• Dropping interest rates and material costs, coupled with increased savings, set to boost the industry
• Higher government capital expenditure and rising household incomes further support anticipated growth

Sri Lanka’s construction sector is expected to benefit from dropping interest rates and prices, as it is anticipated to contribute to economic growth once again, according to Capital Alliance Limited (CAL).

CAL said that lower borrowing costs have dropped significantly over the past two years, enhancing affordability for individual borrowers, where the finance cost has almost returned to the pre-Covid period.

It said that material prices have declined from crisis-era peaks, supported by a stronger rupee and lower global prices, as the cost of a 50 kg bag of cement has fallen to Rs. 1,960 from Rs. 2,800 peak, and the cost of one cubic meter of sand has started to drop from peak price of Rs. 26,800.

Aluminium volumes are near pre-crisis levels, with raw material imports up 11% year-on-year for the first four months of 2025 signalling firm recovery momentum.

Moreover, it said that the percentage of income saved has improved over the past two years, supported by wage increases in both private and public sectors and lower recurring household expenses driven by price reductions.

Accordingly, the average household savings ratio has increased to 19% by 2025 from negative 6% at the peak of the crisis, while the average household income has increased to Rs. 254,000 from the level that was at the crisis period at Rs. 198,000.

Also, CAL said that government capital expenditure allocations have increased compared to previous years, budgeted at 4% of GDP, compared to an average of 3.4% of GDP spent in the last five years.