ISSN: 1391 - 0531
Sunday February 24, 2008
Vol. 42 - No 39
Financial Times  

Real estate prices seen rising by over 100 %

Real estate prices are seen rising by over 100 percent in the next few months owing to price increases in material, labour, transport, overheads, service connections, as well as the new tax levied by the government where five percent of the total construction cost has to be paid to the UDA even before construction starts.

This was revealed at a joint press conference convened by a group of contractors and property developers this week to clarify certain issues in the industry.

Managing Director Sanken Lanka Ranjith Gunatilleke said that for the past 18 months they had not had a single new apartment construction project whereas previously they would tender on an average for at least 2 -3 new projects every month.

He said real estate has always been a good investment as currency rates keep fluctuating and urged the public to invest their monies in property development “Sanken has been involved in the local construction industry for over 25 years and during the last 5 years in particular we saw a boom in the housing industry,” he said.

Keells Housing, the JAIC Residencies, Carlton Apartments for Ceylinco, Cinnamon Garden Residencies on Ward Place, Hyde Park Residencies for Ceylinco Capitol Residencies, were among some of their completed projects.

“Recently however some developers have been unable to meet their payments to contractors as they are unable to sell their apartments, while some developers have been forced to stop construction mid way. Buyers are expecting real estate prices to come down, this is not going to happen, they will only escalate, so this is the time to invest your money in real estate before prices sky rocket as they will in the very near future” he said. Gunatilleke attributed this to a variety of reasons, namely the economic situation, the worsening security situation which makes people think twice before investing in apartments both as a second home or city home as well as an investment, the shortage of cement, the absence of skilled labour and the escalating price of raw materials.

“The enforcement of a 5% tax of the total construction cost which came into effect about one and a half years ago has virtually put a halt on any future construction and this coupled with the escalating price of raw materials has had a negative effect on the construction industry as well as for property developers,” he said .

Chairman Benison International Dr Sunil De Silva said that his particular development project, namely 189 Residencies on Baseline Road had seen an appreciation in land value of over 100%. “In 2004 a perch was valued at Rs 1.2 million, whereas now the price is Rs 2.5 million for a perch. Steel which at that time cost US $ 400 per ton is now US$ 950 a ton, therefore as an investment there is no way you can lose as land and housing both are appreciating rapidly”. De Silva said, “World steel prices have increased by more than 50%, cement too which mainly came to Sri Lanka from India is now in short supply due to the construction boom and rapid development that India is witnessing. Skilled labour too is virtually non existent due to the fact that the majority of Indian labour who were working in the Middle East are now returning to India to be part of the boom time in their own country which has resulted in our own skilled as well as semi skilled labour going overseas for employment, leaving us with no choice but to go in for Chinese labour which is more expensive”.

He added that therefore any new development project will have to absorb all these increased costs, resulting in astronomically high prices for real estate in the future.” He also said that bank interest rates too were prohibitive and the banks did nothing to help ease the situation.

General Manager, Nawaloka Construction, Kalana Alwis noted that some of the apartment buildings which are now completed commenced one and a half - two years ago. “For the last 1½ years not a single apartment complex has been started on by us as a contractor and that is simply due to the fact that nobody can effectively afford to build now,” he said.

Though it appears that there is a glut of apartments in the country right now and buyers expect the prices to come down still further, he affirmed that this would not happen. “At the very least we have to recover our costs which have now doubled and tripled since the projects were first commenced two years ago. If the public expects costs to come down they are mistaken, on the contrary they can only go up and that too drastically,” he said.


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