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What does 2016 hold for investments in real estate?

As the New Year begins, the big question on all real estate professionals' lips is: what will 2016 hold? Migration from capital cities, infrastructure improvements and increased international interest among investors are some of the anticipated developments for real estate markets within emerging nations, including Sri Lanka.

According to Managing Director of online real estate platform, Lamudi Sri Lanka, Hugh van der Kolff, 2016 will see the development of Sri Lanka's smaller cities.

"The government must invest in these cities to improve transport services, water and electricity supplies, and develop infrastructure so that they can compete with Colombo, on an international scale," he said.

"In these cities, with lower land, resource and building costs; investors get a better return on their investments. This makes these second tier cities a very attractive option for real estate professionals," van der Kolff said.

Second-tier growth

Industry professionals have noted the increased attraction of second and third tier cities in emerging urban areas. Rapid population growth has led to physical growth of urban areas in cities including Colombo, Jakarta, and Manila.

As larger cities slowly saturate, real estate developers and investors alike are turning their attention to cities such as Kandy and Galle. In second and third tier cities, property is significantly cheaper as a result of higher land availability and lower building costs.

Commercial property growth. As countries such as Sri Lanka experience rapid population growth, urbanization, and economic development, the demand for commercial property is increasing. This includes mixed-use developments, shopping malls, retail space and office units.

The next 12 months may see an increase in commercial property development across Sri Lanka, and neighbouring countries, as the sector must accommodate population and tourist growth, and increased interest among international corporations.

These projects are not only driving economic growth, they provide employment opportunities, and boost the value of surrounding properties.

Will 2016 be the year of the Real Estate Investment Trust (REIT)? The past 12 months have seen a number of real estate investment trusts opening in emerging markets, encouraging investment in the sector.

In October, 2015, Kenya's Capital Markets Authority approved the country's first income real estate investment trust, also known as I-REIT, to be issued by investment manager Stanlib Kenya.

This marks the first ever licence to an asset management firm, to list on the Nairobi Securities Exchange (NSE). In June, Pakistan's first ever REIT was launched, paving the way for expected growth in the country's commercial property sector.

More emerging nations are expected to follow this lead over the next 12 months. Following the announcement in Sri Lanka's 2016 Budget, industry experts forecast the creation of the country's first REIT, to encourage local and international real estate investment.

Foreign investment

Laws are changing in many of the emerging markets. While it is still not legal for foreigners to own property in all countries, new legislation is being drawn up to encourage real estate investment.

Finance Minister Ravi Karunanayake hopes to remove the 15 percent land leasing tax for foreign investors, which is expected to have great impact on the local real estate market. The removal of land lease tax for foreigners is expected to increase international investments to the sector.

App focus. Mobile is driving innovation in developing countries. Internet users in these countries are skipping traditional desktop use, and moving straight to mobile. While 2015 saw more emerging markets-focused companies developing their Internet presence, 2016 will see real estate professionals turning their attention to apps.

As a result of high costs of Internet services in many developing countries, apps are increasingly popular when it comes to interacting with online companies. As Internet penetration strengthens in second-tier and suburban areas, reduced mobile connectivity costs, more affordable SIM cards and the evolution of mobile technology are driving app use.

- Lamudi media release

 

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