Colombo bourse’s wealth effect from stocks to homes
Given how the Colombo Bourse indices have performed over the past two years, some investors may have made at least three times what they initially put in, creating substantial wealth which has translated into apartment sales, an industry official said.
Aspirational assets such as apartments are a great way to lock in tax-free profits, such as the ones from the Colombo bourse, Bimal Perera, Executive Vice President and Chief Growth Officer, Hatton National Bank said. “We are seeing a good growth for home loans, but only about 15 per cent of residential apartment sales are funded by the bank, and the rest is through cash. Some of this cash may be from the share market,” he explained.
Last year, private-sector credit growth in banks was Rs. 2 trillion. This surge was driven by a 24-25 per cent increase in private sector borrowing, with significant growth in the industrial and services sectors. Mr. Perera said this year it may not be as high, as interest rates on deposits are growing slowly. “There is pressure on the bank to raise rates as the market rates rise. This will push the cost of funds and translate into higher loan rates.”
He noted that now the crowding-in effect is seen, which occurs when government spending, particularly on infrastructure, increases aggregate demand and boosts business confidence, leading to higher levels of private sector investment as opposed to the crowding-out effect.
Mr. Perera said that in credit growth, the consumption-oriented credit, such as credit cards, gold loans, and personal loans etc borrowing last year was about 25 per cent, and the rest went to capital expenditure. Around 35 per cent of capital expenditure was for working capital loans, Mr. Perera noted.
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