A gem of an investment

Colombo City is the capital and the financial hub of Sri Lanka. (Photo: Anuradha Dullewe Wijeyeratne, Wikimedia Commons)

A slew of new developments are changing Sri Lanka’s property landscape, and driving demand from overseas nationals who are keen on taking advantage of the country’s emerging economy.

Ranked as the most liberalised economy in South Asia, Sri Lanka has witnessed strong growth trajectory since the end of the civil war in mid-2009, led by surging tourism, determined rebuilding measures and increased investor confidence.

In fact, GDP growth of seven percent per annum has become the new normal, while construction has grown at double-digit rates to stand at 10.3 percent of the GDP in 2013.

Various new luxury hotels include Shangri-La and Grand Hyatt, which are opening soon, with tourist arrivals soaring 133 percent between 2010 and 2014 to over 1.5 million tourists now entering the country, revealed Global Property Guide.

According to research consultancy Oxford Business Group, the construction industry has emerged as a major beneficiary of Sri Lanka’s rapid economic development. This comes as the country rushed to make up for over two-and-a-half decades of intermittent building activity across most segments – from luxury housing and commercial space to various key infrastructure projects.

While private sector involvement in the country’s construction industry has increased, the government continues to account for the bulk of construction activity. Public sector contracts made up over 94 percent of the total value of contracts issued in 2012, the most recent year that official statistics were made available.

“In 2015 and early 2016, Sri Lanka’s real estate market expanded rapidly, continuing a medium-term growth trend that has been fuelled by an increased appetite for residential property among the nation’s wealthy and middle-class population, growing demand for Grade-A office and commercial space from local and foreign corporates, and rising interest in the country as a tourist destination,” said the consultancy.

Singapore connection

Amidst this growing interest to acquire assets in the country, the government of Sri Lanka has drafted the Western Megapolis – a project with Surbana Jurong as the master planner and International Enterprise (IE) Singapore embracing the plans, implementation and strategies to develop its western region in a bid to achieve its goal of becoming a high-income developed country, revealed the Real Estate Intelligence Unit (RIU).

Home to 5.8 million people, the Western region accounts for 29 percent of the country’s population, and has three administrative districts – Gampaha, Kalutara and Colombo, which is considered the country’s economic, commercial, financial and intellectual hub. In fact, the region contributed 40 percent of Sri Lanka’s total GDP in 2014, according to the Master Plan.

“The Western Region Megapolis Project is one of the most ambitious initiatives of the Government of Sri Lanka, through which we expect to bring forth a major urban transformation in our capital city region. There will be many investment opportunities that emerge as a result,” said Nihal Rupasinghe, Secretary to the Ministry of Megapolis and Western Development (MoMWD) of Sri Lanka.

“We expect that the MOU we have signed between my ministry and IE Singapore will deepen the collaboration we already have, and open the door for more Singaporean investors to participate in Sri Lanka’s growth.”

Said the RIU: “This development programme will open doors for many foreigners to come into the country for business and work, and many more expat Sri Lankans will return to Sri Lanka.”

It expects the scenario to create an “unprecedented growth in the real estate market that will cover apartments, gated communities, residential houses, modern shopping malls and commercial spaces, leisure properties and lead to the development of smart cities”.

Interestingly, it was China-born Singaporean entrepreneur S P Tao’s Shing Kwan Group that pioneered Singaporean investments into Sri Lanka with the World Trade Center Colombo and Havelock City – an integrated mixed-use development.

Rising property values

In Colombo, for instance, real estate values have been rising on the back of increasing migration into the city, coupled with the desire to own a property there.

However, the city’s apartment market is largely restricted to only high-income-earning resident Sri Lankans (RSLs), non-RSLs (NRSLs) and foreigners, said JLL. This can be attributed to the high borrowing costs and increasing construction costs for high-rise buildings.

JLL noted that the high construction costs have limited developers’ margins to build affordable housing projects. As such, they focus on building high-margin luxury and upper-mid projects. And since NRSLs and foreigners are showing more interest in the country, demand for such high-end projects is predicted to rise.

“The preference of foreigners, NRSLs and high-net-worth (HNW) RSLs to stay close to the CBD has supported the demand for luxury residences,” said JLL.

Sri Lankans who have been living abroad have also started to return since the end of the civil war, and this wealthy segment of the population demands luxury and upper-mid segment residences.

Aside from the NRSL community, JLL noted that foreign individuals and institutions have also been showing increased interest in the Sri Lankan real estate market.

But while foreigners are not allowed to purchase land in Sri Lanka, they can buy apartments that are located above the fourth floor, provided the purchase price is paid via a foreign inward remittance that is maintained through a Securities Investment Account (SIA) from a licenced commercial bank within the country. Foreigners also qualify for free repatriation of sales proceeds and gains from real estate.

According to Global Property Guide, the Capital Gains Tax was abolished in 2002. Local banks, however, are not in a position to mortgage finance property acquisitions by foreign buyers in Sri Lanka.

Integrated developments gaining popularity

JLL revealed that the majority of upcoming real estate developments in Colombo are mixed-use developments or integrated developments such as Shangri-La, Havelock City, Cinnamon Life, Tata’s One Colombo and Colombo City Centre.

By 2019, around 4,000 condominium units will be handed over to customers, stated the report.

The consultancy also anticipates a supply pipeline of 2.6 million sq ft of Grade-A office space in the Colombo market in the medium-term. At the same time, more than 10 retail malls totalling about 1.6 million sq ft will be ready by 2020.

CITY FAST FACTS
(COLOMBO)

Population: Approx. 5.6 million

Total area: 699 sq km

Currency: Sri Lankan Rupee

GDP per capita (Sri Lanka): US$4,000

GDP growth (Sri Lanka): 4.8 percent in 2015

Future transport: Proposed Bus Rapid Transit (BRT) system in Greater Colombo

Average home prices in city centre: US$123 psf

Distance from Singapore: 2,750 km

INTERNATIONAL HIGHLIGHT

Havelock City in Colombo recently launched phase three, comprising two residential towers with 304 luxury apartments.

NEW PROJECT

Havelock City
324 Havelock Road, Colombo, Sri Lanka

Type: Mixed-use development
Developer: Overseas Realty Ceylon PLC and Bank of Ceylon
Tenure: Freehold
Facilities: Clubhouse with swimming pools, gymnasium, squash courts, launderette, mini supermarket, banquette halls, roof garden with jogging track and putting green
Nearby Key Amenities: Hospitals, international schools, restaurants, hotels
Nearest Transport: Multiple main road access, including the availability of different taxi services, public transportation and rent a car services
Starting Price: US$256,000 (approx. S$347,626)

Havelock City is the largest mixed-use development undertaken to date in the heart of Colombo, Sri Lanka. Built on 18 acres of prime land, it comprises both commercial and residential components, along with a large clubhouse equipped with a range of facilities, and a seven-acre landscaped roof garden.

Upon completion of phases one and two, Havelock City launched phase three in 2016, comprising two residential towers called Stratford and Melford with 304 luxury apartments. Havelock City is a joint venture between Overseas Realty Ceylon PLC, the developer and manager of the World Trade Center Colombo, and Sri Lanka’s largest commercial bank, the Bank of Ceylon, and is the brainchild of SP Tao, founder of Shing Kwan Group Singapore and Chairman of Overseas Realty Ceylon PLC.

			This article was first published in the print version PropertyGuru News & Views. Download PDFs of full print issues or read more stories now!