Real estate investment on the gallop

by S. N. Wijepala

The property market can be considered as an important sub-sector of the overall investment market. Unique attraction of property as a vehicle for investments is its inherent capacity to overcome the adverse effect of inflation.

In a scenario where there is relatively high rate of inflation and at the same time capital gains tax is absent, the importance of property as a hedge against inflation naturally assumes a greater role in the investment market.

It is a little known fact that the value of daily property transactions in the country generally surpasses the turnover at the stock exchange. Only the input of property construction is vaguely recorded at about 8% of the GDP.

If the full value of the operations in the property market is taken into account, it can exceed even 12% of the GDP. Yet it appears that this important role that the property investors and developers play in the overall economy is not fully appreciated.

The property development forms a vital component of the property investment market.

Looking at the history of property development in Sri Lanka, one sees the emergence of Level One Development in the fifties and sixties where large tracts of rubber and coconut land were sub-divided into residential blocks and sold to individual house builders. Many of these developments have now evolved into nice residential neighbourhoods in and around major urban areas in the country.

At the same time, residential apartments which were at the time known as 'flats' emerged such as Bambalapitiya Flats and Grandpass Flats development by the Government and Bogala Flats by the private sector.

Development

Level Two of property development which emerged in the late sixties and early seventies saw more value addition to vacant and agricultural land where the development was well-planned with wide internal road network and the supply of water and electricity.

Fine examples of this type of development can be seen in Ambagahapura in Maharagama and Subhuthipura in Battaramulla.

With the advent of the open economy in late seventies, property development saw a new phase with high rise buildings changing the skyline of Colombo dramatically.

At the same time property development advanced to its Level Three in the form of large scale integrated development such as Millennium City in Athurugiriya.

Multi-storeyed residential property development sector also transformed itself from early 'flats' into new highrise apartment blocks.

Commercial development also rose to new levels in development such as Liberty Plaza, Majestic City, Bank of Ceylon head office, the World Trade Centre and hotels like Hilton and the Galadari.

Hence, it can be said that, with the exception of few failures like HPT and Lee Potter, property development in Sri Lanka has progressed steadily throughout.

Leap forward

With the dust now settled (except in Geneva perhaps) on terrorism with its cessation in 2009 and the resulting lifting of adverse travel advisories issued by many countries, the property development is set to leap forward into new dimensions.

This trend has been augmented by the emergence of the West from the economic crisis originated in the US in 2008 and the new radical steps taken by the Government in releasing under-utilised and unutilised State land in urban areas for private property developers under strategic planning by the UDA.

In the circumstances a huge spree of property development can be expected in the near future in Sri Lanka.

However, we at the Institute of Valuers see that there are still several potentials for property development and investment which have not been tapped properly yet.

One is the concept of Time Sharing which is now well established in coastal belts in Spain, Portugal, Greece and Brazil.

This type of development greatly helps the tourist industry as well. The other is the concept of Real Estate Investment Trusts (REIT) which is also well established in countries like UK, Hong Kong and Australia.

Hence we have decided to organise a two-day international seminar on April 25 and 26 at the BMICH to look at these two potentials in property investments and to see to what extent Sri Lanka can adopt these concepts to enhance the quality of property development environment.

These issues will be addressed by overseas experts. In order to complete the picture for the potential investors, Planning Regulations and Condominium Law in Sri Lanka will also be discussed.

Deputy Minister of Finance and Planning, Dr. Sarath Amunugama, the chief guest will inaugurate the sessions.

The seminar will benefit not only the property developers and investors by stimulating their analytical thinking and enhancing the quality and accuracy of their policy decisions but also the banking sector on which the property investors rely heavily for the necessary funding.

The writer is the President of the Institute of Valuers of Sri Lanka.