Financial Times

Property firms revaluing land holdings
By Duruthu Edirimuni
Real estate companies listed on the Colombo bourse, such as Colombo Fort Land, East West and Colombo Land, are preparing to revalue their existing land holdings given the revival of the property market. "If such firms revalue their lands now, their prices will rise along with the asset value of the stock," a stock market analyst said.

Stockbrokers push property stock prices up by citing the revaluation intentions by real estate companies. This was the reason for the recent interest in such stocks. A senior official in a stock-brocking firm said that certain individuals encouraged by stock dealers have bought stocks which were undervalued. "This trend has pushed up the prices of these stocks," he said.

However, the new government's decision to re-impose the 100 percent property tax has not been received well. Real estate agents complain that the market, which had improved due to foreign buying, has now deteriorated due to the proposal to re-introduce the 100 percent property tax imposed on foreigners.

Currently the market has dipped somewhat, although it has not been a sharp drop. Citing an example of how removing the property tax in 2001 led to the sudden increase of prices in the real estate market, Nethru Nanayakkara, a real estate agent, said that luxury complex, Royal Park Apartments which had sold only 80 apartments from a total of 240 prior to the property law being lifted in 2001, had sold out the balance 160 by 2003.

Nanayakkara said that when the foreign tax regulations were liberalised in 2001, market prices of coastal lands, such as in Tangalle which were on sale, suddenly shot up from Rs. 5,000 a perch to Rs. 25,000, due to foreigners buying those lands.

"In 2001 when the lending rates together with the fixed deposit rates had declined, a property market for the upper middle class was created," Nanayakkara, added. He said that the scarcity of prime property in Colombo and the suburbs had contributed to pushing land prices up.

Meanwhile, other real estate agents say that the draft bill to be presented to the parliament in the near future imposing a 100 percent tax on foreigners buying land here, will have a minimal effect on land prices.

A representative from Lanka Real Estates, a real estate advisory firm, said that there are doubts in the real estate market whether the property tax would be introduced as promised, since the government lacks a majority in parliament.

He said that if in fact, the tax is introduced the change in land prices will be very minimal, if at all. "In Indonesia and Thailand foreigners are not allowed to buy land, but the land is expensive in those countries due to foreign buying," he said.

Explaining some of the ways of how individuals work around the laws in those countries, he said that either foreign individuals buy lands through their local counterparts or through a local company with 100 percent foreign shareholding.

"The government's intent to reintroduce the property tax is to get political mileage and it is a completely lopsided decision," he said. He said that the real focus of the state should be on selling land to foreigners.

"I agree with the principle that foreigners should not keep the land," he reasoned, explaining that they should only be allowed to buy leases bringing in foreign investment and refrain from buying freeholds. He said that foreigners are looking to buy land in the coastal areas or the beaches and on hilltops, where Sri Lankans didn’t want to reside until two years ago.

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