House and apartment prices soar as construction costs escalate
Recently released 2Q data from LankaPropertyWeb’s House Price Index revealed that overall apartment sales prices increased by 45.17% from 2Q.
According to developers and real estate agents that LankaPropertyWeb has been in contact with, these price increases are largely responsible for the demand created for real estate as a hedge against inflation, commodity shortages and soaring building costs.
Mainly the devaluation of the rupee against the US dollar and the shortage and high cost of raw materials have changed people’s behavior since March 2022, with people preferring to buy houses or apartments rather than build a house.
The uncertainties linked to the supply of raw materials and the rise in interest rates on mortgage loans also contributed to this behavior.
A study of overall house asking prices in Sri Lanka showed that prices had risen by 21.85% compared to the 2nd quarter of 2021.
Homes for sale in the North West Province recorded the largest increase of 31.2% from Q1 2022, followed by Colombo house prices which had increased by 13.9% over the same period. .
Meanwhile, prices of apartments for sale in Colombo had increased by 32.9% in Q2 2022 compared to Q2 2021.
This phenomenon occurs simultaneously at the same time as the country has been fighting the pandemic since December 2020 and the foreign exchange (forex) problems which worsened towards the end of 2021.
According to data from LankaPropertyWeb Development Consulting and Research Team, the top five searches for apartments for sale came from Colombo 6, Colombo 5, Rajagiriya, Colombo 3 and Colombo 2 respectively.
Meanwhile, data from the Construction Industry Development Authority showed that the average price of a 50kg bag of cement sold by public and private dealers increased by 187% from June 2021 to June 2022. The same increased 98% from January 2022 to June. 2022.
Home loan interest rates which recorded decades-long lows of 7% per year during Q3 2021 also rose, with their current high of 22% and negatively influencing home buying decisions. property of the first buyers.
In addition to this, the recent Land Price Index studies by LankaPropertyWeb (based on asking prices) also show that the rate of increase in land prices from quarter to quarter in the city of Colombo has slowed in recent quarters. Land for sale in Colombo 3, 4, 5, 6 and 7 has seen the lowest percentage increase in prices over the past five years. While the price increase rate of land for sale in Colombo 9, 13 and 15 peaked at 113%, 87% and 47%, respectively, from Q1 2018 to Q1 2022. This is mainly due to the construction of many mixed developments. projects that are expected to drive up prices in the future. Elsewhere in Western Province (except Colombo 01-15), prices per perch of land for sale in Ingiriya and Horana, which once had the lowest rate of price increases, saw the largest increases and land, which had the highest prices, such as the main areas of Colombo, saw prices stagnate or decline between the 2nd quarter of 2021 and the 2nd quarter of 2022.
“With the Central Bank’s decision to float the Sri Lankan Rupee in March 2022 and due to inflation surging to an all-time high, we have seen a rapid increase in demand for completed condos in the primary markets. and secondary as well as for homes as a hedge against economic calamities.
In particular, expatriate interest in Sri Lankan real estate has increased to take advantage of the devaluation of the rupee. This behavior has further been recorded on the LankaPropertyWeb portal which has actually seen an increase in search traffic from countries such as UK, Australia, USA, Canada and UAE” , added LankaPropertyWeb Head of Research, Tharindu Jayarathne.
In addition, according to the press release from the Prime Minister’s office of 05/31/2022, the tax reform proposals, the exemption granted to Value Added Tax (VAT) on residential condominiums will be abolished from 01 /10/2022.
This should drive up prices in the future when buying apartments directly from developers and given the likelihood of VAT being imposed in the near future. So now is the time for buyers wanting to invest in apartments to plan ahead before VAT comes into effect.