Land prices are rising for hotel and real estate developments in Colombo, according to a January 2012 report on Sri Lanka's Real Estate market published by locally-based Research Intelligence Unit (RIU). This is also the case with regard to any beach-front properties island-wide.
RIU's report indicated that these increasing land prices were a result of an unprecedented boom in the leisure sector. The report says, "The increase in demand for Sri Lanka as a tourist destination has resulted in an increase in investment since 2009 that continues today. Tourist arrivals rose by 40% in 2010 and a similar percentage increase is observed this year as well. Sri Lanka hit 750,000 tourists in November 2011, causing the government to revise the total expected number of tourists to 800,000 as a year-end target (which was surpassed). The growth in arrival numbers of tourists is higher than previously anticipated by the government of Sri Lanka."
Meanwhile, this leisure sector boom has also led to "over 32 projects already approved in 2011 and a further 17 pending approvals", and this situation has, in turn, has also positively impacted growth in the local construction industry.
Further, the report also stated that, as of December 2010, "the official number of hotel, guest house and villa rooms across the island is 22,735. The total number of rooms required from 2016 to 2020 has been set for 48,775 rooms in order to fill the capacity gap that Sri Lanka currently experiences, especially during peak tourist seasons."
Additionally added; "There are a total of 170 ongoing hotel sector projects and developments that are currently taking place. Colombo, Galle, Kalutara, Trincomalee and Puttalam are the top five cities that are set to add the greatest number of hotel rooms with ongoing developments. The arrangement of rooms across the island today focuses on these major cities and tourist destination points."
In the meantime, the report also noted that, by 2016, "the major concentration of hotel rooms will still be developed in the Western and Southern province, a significant shift can be noted to the spread of hotel room development across the island. Areas north of Colombo on the West coast will see their hotel rooms expand from just over 2,000 rooms currently, to over 7,000 rooms from 2016 to 2020. In addition, the Central province, which is known for its tea estates, hill country and Sri Lanka's Cultural Triangle, will experience a rejuvenation of hotel rooms, with concentrations in the city of Kandy and towns like Habarana, Anuradhapura, Polonnaruwa and Giritale."
Even more avenues for leisure development have also been outlined by the government: "Three geographical areas to which the government has paid special consideration for tourism, leisure property development and investor purposes are Kuchchaveli, Passikudah and the Kalpitiya Islands. In Kuchchaveli, an eight kilometre beach stretch from the Irakkandy Bridge of approximately 245 hectares (600 acres) has been identified for tourism development; the UDA has already prepared a zoning plan for this beach strip and it is forecasted that 500 rooms could be accommodated in this beach zone.
The Passikudah National Holiday Resort (NHR) will hold around 700 rooms; 13 blocks of land have already been allocated to prospective investors for its development. The Kalpitiya Integrated Resort area is located on top of the Puttlam Lagoon along the Dutch Bay and Portugal Bay, comprising 14 islands all allocated and designated for tourism development... There is great international and domestic demand in these areas from investors, driving land and property prices to increase." As such, and in keeping with future requirements for hotel rooms well in 2020, RIU's report also commented that the research agency was "bullish on the short-medium terms growth prospects for the leisure properties market in the island." In fact, it went as far as adding that, considering the government's keenness to attract foreign investment into the local leisure sector by way of tax holidays and unrestricted profit repatriation, "investors and developers will be hard pressed to find a better investment opportunity than what Sri Lanka has to offer."
To put some figures to the scope of leisure investments by international chains already underway across the island, RIU's report highlighted the following: "Sri Lanka is in talks with a number of international hotel chains including Sheraton, Raffles in Singapore and the Doubletree hotel. In Colombo city, the sale of land to international hotel chain Shangri La in 2011 for US$125 million was the biggest single contributor to FDI inflows for the island in 2011. The outright purchase for the Galle Face property land enabled Sri Lanka to achieve the highest ever quarterly FDI inflow in the country's history of $236 million. The corresponding participation from the tourist industry in this period was $132 million.
Shangri La also purchased a property in Hambantota for a smaller 300 room villa, compared to the 500 rooms for its Colombo property. The US-based Sheraton hotel group has confirmed a $300 million dollar investment into the country; the mixed development project will be built on five acres of land, given on a 99-year lease for $73.5 million."
In addition, the report also signalled that several local hotel developers, as well as other conglomerates, were also entering the country's leisure sector, sometimes in collaboration with international partners: "John Keells and Sanken Lanka are currently building a city hotel in the heart of Colombo 03. Lankem Ceylon recently bought control of the Galle Fort Hotel, a boutique hotel in Sri Lanka's southern port town of Galle. Lankem's Rs. 772 million purchase indicates a popular trend of domestic firms moving into the real estate sector for leisure properties.
Hemas Group, another reputed local conglomerate also has plans to invest in the hotel industry on the East coast of the island. In partnership with Thailand's Minor International, the group has re-opened and re-branded Serendib in Bentota.
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