Condo industry enjoys strong growth despite low urbanisation rates

By Harshana Sellahewa

Sri Lanka’s dull urbanisation rate, estimated by the United Nations, is to be at 18-18.2 percent, while the country’s Megapolis Ministry claims it to be at 42 percent, according to Indocean Developers (Pvt.) Ltd Director Pradeep Moraes. 

The real estate developer noted that taking an average of the two estimations would not suffice as Sri Lanka would still be below the global urbanisation average, which is around 50 percent.

“When it comes to the average for countries of our size or similar, the rate should go up to about 86 percent,” Moraes said at the press launch of PropertyGuru Asia Property Awards 2019, in Colombo, last week.

He said Colombo’s poor road network worsens its chances of urban sprawl and that there isn’t a viable solution, despite the proposed light rail system, which is a good strategy that would function to a timely delivery schedule but would probably only play catch-up.

“So, there really isn’t any other way to accommodate the need for proper dwelling opportunities but to go up,” Moraes said.

Moraes praised the strong and robust condominium sales and condominium market in Colombo, saying that the industry “withstood and overcame the onslaught of fearmongering over the years”.  

He said that the condominium growth in Sri Lanka is not fuelled by the aspirational lifestyle or upward mobility but by the basic fundamental of need.

He pointed out that the ratio of condominium buildings or apartments to conventional housing is less than 5 percent and said that the high-rise condominiums can deliver up to 20 times the efficiency of conventional housing.

Meanwhile, Moraes elaborated that the economies of scale also interpret the apartments to be more affordable than smaller-sized conventional dwellings and the numerous approvals and procedures faced in getting a building approved can lead to a lot of difficulties and delays in building the individual units.

“There is the aspirational lifestyle, facilities and services, the uncompromised security and the lack of dependence of domestic help, which all act to extend the advantages held out by apartment living,” he added.

He also denied the existence of a much proclaimed bubble in the high-end luxury condominium sector in Colombo, due to the absence of a vital ingredient for a bubble to exist.
“That ingredient is the ready availability of cheap credit. Our banks have been very prudent and successful in that manner. Their prudence has led to very comfortable bottom lines even in the times of economic downturn.

We very well know that the word ‘cheap credit’ does not exist in this country. So that takes out the number one catalyst for speculative buying, which is a starting point for real estate property bubbles,” he said.

Meanwhile, Moraes said that it is a known fact that most of the sales of luxury apartments are equity purchased and that over 90 percent of luxury sales are on equity and not on borrowing.

“The capital gains have been even by a modest estimate at 12 to 15 percent. Combining that with the rentals at 6 to 8 percent, the holistic return from real estate comes out at a level which is far better than the other sources of investment,” he explained.

Moreover, he went on to say that the political instability the country faced a few months ago demonstrated that various streams of investment can be disturbed in bad times. 
Sri Lanka witnessed a huge flow of foreign capital out of the country - that had been invested in stocks and bonds.

“To our knowledge, real estate did not contribute to that flight. It is a far more rooted, reliable and long-standing form of investment. The Condominium Developers’ Association is doing what it can to bring all these things to the attention of the policymakers in order to have a far more supportive framework in real estate,” he said.

Caption
Pradeep Moraes
Pic by Samantha Perera