3. The Redprint is Trivium’s comprehensive,
one stop solution to all your real estate
needs. That’s it. No distractions. Nothing
to steal our focus.
So each day we just do our best to give
you everything real estate.
Yes. You read that right.
The Red Files is a part of The Redprint
solution that will keep you up to date on
all real estate trends and insights.
AT H E
AR E D
AP R I N T
5. The Sri Lankan economy has seen robust growth with an annual growth rate
of 6.4% over the course of 2010 to 2015 (World Bank).
There has been a slight loss of post war growth momentum since 2015 due
to the challenges faced as a result of the new unity government’s promised
reform in governance, economic planning and foreign policy.
This change has led to a slowdown of government driven infrastructure
initiatives as well as a wait-and-see approach within Sri Lanka’s private
sector and international investors.
However, this short-term pain for long-term gain is expected to have an
extremely positive outcome and we are already witnessing signs of an
impending momentum shift.
Sri Lanka’s real estate industry has been a major beneficiary of the country’s
rapid economic development and has grown at an annual rate of 13% over
the past six years.
Taking into account the country’s changing dynamics we are pleased to share
our research and insights on the overall outlook of the real estate industry.
With a specific focus on suburban development as a result of Sri Lanka’s
middle class growth and their need for mid-market condominiums.
REZA MAGDON-ISMAIL
FOUNDER - CEO
AHDIL MARIKAR
MANAGER - RESEARCH & DEVELOPMENT
SANJEEV DE SILVA
MANAGER - OPERATIONS
S R I L A N K A’ S 2 N D C O M I N G ;
S O U T H A S I A’ S S T R O N G E S T
R E A L E S TAT E S T O R Y
6. R E A L
E S TAT E
M A R K E T I N
S O U T H A S I A?
M O S T
E X C I T I N G
8. Since 2009 Sri Lanka’s real estate industry has grown twice as fast as the
nation’s GDP. In 2015 the construction and real estate industry accounted for
a combined 14% of Sri Lanka’s GDP, which represented a significantly
greater proportion of the economy than most other regional peers.
CONSTRUCTION & REAL ESTATE AS A % OF GDP
This growth trend has been fueled 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.
Post 2015 we have witnessed a moderate slowdown in growth in the
sector owing to the wait and see approach taken by investors as a result of
the changing political landscape creating some uncertainty in the economy.
However, we are currently witnessing signs of a momentum shift, made
evident by an increase in construction and real estate contribution to the
nations GDP in the first quarter of 2016 when compared to the corresponding
quarter in 2015 and many substantial projects like the port city development
restarting construction, the opening of a number of international resort
developments along the southern coast and the continuing development of
luxury and mid-market condominiums.
5
10
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201520142013
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9. ANNUAL % GROWTH RATE OF GDP, CONSTRUCTION & REAL ESTATE
LKR ‘000’
CONSTRUCTION & REAL ESTATE AS A % OF GDP
10. The dominant form of Sri Lanka’s real estate boom has taken the form of high
end condominiums developed in the prime areas within Colombo city limits.
However, we believe that there is an imminent oversupply of these products
as a result of the limited local purchasing power available to sustain this
supply, as well as the external demand drivers for these products such as
foreign and diaspora investment taking longer than expected to materialize.
Given the above facts, while we are concerned about the high end
condominium over supply, we believe there are significant opportunities
across all asset classes but strong growth should be expected in:
• Resort Developments - Sri-Lanka tourism has grown circa 16% y-o-y for
the first half of 2016.
• Serviced Condominiums / Condotels - An asset class that is in serious un-
der supply in Colombo. Jaic Hilton being the only branded operator, has been
performing at extremely high occupancy over the last 3 years and we are yet
to see a new entrant coming into the market.
• Grade A Office space within the CBD - Sri-Lanka’s Grade A office market
currently enjoys 95% occupancy, while new developments of Grade A office
space are limited.
The forecast demand for Grade A office space in 2016 is estimated at 3.8
million sqft, with the current supply at approximately 2.3 million sqft, which
leaves a shortfall of 1.4 million sqft as at date (JLL).
While there are a number of Grade A office spaces expected to come online in
2019/2020 such as the Shangri-La and Waterfront Developments, with fore-
cast growth there is still room for Grade A office developments that provide
the infrastructure and amenities focused on improving the productivity and
efficiency of their tenants.
11. • Mid-Low Income housing and condo developments - Sri-Lanka’s
urbanization is currently at 18% of the population vs. the global average of
50%. Sri Lanka is poised to achieve higher middle income nation status by
2017, when it reaches expected per capita income of USD 4,000.
The steady rise of land prices in Colombo and its suburbs has led to a
significant rise in the number of condominium developments in the city.
While these developments have historically focused within the city limits of
Colombo, over the last 2-3 years we are seeing mid-market condominiums
within the suburbs of Colombo emerging as the preferred choice for
middle-income buyers.
14. As one of the fastest developing countries in Asia, Sri Lanka has a relatively
small percentage of urban development, while achieving an exceptional level
of human development, in comparison to other nations within the region.
According to the United Nations report of World Urbanization 2014, it is
estimated that more than half of the world’s population live in an urban area.
This is in stark contrast to Sri Lanka, which holds an urban population of
3.7 million which is only a mere 18.3% of the country’s total population.
Sri Lanka is currently considered a lower middle-income economy with a
total population of 20.8 million and a per capita income of USD 3,800 in 2015
(World Bank).
Sri Lanka’s per capita income over the period of 2011-2015 has grown at an
annual rate of 9%, when compared to the South Asian average annual growth
rate of 5%. At this rate, the country is well on track to achieve upper middle
income status of per capita income USD 4,032 in the next two years.
GDP PER CAPITA
SOURCE: WORLDBANK
15. The slow urbanization trend in Sri Lanka together with the imminent
achievement of the upper middle income-status is a strong indicator of the
potential for real estate development in the low-mid income condominium
market.
URBANISATION TRENDS
GLOBALLY
50%
SRI LANKA
18%
While premium and luxury developments are highly important to attract
foreign interest, the mid-market category which provides affordable
properties for the middle-income earners should be given a prominent
status over the next two years. The net transfer of the population from rural
to urban areas will cause the territorial expansion of urban settlements and
substantially increase the demand for mid-market housing.
18. The story of land prices within Colombo’s suburbs has been essentially one
of continuous appreciation over the past two decades.
The primary factor driving this upward spiral on land prices is the increasing
demand for suburban housing as a result of a growing middle class and their
desire for urban living.
Market data indicates that the percentage growth of the suburban land prices
in areas such as Rajagiriya and Dehiwala have outpaced areas within the
Colombo city.
This is likely to be a reflection of the fact that areas within the city may have
reached their peak in terms of development potential and the suburban areas
are still significantly below their development potential.
LAND PRICES PER PERCH
LKR
19. A s a collective, middle income buyers dominate a larger segment of the
property market. However given their individual budget restraints, the areas
within Colombo are beyond their reach.
In comparison to surging land prices within Colombo and suburbs, which had
an average annual growth rate of 13.5% over the past five years, other
assets such as equity and fixed deposits haven’t performed by the same
token.
The ASPI of the Colombo Stock exchange has witnessed drastic fluctuations
largely due to changing global economic conditions and has grown at an
annual average rate of 7.5% over this period. The average fixed deposit rate
over the same period has been 9.9%.
20. ASSET RETURN COMPARISON (2012-2016)
WEIGHTED AVERAGE
FIXED DEPOSIT RATE
9.9%
SUBURBAN CONDOS
9.1%
SRI LANKA COLOMBO
STOCK EXCHANGE
7.5%
SUBURBAN
LAND
16.4%
LKR
21. I N C R E A S I N G
AS U B U R B A N
R E A LT Y
23. Condominiums have had a strong hand in shaping the skyline of Colombo,
with the key market driver being the luxury condominium market. However,
the demand for mid-market condominiums with affordable pricing will
exceed the demand for super-luxury and luxury segments in the near future,
due to the luxury market facing the risk of saturation.
In the year 2014, the super-luxury and luxury segment had 73% of the total
supply in the condominium market while the mid-market had a mere 27% of
market supply (KPMG).
Today in terms of new developments the mid-market segment has surpassed
the luxury segment. 2,060 mid-market unts are expected to enter the market
within the next two years in comparison to 1,350 luxury units.
DEVELOPMENTS IN 2016
DEVELOPMENTS IN 2014
60%
MID-MARKET
40%
LUXURY
27%
MID-MARKET
73%
LUXURY
24. According to the Sri Lankan Condominium Management Authority, in the year
2015, 4,046 condominium units were given preliminary planning clearance.
This number has skyrocketed to 4,630 approvals for only the first half of
2016.
The majority of this upsurge has resulted from a rising number of mid-market
and lower mid-market properties that attract interest from people looking for
affordable homes within the suburbs of Colombo.
UNITS APPROVED
CMA PRELIMINARY PLANNING CLEARANCE
SOURCE : CONDOMINIUM MANAGEMENT AUTHORITY
28. During the year 2012 mid-market condominiums like The Fairway by Fair-
way Residencies were priced at an average of LKR 14,900 per sqft (JLL).
The mid-market condominiums had specifications and amenities similar to
premium segment condominiums, but were mostly located in the upcoming
suburbs of Rajagiriya and Sri Jayawardenepura Kotte. In today’s economic
setting mid-market condominiums located in the suburbs are priced at an
average of LKR 20,748 per sqft, this outlines an average annual growth of
12% over the four years.
AVERAGE PRICE: MID-MARKET CONDOMINIUMS
LKR PER SQFT
29. As of July 2016, 64% of the 2,061 new mid-market apartment units have
already been sold out in comparison to only 37% for luxury apartment units
(JB Securities). This proves that mid-market condominiums are the fastest
growing segment in terms of deal closure.
For this reason, developers are addressing the opportunity-
to tap into the growing cash assets of middle income earners, who
will hit the peak of their earning strides over the next 4–8 years.
In 2011,JLL calculated Colombo’s residential rental yields to be around 3-7%.
As property prices soar, the rental market in Colombo and its suburbs,
including Borella, Rajagiriya, Dehiwala and Wellawatte is flourishing.
According to our research current rental yields for mid-market condominiums
within Colombo and its suburbs range between 5-7%.
Area Annual Rental Yield
Borella 6.4%
Rajagiriya 6.7%
Dehiwala 7.2%
Wellawatte 5.1%
30. M I D
M A R K E T
AA F F O R D -
A B I L I T Y
32. It is important to understand how affordable a mid market condominium is
to the average middle income earning Sri Lankan. Our research indicates the
average price of a two bedroom apartment within the mid market is priced at
an average of LKR 17.6 million.
Sri Lankan banks offer 70% of the total housing cost as a repayable loan
with an interest rate of 12-13%. Therefore, taking out a loan to purchase a
2 bedroom mid market condominium will require monthly repayment of LKR
155,000 over a period of 15 years.
A household of two income earners who allocate 40% of their monthly
income towards the purchase of a property would require, a combined
income of LKR 390,000 (individual salary of LKR 195,000). This corresponds
to an average salary of a management level corporate employee.
THE ANATOMY OF PURCHASING A PROPERTY
40%
LKR 155,000
PER MONTH
FOR 15 YEARS
MONTHLY
EXPENSES
60%
LKR 235,000
100%
LKR 390,000
MONTHLY HOUSEHOLD
INCOME
34. In an attempt to fully understand the mid-market condominium segment, an
extensive research analysis of 45 new and upcoming developments was con-
ducted. In these 45 new mid-market developments there are a total of 2,061
new condominium units.
The research identified price ranges, locational differences, contractor and
developer credibility, total number of units and percentage sold, amenities
provided, and size of apartment. Through the research carried out on the 45
new and upcoming developments in the mid-market condominium segment,
we were able to come up with a unique scoring system to develop The
Red Ranking.
All 45 condominium developments were ranked out of six essential criterions
that influence buyer or investor decisions.
3 1 2
35. The rankings were calculated on the basis of a 60 point cap.
Price points were scored out of 10 by taking the average price of the 45 new
developments, LKR 17,580 per sqft. Developments with a price of LKR 1,000
below the average were awarded 10 points and for every LKR 1,000 higher
than the average price deducted 2 points.
Location points were scored out of 20, taking into account two essential
factors – distance to CBD and distance to closest township. The
average distance to CBD out of the 45 new developments was 10.3km and
the average distance to the closest township was 1.3km.
Developer credibility was scored out of 10, with developers with over 3
completed projects obtaining 10, 2 or more projects obtaining 8 and others 6.
The contractor employed was also scored out of 10 points with Class A
contractors scoring 10, Class B contractors 8 and Class C contractors 6.
Lastly amenities offered by the development was scored out of 10, factors
taken into consideration were swimming pool, gym, kitchen and room
cabinets, function hall and A/C.
60 POINT CAP.
PRICE POINTS = OUT OF 10 ,
LOCATION POINTS = OUT O F 20,
DEVELOPER CREDIBILITY = OUT OF 10,
CONTRACTOR POINTS = OUT OF 10
AMENITIES = OUT OF 10
36. RANKING PROJECT DEVELOPER
AV. PRICE
(LKR PER
SQFT)
DISTANCE
TO CBD
(KM)
DISTANCE
TO CLOSEST
TOWNSHIP
(KM)
TOTAL
POINTS
1
PRIME
WRENDALE
RAJAGIRIYA
PRIME
RESIDENCIES
19,426 7.6 0.30 50
2 VERGE BRIX REALTY 18,257 8.2 0.40 48
3 LAKE MENARA
MENARA
RESIDENCIES
22,045 7.9 0.50 46
4
ETHUL KOTTE
2: SIXONESIX
PRIME
RESIDENCIES
17,367 10.3 0.88 46
5
TREASURE
TROVE
HOMELANDS
SKYLINE
30,000 5.7 0.70 45
6
DE ALWIS
PLACE
BLUE OCEAN 14,848 9.9 1.10 45
7
PRIME
RESIDECIES
CASTLE
STREET
PRIME
RESIDENCIES
23,760 6.1 1.00 44
8
URBAN HOMES
FAIRWAY
KOSWATTA
FAIRWAY
HOLDINGS
19,718 10.9 1.28 43
9 19TH LANE BLUE OCEAN 29,889 3.4 0.24 43
37. RANKING PROJECT DEVELOPER
AV. PRICE
(LKR PER
SQFT)
DISTANCE
TO CBD
(KM)
DISTANCE
TO CLOSEST
TOWNSHIP
(KM)
TOTAL
POINTS
10
PRIME
SPLENDOUR
PRIME
RESIDENCIES
17,221 7.5 1.60 42
11
JAYASINGHE
ROAD
BLUE OCEAN 17,443 7.4 1.50 42
12 PARAGON
GLOBAL
HOUSING &
REAL ESTATE
14,442 9.2 0.85 42
13
GLOBAL
KINGDOM
GLOBAL
HOUSING &
REAL ESTATE
12,923 10.5 0.90 42
14
PRIME
ETHUL KOTTE
PRIME
RESIDENCIES
16,737 9.9 0.65 41
15 RUSH COURT 2
RUSH
RESIDENCIES
10,151 7.5 0.90 41
16
HAVELOCK
ROAD
BLUE OCEAN 20,102 6.9 1.30 41
17 BEACH ROAD BLUE OCEAN 14,705 11.3 1.25 41
18 SOVARANO 39
BLUE
MOUNTAIN
APARTMENTS
15,362 12 0.75 41
38. RANKING PROJECT DEVELOPER
AV. PRICE
(LKR PER
SQFT)
DISTANCE
TO CBD
(KM)
DISTANCE
TO CLOSEST
TOWNSHIP
(KM)
TOTAL
POINTS
19 PRIME AQUA
PRIME
RESIDENCIES
21,742 8.8 0.70 41
20 LIBRA
PRIME
RESIDENCIES
16,560 10.8 1.00 41
21
PRIME
EDMONTON
PRIME
RESIDENCIES
19,045 8.1 1.00 40
22 THE CASTLE
SUPERLATIVE
PROPERTIES
23,563 5.9 0.75 40
23
RAILWAY
AVENUE
BLUE OCEAN 16,923 13.3 0.85 40
24
77 ON FOURTH
RESIDENCIES
JAT HOLDINGS 24,164 8.9 1.00 40
25 RUSH TOWER
RUSH
RESIDENCIES
12,549 9.2 1.50 39
26
SPAN TOWER
16
SPAN TOWER 23,494 7.2 1.60 39
27
BARNES
AVENUE
BLUE OCEAN 15,933 11.5 1.32 38
39. RANKING PROJECT DEVELOPER
AV. PRICE
(LKR PER
SQFT)
DISTANCE
TO CBD
(KM)
DISTANCE
TO CLOSEST
TOWNSHIP
(KM)
TOTAL
POINTS
28
SPAN TOWER
19
SPAN TOWERS 13,196 10.2 1.70 37
29 PALLADIUM
GLOBAL
HOUSING &
REAL ESTATE
12,970 13.2 1.40 37
30
SPAN TOWER
21
SPAN TOWERS 23,788 7.9 1.50 37
31
LILLIAN
AVENUE
SPAN TOWERS 15,780 12.3 1.60 36
32
RUSH
RESIDENCIES
RUSH
RESIDENCIES
12,000 11.7 1.50 36
33
PRIME 194
NUGEGODA
PRIME
RESIDENCIES
18,670 14 0.90 36
34
SPAN TOWER
15
SPAN TOWERS 14,803 13.3 2.00 35
35 SENIC VIEW
GLOBAL
HOUSING &
REAL ESTATE
10,150 14.5 1.45 35
36 LAKEFRONT
BLUE
MOUNTAIN
APARTMENTS
20,980 10 2.00 35
40. RANKING PROJECT DEVELOPER
AV. PRICE
(LKR PER
SQFT)
DISTANCE
TO CBD
(KM)
DISTANCE
TO CLOSEST
TOWNSHIP
(KM)
TOTAL
POINTS
37
SPAN TOWER
18
SPAN TOWERS 20,110 8.8 1.50 34
38 MONASH
GLOBAL
HOUSING &
REAL ESTATE
12,162 11.7 1.35 34
39
DE ALWIS
AVENUE
BLUE OCEAN 18,327 12.1 2.00 34
40 VANTAGE
GLOBAL
HOUSING &
REAL ESTATE
13,009 13.8 2.40 34
41
RELIANCE
RESIDENCIES
RTI HOMES 15,669 11.1 2.70 33
42
REGENT
RESIDENCIES
REGENT
RESIDENCIES
13,650 12.4 1.60 32
43
FLORA
RESIDENCIES
HOMELANDS
SKYLINE
13,976 10.4 4.00 32
44
PRIME LIVING
THALAWATHU-
GODA
PRIME
RESIDENCIES
13,000 14.5 3.10 32
45
SUNCITY
TOWER
SUNCITY 10,817 18.8 1.75 31
43. MARKET DYANMICS
SOURCE: CUSHMAN AND WAKEFIELD
TRANSPARENCY
EASE OF OWNING PROPERTY
EASE OF LEASING PROPERTY
SPEED OF LEASE TRANSACTION
LEVEL OF BUREAUCRACY
POOR
0 1 2 3 4 5
EXCELLENT
Profiting from its real estate rise, in global real estate service firm Cushman
and Wakefield’s 2015 risk ranking, Sri Lanka is ranked 18th least riskiest out
of 42 emerging global property markets ahead of its regional counterparts
like Bangladesh, Vietnam and Myanmar within APAC.
Previous regulations restricted foreigners from owning property in Sri
Lanka and property leased to non-nationals was subject to 15% tax. The
current government has removed the land lease tax for non-nationals and
reduced the approval period for foreign direct investment requests which
should further enhance foreign interest in investment in real estate.
While real estate investments are currently exempt from capital gain taxes
the government of Sri Lanka has indicated the introduction of a capital gains
tax, which is expected to range from 5-10% of the capital gain.
This tax is however only expected to have a marginal effect on returns.
46. The Red Team trusts you have found our read of the current landscape of
real estate in Sri-Lanka informative and well presented. While we are
extremely optimistic of the future potential for real estate development, we
hope that all stakeholders of the industry will take a responsible approach
to ensuring its progress.
Much like any successful business the fundamentals of success for the
industry will hinge on well planned and well-built products and services that
focus on the operational success of their end users.
Watch out for the next Red File.
47. BIBLIOGRAPHY
• Bangladesh Bank -
https://www.bb.org.bd/pub/annual/anreport/ar1314/full_2014_2015.pdf
• Bank Negara Malaysia -
http://www.bnm.gov.my/files/publication/ar/en/2015/ar2015_book.pdf
• Central Bank Statistics, Sri Lanka - www.cbsl.gov.lk
• Condominium Management Authority of Sri Lanka - www.condominium.lk/
• Cushman & Wakefield: Emerging & Frontier Markets,
Assessing Risk & Opportunity 2015 - http://bit.ly/2bacghe
• JB Securities: Understanding the Residential Condominium Market
in Colombo
• Jones Lang LaSalle: Real Estate in Sri Lanka - Prospects and Potential
http://www.jll.com.lk/sri-lanka/en-gb/Research/on-point-sri-lanka.pdf
• KPMG: Vertical Living Beyond 2020 - http://bit.ly/2bPHR6o
• Pakistan Bureau of Statistics - www.pbs.gov.pk
• Reserve Bank of India - https://rbidocs.rbi.org.in/rdocs/AnnualReport/
PDFs/00A157C1B5ECBE6984F6EA8137C57AAEF493C.PDF
• State Bank of Vietnam - www.sbv.gov.vn/
• World Bank -http://www.worldbank.org/en/country/srilanka/overview
48. I N F O @T R I V I U M . L K
( + 9 4 ) 1 1 4 5 0 6 4 5 1
W W W.T R I V I U M . L K
