation appeared to be “very hopeless”.
Real estate market
Speaking to The Sunday Morning, University of Sri Jayewardenepura Department of Estate Management and Valuation Visiting Lecturer Dr. J.N. Hettiarachchi shared that the trends in rental values in Colombo varied across income brackets and residential areas.
“Rental values will differ across areas such as Colombo 7 and Mattakkuliya. There is unlikely to be a drop in rental values in areas such as Colombo 7 and values are likely to increase given the prestige factor. However, it is a different story in areas such as Borella, Wanathamulla, Modara, etc.”
In order to uncover accurate data on the trends, research needed to be undertaken into the matter, he said.
He further noted that demand could drop for rental properties in certain areas, leading to stagnanting prices due to the country’s economic condition. For instance, with increasing essential living costs such as education, food, and transport, certain segments would not be willing to spend as much on rent, he noted, leading to such individuals opting for lower-priced rentals. However, this in turn would lead to a spike in costs for rentals in that category, he opined.
According to Lanka Property Web (LPW), the average rental price for a three-bedroom house in Colombo 1-15 is around Rs. 107,000 and Rs. 49,000 for the same in Colombo suburbs. The rate per square foot has fluctuated over the past five years in Colombo 1-15 within a range of Rs. 90-100.
LPW expects the per square foot rental rates for residential houses in Colombo 1-15 to stagnate in 2023 given the current rental market behaviour.
Houses located in Colombo suburbs indicate a continuous increase in the per square foot rental rate for the past five years and have been distributed within a range of Rs. 45-60. The price movement of the Colombo suburban areas has taken a different form than in Colombo 1-15 and is predicted to be stagnant in the upcoming years.
LPW further noted that the boom in the real estate market that followed the Covid-19 pandemic had dropped with the advent of the political and economic uncertainty in the country.
*Names changed to protect anonymity.
Chart for layout graphic
Average rental prices in Colombo
Date
Average price (Per month)
House rental price
Apartment rental price
March 2019
335,000
241,000
March 2020
343,000
290,000
March 2021
359,000
262,000
March 2022
330,000
251,000
March 2023
460,000
375,000
Source: Sri Lanka Real Estate Market Outlook Report 2023, Lanka Property Web