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Assessing the impact of the current crisis on Sri Lanka’s condominium sector

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By Rohan Parikh

Sri Lanka is currently going through what appears to be a ‘once in a generation’ crisis, both economically and politically. How would this impact the country’s real estate market, particularly the market for residential condominiums?

Firstly, it’s important to understand that unlike, say, manufacturing or services, the impact on condominiums will be complex and mixed. This is because the current situation has both positive and negative implications and will impact both demand and supply.

Positive implications

First, exploring the positives, real estate and residential condominiums provide investors a buffer to protect their wealth from unpredictable and rampant inflation – which has been one of the most prominent outcomes of the current crisis in Sri Lanka. Inflation is at record levels already and by all indications will remain high in the immediate term.

Since real estate is a long-term asset class, nominal values of properties generally rise to match inflation, ensuring that the investor gains in real terms. Hence, real estate assets like residential condominiums represent a safe and long-term store of value, which can offset the impact of inflation and can be sold profitably, once normalcy returns.

This is in sharp contrast especially with financial assets classes such as stocks and bonds that carry high levels of risk and can be very volatile during a macro economic crisis like the one we are experiencing currently. Hence, real estate can perform far better in protecting your wealth, compared with typical alternatives like cash or savings accounts, that could lose value substantially and rapidly due to inflation.

Overall, real estate represents a tangible and solid asset that can provide security and stability to investors at a time when the value of items and the stability of companies and industries are in flux.

Negative implications

However, the current crisis can also negatively impact the real estate market.

There is a strong likelihood of a shortage of apartments in the medium term as new projects are cancelled or postponed due to the uncertainty regarding the cost of inputs and availability of necessary imports. Buyers could rush to purchase the existing condominiums available in the market, reducing the availability for other buyers.

Such shortages may also result in prices of condominiums increasing rapidly – which is however likely to benefit buyers who get in early. Funding such new investments could however be challenging, given especially the rapid increase in interest rates.

Real estate developers and companies will also face significant constraints and challenges due to the inability to start new projects, as they would be uncertain of the prices of inputs. Hence, it will be difficult for developers to price apartments accurately. As projects are put on hold, employees in the sector could either face job losses or companies will have to contend with high overheads.

Need for additional caution

Low-quality developers who have invested in projects with low feasibility and who have heavy levels of borrowings are likely to be impacted far more than prudent, high-quality developers, given the above situation. Hence, buyers of residential condominiums need to take extra care to assess the feasibility of their developer, ensuring that they select only reputed developers with a strong track record.

The quality of future construction projects could also be compromised as imports will remain restricted in the medium term, leading to difficulty in procuring key components like kitchens, appliances, etc.

There could also be a dampening impact on land prices (discounting inflationary pressure) as land purchases by developers slowdown. This can be also perceived as a positive, especially for buyers but will negatively impact sellers.

Weighing the positives and negatives, overall, real estate and residential condominiums are likely to remain an attractive investment class in Sri Lanka. Long-term fundamentals remain relevant, especially considering that Sri Lanka has low levels of urbanisation and that vertical living clearly provides the only viable solution. Projects with sound business fundamentals, formulated by high-quality developers and which are aligned closely with market needs, will continue to be attractive investments.

(The writer is the Chairperson of Iconic Developments and an alumnus of the Wharton School of Business and INSEAD.)



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Seylan Bank takes the lead to promote LANKA QR beyond Western Province

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Seylan Bank, the Bank with a Heart, organized the ‘Seylan Pay QR Carnival’ in Kurunegala to promote the LANKAQR programme introduced by the Central Bank of Sri Lanka (CBSL) to strengthen digital transactions in Sri Lanka. The special programme, focusing on encouraging local merchants and SMEs to join the national QR transaction system, took place at the Vehera Sports Ground in Kurunegala recently. Officials from the Central bank of Sri Lanka, the Lanka QR Committee and partner banks were present at the event.

Organised as the 14th leg of the LankaQR national rollout campaign, the Seylan Pay QR Carnival set a firm footprint with the highest number of merchants at the event. Seylan Bank alone on boarded over 100 merchants for the SeylanPay payment solutions from the Kurunegala area. Over a thousand customers walked in during the event which benefitted many merchants accepting LankaQR, to process transactions on the day and generate great traction in the district since then.

As the key feature of the event, Seylan Bank educated their customers on the use of the Bank’s QR payment system, the SeylanPay Mobile App, and assisted customers in making payments to merchants. Over 50 stalls selling clothes and accessories, gift items, food, sweets, electronics and electrical equipment, plants, beauty care, cosmetic items and automobile parts were set up for the benefit of consumers, with attractive added discounts for customers using QR payment systems to purchase items, thereby encouraging and familiarizing the use of it among them. This marked a record high number of merchants participating among many LankaQR nationwide rollout campaigns that were organised to date. A Seylan Bank Mobile ATM was deployed at the premises, ensuring that customers had easy access to carry out cash withdrawals if required and check their account balances at any given time. In addition, a special fun zone was set up for children at the event premises, whilst a musical evening entertained the adults present at the Seylan Pay QR Carnival.

“Seylan Bank’s commitment to develop the banking and finance network together with the industry led to us hosting the 14th leg of the Lanka QR national rollout campaign. We also realize the potential this system brings to the SME sector in the country, in terms of transaction efficiency and savings. As a bank that has continued to support SMEs in the country in a wide spectrum, the alliance with Lanka QR helps in developing the entire transaction ecosystem of the country,” commented Chaminda Senewiratne, Head of Digital Banking Channels, Seylan Bank.

The Central Bank of Sri Lanka introduced the LANKAQR service in October 2020 with the aim of moving towards a cash-less society while increasing financial inclusion in Sri Lanka, and was supported in this endeavour by Banks, licensed financial institutions and Lanka Clear (Pvt.) Ltd. It has already stood out as an attractive option with notable benefits for small and medium enterprises.

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Stylish Garments unveils its latest export-oriented BOI factory in Ambalangoda 

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With the Board of Investment (BOI) widening its projects, Stylish Garments (Pvt) Ltd, unveiled its sixth BOI approved factory in Ambalangoda which manufactures children’s wear, jerseys including school uniforms exclusively targeting the international market. The Stylish Garments is a renowned a garment manufacturer and exporter of jersey knit and lighter woven apparel products.

The latest project, which is a USD 3.5 million investment, is to generate 500 employment opportunities for people living in the south and other parts of the country. Moreover, the products are slated to be exported to the UK and Europe. The agreement in this regard was signed recently at the BOI Head Office in the presence of BOI Director General Renuka M Weerakone.

The Director General said “A project of this nature should be recognized owing to the fact that it depicts the vibrant and vivid expansion of BOI projects, which has now started to reach the rural areas, The new venture will uplift the livelihood of the people living in the Ambalangoda area plus become a crucial source of bringing dollars to the country in a situation where the country isin dire need of dollars,” she underscored.

Founder and incumbent Chairman of the Stylish Garments (Pvt) Ltd Leelaratne Hattanarachchi said,” we were determined to launch the project irrespective of current challenges because such new projects would bring dollars to the country. That’s the very reason why I ventured to start operations at this new factory by turning the advantage of this crisis to ourselves. At the same time, we do appreciate the support rendered by the BOI at this critical juncture and look forward their support in future too.”

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Browns Investments solar power plant deal dominates CSE trading

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By Hiran H. Senewiratne

CSE’s leading listed company, Browns Investments, disposed of 50.1 per cent of its stake in Sagasolar Power Power (Private) Limited to another leading company, Aitken Spence Pvt. Ltd. yesterday, market sources said.

The total value of the company was Rs 1.4 billion and under this deal Browns Investments sold the stake for Rs 700 million. The capacity of the solar power plant is 10 megawatts, stock market analysts said.

Sagasolar Power built the solar PV facility on 45 acres (18.2 ha) of land within a dedicated energy development area in Baruthankanda, Hambantota district, Southern province. The country’s previous largest solar plant is a 1.3-MW facility also located in Hambantota.

Amid those developments, the trading activities in the stock market turned negative due to macro and micro economic uncertainties. Accordingly, stocks slipped over 1 per cent at mid-day trade yesterday for the third consecutive day, market analysis said.

The All- Share Price Index fell by 121 points and S and P SL20 went down by 50.8 points. Turnover stood at Rs 982 million without any crossings. Top seven companies that that contributed to the turnover were, Lanka IOC Rs 274 million (3.5 million shares traded), Expolanka Holdings Rs 185 million (1.2 million shares traded), JKH Rs 77 million (626,000 shares traded), LOLC Finance Rs 59.8 million (9.9 million shares traded), Browns Investments Rs 58.9 million (8.9 million shares traded), LOLC Holdings Rs 32.6 million (89,000 shares traded) and Commercial Bank Rs 15.4 million (309,000 shares traded). During the day 51.5 million share volumes changed hands in 14000 share transactions.

Yesterday the Central Bank announced US dollar buying rate was Rs 356.04 and the selling price Rs 367.33.

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