The Sunday TimesBusiness

30th June 1996




Colombo sees drop in property sales

By Asiff Hussein

House and property sales in and around Colombo have declined significantly since the beginning of 1995, The Sunday Tmes Business learns.

Unlike the share market which despite showing a decline during the same period, continued trading at the prevailing market rates, the real estate market in the metropolis has many sellers but few takers at the quoting price.

Ranjith Balasuriya, a real estate broker from Colombo said property owners in Colombo and the outskirts were still quoting the high prices that prevailed about two years ago. However, he said the eventual selling price had come down by 15-30 percent.

For instance, he said a house in a popular residential area in Dehiwala which was quoted at Rs. 3.2 million was sold for only Rs. 2.4 million.

Property prices in the perimeters of the suburbs and rural areas appear to have been unaffected. Real estate sources said this was because urban dwellers were moving away from Colombo to the outstations to escape problems such as smoke pollution, noise pollution, traffic problems and congestion.

Another major reason for the trend is the massive gap between prices prevailing in the metropolis and the rural areas.

A big timer in the land sales business said fair prices in the rural areas were being maintained because of the easy payment terms offered, enabling even the lower income groups with an initial down payment to eventually own a piece of property, the cost of which would have otherwise been prohibitive.

However, this does not apply to large plots of land in the metropolis. Investigations have revealed that large building sites in Colombo are in great demand, especially for commercial ventures and high rise residential apartments, where every inch of land is utilized to the maximum.

Contractor and Project Manager for a Singaporean Housing Developer, Firoz Ismail said the demand for high-quality middle class houses in Colombo has remained the same over the past several years, "although one could say that the present lack of liquidity is an obstacle to sales."

"Prices have remained the same level and certainly there is no drop in prices of newly-built houses in the Rs. 1.5-3 million range," he added.

50% refund for HPT clients

Arrangements have been made to refund upto 50 per cent of the deposits in HPT Ltd., outstanding as at October 1990, a Central Bank news release said.

Refunds will be made from this week, out of the balance of the Depositors' Trust Fund.

"Based on existing records of HPT, it is apparent that at least 50 per cent of the deposits as at that date less any refunds already made in cash or in kind or in the form of land transfers can be made to all depositors initially," the Central Bank said.

In April this year the Head Office building of HPT had been sold for Rs. 95mn, by inviting sealed offers from the public. The Central Bank, in consultation with the HPT Depositors Association, had previously persuaded the Hatton National Bank which had a mortgage over the building, not to sell it by public auction. Inviting sealed bid from the public was expected to yield a higher price.

After settlement of mortgage liabilities and expenses, Rs. 70.3mn had been realized.

Depositors whose accounts have been audited have been requested to furnish the original certificates of deposit with two photocopies. Refund cheques will be posted within two weeks of production of the original certificate, Central Bank said. As there are 1,500 depositors the process is expected to take around three months.

The Central Bank has requested depositors not to visit the company until they have received a letter from the company to do so.

"In the meantime, the Central Bank would endeavour to get HPT Ltd., to dispose of the other assets of the company to make further payments to the depositors," the release said.

Joint ventures with China

China is to allocate about Rs. 1 billion to finance joint venture projects with Sri Lankan firms, a visiting Chinese trade official said.

Yang Wensheng, Assistant Minister of Foreign Trade and Economic co-operation, who led a Chinese Trade Delegation to Sri Lanka said the money had been allocated under the Interest Subsidized Preferential credit scheme (ISP).

It came in response to Trade Minister Kingsley Wickremaratne's call for joint venture collaboration between Sri Lanka and China at the second session of the joint committee for industrial co-operation between the two countries held in Beijing.

Mr. Wensheng said the list of possible products for export which Sri Lanka forwarded to the Chinese government has been circulated amongst Chinese firms dealing in imports.

"Preparations are underway to send a high-powered Trade Delegation to Sri Lanka towards the latter part of this year." Mr. Wensheng said.

According to Trade Ministry sources, the total trade turnover between Sri Lanka and China, which stood at Rs. 2.4 billion in 1985, increased to Rs. 8.4 billion by 1995.

The total value of imports from China, which stood at Rs. 1.9 billion in 1985 increased to Rs. 8.2 billion in 1995.

Ministry Advisor Kumar Abeysinghe said it was as a result of this massive trade imbalance that Minister Wickremaratne called for a consideration of huge qualities of exportable items from Sri Lanka, at the last joint commission meeting in March.

"The Minister also identified 18 specific areas including the manufacture of pencils, lubricants, carbon brushes, gaskets, crucibles, electrical insulators, lightning arrestors and packaging material for joint venture collaboration," he said.

OTC market for unlisted firms

The 1768 odd public companies not listed on the Colombo Stock Exchange, will be provided a public market place when an Over The Counter (OTC) market is introduced tomorrow, Colombo Stock Exchange Chairman Ajith Jayaratne told the media last week.

Of the 2000 public companies registered in Sri Lanka only 232 are listed on the CSE. The main advantage of an OTC board is to the shareholders, who can have prices for their shares quoted on the board, Mr. Jayaratne added.

CSE Managing Director, Dylan Moldrich, said the OTC board would be most useful to companies with a fairly broadbased ownership, of more than 200 shareholders. Sophisticated investors like unit trusts, and insurance companies etc. would find a formal OTC market useful, he added.

An OTC market would also provide an exit mechanism for Venture Capital Companies which have participated in the equity formation of newly set up companies.

Employees who received 10% of the shareholding of privatised companies, can also make use of the OTC market to sell their shares, he said.

An OTC market also gives the opportunity to small and medium companies, which have sold shares to the public for funding, to facilitate secondary trading of their companies' shares.

"It is too early to comment on the level of participation in an OTC market right now. This is a long term initiative", Mr. Jayaratne said.

Despite a continuing bearish trend with an all round price decline in the Colombo Stock Exchange, an OTC board is considered a 'positive step' to help the market, Mr. Jayaratne added.

Obtaining a listing on the CSE is tedious, time consuming and costly, and many public companies may not have the minimum capital requirement necessary for listing, Mr. Jayaratne explained. He added that Janashakti Life Insurance had already registered. Registration is free of charge. The regulatory network for an OTC market is not as stringent as for listed Securities, Securities and Exchange Commission (SEC) Director General, Aritha Wickremanayake said.

Regulations for the OTC market will be largely guided by the Companies Act, he added.

Registering on the OTC board will not prevent companies from private transactions, he said. There is already a grey market for shares of public unlisted companies. We are introducing a formal mechanism for the market, he added. An OTC market could be considered a stepping stone to obtaining a listing on the main board, for some companies which lack confidence in applying for a listing, Mr. Jayaratne said.

The OTC board may also be upgraded to a second listed board, in the future, Mr. Wickremanayake said.

The CSE is also setting up a debt securities board in an attempt to popularise a secondary market for debt securities. The regulatory network for this market is now being worked out jointly by the SEC and the CSE. The SEC is scheduled to approve 2 to 3 debt securities based on Unit Trust, this week, which makes formal mechanism and regulatory network urgent priorities for debt securities, Mr. Wickremanayake said.

The cost of transactions on debt securities is low and the secondary market should be active, Mr. Moldrich said. Transaction costs for listed debt securities is 0.2 of 1% he said. The 0.5% stamp duty on transactions was abolished in the last budget, he added.

However the secondary market for debt securities has yet to pick up, he said. For example there have not been secondary market sales, on the recently issued Vanik debentures, he said.

The introduction of a formal debt securities board will give the investor a guaranteed escape mechanism, he said. A feasibility study is being carried out to set up a rating agency, which is another vital aspect of a sophisticated debt market, Mr. Jayaratne said. Once set up, the agency will rate companies issuing debt securities so that the individual investor, has more confidence in investing and trading in this market, he said.

The CSE will be upgraded to 100% screen-based trading targeted for this November, Mr. Moldrich said. The contract has already been awarded to Tibco Inc. US, and is jointly funded by the SEC and the CSE.

The sophisticated system, one of the few in an Asian Market, can make 20,000 trades in three and a half hours of trading, but the CSE now averages just 300 transactions, a day.

Speed will be the most important factor in this Rs. 100 million investment.

The system will be far more transparent and shares much more liquid, he said. Shares can be traded over and over again as brokers can operate on computers from their offices. Real time figures will be available, orders can be deposited in the system and the market can be taken out of Colombo to the outstations, he said.

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