The Sri Lankan real estate market has been through a few stumbling blocks over the years but it is now showing signs of stability and sustained growth. However, the turbulence of the past has had its casualties and turning these projects around is no easy task, according to the latest research by the Colombo-based Research [...]

The Sundaytimes Sri Lanka

Re-claiming the skyline: Saga of high-rise developments in Colombo


The Sri Lankan real estate market has been through a few stumbling blocks over the years but it is now showing signs of stability and sustained growth. However, the turbulence of the past has had its casualties and turning these projects around is no easy task, according to the latest research by the Colombo-based Research Intelligence Unit (RIU).

The Sri Lankan property market experienced a peak in 2005, sparking-off higher demand for real estate at all levels including high-rise and high-end condominiums. Since then, steady economic growth has spurred this market as the island has propelled itself towards middle-income status on the back of a period of peace and stability. Key developments that triggered the upturn in the real estate market over the past decade may be described as follows;

• Comparative decline in interest rates during the period of 2002 to 2005 that encouraged investment in properties as opposed to comparatively low income yielding securities and deposits.

• Rapid rises in income in the private sector.

• Tax benefits extended to borrowers effectively further reducing cost of borrowings.

• Migrant workers pursuing the middle-income housing market as a ‘safe-bet’ investment.

• Slow return of expats who, with a peaceful environment prevailing, sought to pick-up high-end properties including condominium apartments in Colombo.

The demand for investment in the property market changed many aspects of the supply chain from a financial sector perspective with commercial banks expanding their activities. In 2005 the annual demand for housing in Sri Lanka was estimated at around 80,000 to 100,000 units per year according to statistics offered by the Central Bank of Sri Lanka. In 2005 analysts commented on a rapid rise in demand due to the above mentioned factors as well as changing demographics and life-style patterns. The demand for luxury condominium units in the Western Province served to spur the construction industry as investors backed high-rise developments, which started to silhouette the Colombo skyline. The entry of large groups of companies in collaboration with international conglomerates continued to stir optimistic sentiments in the property industry of Sri Lanka, the RIU report indicated.

Enter the Financial Crisis

Whilst the positive sentiments prevailed in the Asia region’s property market the overall global economy and financial stability was changing and exposing the economic volatility of iconic global-giants. The first shock to the system was a crash in the US sub-prime housing market. The aftermath of this had severe ripple effects that resulted in a slump in the world economy that was described as the worst since the great depression of 1930s.

Trillions of US$ were instantly wiped off from the global financial markets overnight. With the US housing bubble bursting, banks and financial institutions around the globe imposed strict policies and conditions on their credit policies as risk appetites gave way to conservative practices. Overall, people lost confidence in the system and many even started withdrawing their money from institutions. The public lost confidence in the system which resulted in large precautionary withdrawals of funds from institutions around the world.

Whilst for the most part, the Sri Lankan financial services sector was insulated from the global crisis, larger investors, including foreign players operating in the domestic market faced negative prospects.

Consequently, the continuity of several projects that were initiated in the 2003-06 period and under construction faced a number of challenges due to funds drying out.

Abandoned projects in Sri Lanka

In retrospect, we can observe that the aftermath of the global economic crisis had a significant impact on the local real estate market with many ambitious projects getting stalled due to liquidity issues and some being fully abandoned. Herein, we take a closer look at some of these projects;

a) Dawson Grand

This project was handled by an internationally acclaimed organization, Keangnam, in collaboration with Capital Maharaja. The project started in December 2006 and the proposed building is located at No 7, Braybrooke Place, Colombo 02. The project consists of two towers (Tower A 42 levels & Tower B 38 levels) the size of the land use for the project is 1.3 acres (208 perches). The overall proposed investment of this ambitious project was $60 million. The expected target market for this development was as a high-end luxury condominium.

The project was halted in May 2008 due to a severe downturn of the commercial real estate market during 2008-2011 global financial crisis. Developers had invested approximately $17 million on construction, development, design, consultation and marketing efforts at the point of halting the project. Pilling had been totally completed whilst the structure of Tower A up to level three and Tower B up to ground level has been completed.

In the current improved environment, the company management has been seriously considering the re-commencement of this project and adequate progress has been made towards this objective. It has been estimated that approximately 30 months of work will be equired to complete this development.

b) Frances Residencies

The project was initially owned by the Ceylinco Group and was initiated in June 2005. The proposed building is located at Frances Road, Colombo 6 and the size of the land used for the project is 51.22 perches. The overall proposed investment of the project was at Rs.800 million. The expected end result of the project was eight floors of high end luxury condominium for high net worth individuals, mainly targeting expatriates.

However, the widely publicized controversy that engulfed the Ceylinco Group at the time led to the project being suspended. At the point of suspension, the company had spent, Rs.200 million for the construction of 5 ½ floors, including the basement floor, ground floor and the mezzanine floor. Further investments include Rs.50 million on marketing efforts, employee salaries and consolation related activities. The land investment is valued at Rs.150 million.

The remaining work of the project (3 ½ floors and other work) can be completed within 12 months, according to RIU’s research. The current owners of the project ‘The Finance Company PLC’ are negotiating with several investors to recommence the project as a result of improved market conditions.

c) Mayfair City Project

The project was initially under the ownership of Shaw Wallace & Company Ltd. The development of the project was undertaken by Pioneer Properties and Lee Hedges Ltd, the fully owned property development subsidiary of Shaw Wallace & Hedges. The project was initiated in August 2010 and the land for the project is located at Colombo 3 and constitutes 542 perches extending from Galle Road frontage to the edge of the parallel R.A. de Mel Mawatha. The project was proposed to be two towers, each holding 30 floors with 307 luxury condominiums.

The project was halted in June 2012. At the time of suspension, the piles supporting the project had fully completed with the contagious piles, the capping beam and the parameter grouting. Financial difficulties led to the project suspension.

The developers intended re-designing Stage I of Mayfair City and continued construction as a commercial development with a joint venture partner. They are now moving away from the previous residential focus. Reports suggests that the company has sold part of its Colombo 3 land to Avic International Hotels Lanka Ltd which is a locally incorporated unit of Chinese state-owned aviation company CATIC (China National Aero Technology Import and Export Corporation). It can be assumed that the funds obtained through the transaction will be used to finance the Mayfair City project. The land has been sold for Rs. 1.85 billion.

d) The Summit

The land for the project was owned by Chandra Senanayke Holdings and it was leased to an undisclosed investor. The land was situated at the main junction in Colombo 3. The project was initiated in mid-2009 and it involved an ambitious $20 million proposed investment project. The final outcome of the project was a commercial building with ample office space and up-market retail space.
The project was halted in mid-2012. The company has invested $750,000, mainly on piling and other related charges (consultation, employee salary etc…) at the point of halting the project. Piling has only been partially completed at 30 per cent.

According to the owners of the project, full completion is set to take a period of 36 months. Negotiations with a prospective investor are also under way at this point.

Outlook and forecast

While recent Budgets and policy initiates had focused on reducing the tax burden of the banking sector, the Budget proposals for 2014 have introduced the National Building Tax (NBT) into the banking sector with the intention of improving government tax revenue which has remained below targeted levels. The government has also signalled that it would like to consolidate the stability achieved in this sector by merging smaller finance companies and encouraging the local sector to collaborate with foreign funds and financing institutes. These measures will help the financial sector to facilitate the inflow of foreign investment into local projects in the real estate sector.

In many emerging markets similar to Sri Lanka, financial flows and real estate bubbles do go hand in hand, as global investors are assured of quick returns on their financial investments through real estate speculation. Over the past four years, Sri Lanka had the advantage of being branded as a post-war economy, which added to the euphoria and drew more of the capital flowing to the “emerging markets” through foreign sources.

The real estate industry in Sri Lanka has benefited immensely in the post war environment sans security issues in the Colombo city. Leading this revival, the expat Sri Lankans who had not considered Sri Lanka as a viable real estate investment options during the war era, took a completely different view as the island economy offered good prospects as an investment and a second home. In the context of recession in the West, and the high income levels enjoyed by this segment the demand for luxury living continued to increase. In this connection, there can be considerable optimism regarding a swift and profitable turn-around for the abandoned projects. However, there are also concerns on the sustainability of investment into property in Sri Lanka based on the investment environment. A case-in point was the new initiative in the 2013 Budget proposals to add a 15 per cent upfront tax on the lease of state or private land to non-nationals. The previous Budget had already imposed a ban on the outright sale of land to non-nationals and this additional measure may prove to dampen the appetite of foreign investment according to some commentators.

On balance, as we welcome 2014, cautious optimism maybe the order of the day and the abandoned projects may yet reclaim their place in the city skyline.

(Any clarifications on this research study should be addressed to

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