Persistent real estate sector decline sheds light on troubles brewing in housing

• Broader real estate activities contracted by 5.5% during 3Q, bringing nine-month decline to 10%

Sri Lanka’s real estate activities, including home ownership, continued to decline through the first nine months, extending the prolonged decline seen from last year.
This reflects the lingering challenges faced by those who aspire to buy a home or build a home of their own in the current depressed economic environment.  
As per the third quarter GDP estimates, the broader real estate activities contracted by 5.5 percent during the quarter, bringing the nine-month decline to 10 percent. 
The broader real estate activities consist not just the residential element of real estate but also the commercial and office space. 
The latter two segments in particular – commercial and office-related real estate – were reeling from the pandemic-induced challenges, as many shifted their work and shopping habits to online. 
On the residential side of real estate, even prior to the economic crisis last year, the prospect of building a home had already been a distant dream. 
The economic crisis exacerbated this situation, as it propelled the prices of homes to new heights, coinciding with a manifold increase in the cost 
of construction.
Sri Lanka’s real estate market reached a red-hot level in the immediate aftermath of the first wave of the pandemic, due to historically low interest rates and an unprecedented level of monetary stimulus, which flushed the markets with liquidity. 

To further spur the market, the Central Bank in December 2020 capped the housing loans rate to 7.0 percent, drawing a large number of prospective home buyers to the market. 
Nevertheless, the emergence of foreign exchange shortages in the second half of 2021, coupled with the subsequent surge in construction costs, curtailed the sector’s growth. The crisis further exacerbated the situation, bringing the sector to a near standstill in 2022.