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Assessing the impact of the current crisis on Sri Lanka’s condominium sector – The Island


By Rohan Parikh

Sri Lanka is at present going by what seems to be a ‘once in a generation’ disaster, each economically and politically. How would this affect the nation’s actual property market, notably the marketplace for residential condominiums?

Firstly, it’s vital to grasp that in contrast to, say, manufacturing or providers, the affect on condominiums shall be complicated and blended. It is because the present state of affairs has each constructive and detrimental implications and can affect each demand and provide.

Constructive implications

First, exploring the positives, actual property and residential condominiums present traders a buffer to guard their wealth from unpredictable and rampant inflation – which has been probably the most outstanding outcomes of the present disaster in Sri Lanka. Inflation is at file ranges already and by all indications will stay excessive within the fast time period.

Since actual property is a long-term asset class, nominal values of properties usually rise to match inflation, guaranteeing that the investor positive factors in actual phrases. Therefore, actual property property like residential condominiums signify a secure and long-term retailer of worth, which may offset the affect of inflation and will be offered profitably, as soon as normalcy returns.

That is in sharp distinction particularly with monetary property courses equivalent to shares and bonds that carry excessive ranges of threat and will be very unstable throughout a macro financial disaster just like the one we’re experiencing at present. Therefore, actual property can carry out much better in defending your wealth, in contrast with typical alternate options like money or financial savings accounts, that would lose worth considerably and quickly attributable to inflation.

General, actual property represents a tangible and strong asset that may present safety and stability to traders at a time when the worth of things and the soundness of corporations and industries are in flux.

Damaging implications

Nonetheless, the present disaster also can negatively affect the true property market.

There is a robust chance of a scarcity of flats within the medium time period as new initiatives are cancelled or postponed as a result of uncertainty concerning the price of inputs and availability of mandatory imports. Consumers might rush to buy the present condominiums accessible out there, lowering the provision for different patrons.

Such shortages might also end in costs of condominiums rising quickly – which is nonetheless more likely to profit patrons who get in early. Funding such new investments might nonetheless be difficult, given particularly the speedy improve in rates of interest.

Actual property builders and corporations may also face vital constraints and challenges as a result of incapacity to begin new initiatives, as they might be unsure of the costs of inputs. Therefore, it is going to be troublesome for builders to cost flats precisely. As initiatives are placed on maintain, staff within the sector might both face job losses or corporations must deal with excessive overheads.

Want for extra warning

Low-quality builders who’ve invested in initiatives with low feasibility and who’ve heavy ranges of borrowings are more likely to be impacted way over prudent, high-quality builders, given the above state of affairs. Therefore, patrons of residential condominiums have to take additional care to evaluate the feasibility of their developer, guaranteeing that they choose solely reputed builders with a robust observe file.

The high quality of future development initiatives is also compromised as imports will stay restricted within the medium time period, resulting in issue in procuring key parts like kitchens, home equipment, and so on.

There is also a dampening affect on land costs (discounting inflationary strain) as land purchases by builders slowdown. This may be additionally perceived as a constructive, particularly for patrons however will negatively affect sellers.

Weighing the positives and negatives, general, actual property and residential condominiums are more likely to stay a pretty funding class in Sri Lanka. Lengthy-term fundamentals stay related, particularly contemplating that Sri Lanka has low ranges of urbanisation and that vertical dwelling clearly gives the one viable answer. Initiatives with sound enterprise fundamentals, formulated by high-quality builders and that are aligned intently with market wants, will proceed to be enticing investments.

(The author is the Chairperson of Iconic Developments and an alumnus of the Wharton Faculty of Enterprise and INSEAD.)



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