LankaWeb – House and apartment prices rise to record high as construction costs escalate in Sri Lanka
Recently released second quarter data from LankaPropertyWeb’s House Price Index revealed that overall apartment sales prices increased by 45.17% compared to the second quarter of 2021. According to developers and real estate agents with which LankaPropertyWeb has been in contact with, these price increases are largely a cause of the demand created for real estate as a hedge against inflation, shortage of raw materials and soaring construction costs.
Mainly the devaluation of the rupee against the US dollar and the shortage and the high price of raw materials have changed people’s behavior since March 2022, people prefer to buy houses or apartments rather than build a house. Uncertainties about the supply of raw materials and the rise in mortgage interest rates also contributed to this behavior.
Average property prices by house price index in Sri Lanka
A study of the overall asking prices of houses in sri lanka showed that prices increased by 21.85% compared to the second quarter of 2021. Homes for sale in the North West Province recorded the largest increase of 31.2% compared to the first quarter of 2022, followed by Colombo house prices which had risen 13.9% over the same period.
Meanwhile, the prices of apartments for sale in Colombo had increased by 32.9% in the second quarter of 2022 compared to the second quarter of 2021. This phenomenon occurs at the same time as the country has been fighting the pandemic since December 2020 and the foreign exchange (FOREX) problems which have worsened towards the end of 2021.
According to data from the development consulting and research team of LankaPropertyWeb, the top 5 searches for apartments for sale came from Colombo 6, Colombo 5, Rajagiriya, Colombo 3 and Colombo 2respectively.
Increase in prices of raw materials for construction from 2018 to 2020
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 the lowest at 7% per year after decades during the third quarter of 2021, has also increased, its current high being 22% and negatively influencing the property purchase decisions of first-time buyers.
In addition to this, LankaPropertyWeb’s recent Land Price Index studies (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 seven recorded the smallest percentage increase in prices in the past five years. While the rate of price increase in land for sale in Colombo 9, 13 and 15 peaked at 113%, 87% and 47% respectively between the first quarter of 2018 and the first quarter of 2022. This is mainly due to the construction of many mixed development projects which are expected to further drive up prices in the future.
Elsewhere in the Western Province (except Colombo 1-15), prices per perch of land for sale in Ingiriya and Horanewhich once had the lowest rate of price increases, saw the highest increases and land that had the highest prices, such as the prime areas of Colombo, saw prices stagnate or decline between the second quarter of 2021 and the second quarter of 2022.
With the decision of the Central Bank (CBSL) to issue LKR 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 and secondary markets as well as for houses as a hedge against economic calamity. 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 Tharindu Jayarathne, Head of Research at LankaPropertyWeb.
In addition, according to the press release from the Prime Minister’s office of 05/31/2022, the tax reform proposals, the exemption granted on 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 imposition in the near future. So now is the time for buyers wanting to invest in apartments to plan ahead before VAT comes into effect.