Q: Can you explain why customers should invest in real estate during an economic crisis such as what Sri Lanka is going through at the moment?
A: Real estate has always been considered a good hedge against inflation. In a time of crisis, investors look for safe havens to invest their money and real estate is one of the most preferred alternatives.

The high construction costs prevailing today means that you cannot replace the developments that have been completed or are close to completion in the future. Therefore, anyone looking at purchasing an apartment today will most certainly benefit as construction costs and land prices will only continue to increase over time.

Q: What are your predictions for the real estate sector over the next six months?
A: Due to the ongoing economic crisis in the island, we will continue to see a slowdown in new projects in the short to medium term. Therefore, any developer with remaining inventory from completed developments is well positioned. Most of the developments in the luxury and mid-tier segments have sold approximately 60-80 percent of inventory. With the introduction of VAT for apartments from 1 October, we expect a surge in demand in the next few months.

Nadeem Shums
Vice President – John Keells Holdings
Head of Sales and Marketing (Property Development Sector)

Q: Can you share any insights regarding the real estate sector in Sri Lanka?
A: With the expansion of the local highway network, we can expect to see more developments springing up closer to the highway access points on the periphery of the city of Colombo. We are already beginning to see an increase in the number of leisure linked developments coming up in the hill country and along the coastline – mainly the southern coast of the island.

Investors are now looking for hassle free investment options where they can get a healthy ROI with minimal involvement in finding tenants, handling repairs and other aspects. We are now starting to see more developers – mainly in the leisure linked segment, offering the option to manage properties on behalf of investors.

Q: In which parts of the country do you see the most growth in terms of real estate and construction, and why do you say so?
A: In my view, taking into account the markets of other regional countries, I expect the growth in real estate to mainly come from the central business district of Colombo. The ongoing economic crisis with high fuel prices and transportation costs will incentivise people to move closer to the city to reduce the time and cost of commuting to work, school and other engagements.

Further, the high cost involved in the construction of landed houses and the long delays in getting the required approvals and material will further encourage people to look at a more hassle free option like apartments.

Q: How would you advise customers looking at investing in real estate or construction today?
A: It depends on the purpose of their investment – whether customers are purely interested in an investment or are looking for something to be used by them. If it’s for the latter, they are advised to see what fits their requirements. In this case, factors such as location, price and the facilities available maybe among key determinants.

However, if customers are looking for properties purely for the purpose of investment, they will need to invest in real estate that gives them the best returns in the form of capital gains and rental yields.

The central business district has always given the best returns to investors in terms of rental yields and will continue to do so with the expatriate population growing and preferring to live in the heart of the city. Having said that, we are also beginning to see capital gains and yields improving for the suburban and leisure linked developments as well.

Q: How would you describe the competition and what strategies do you employ to stay ahead?
A: There are a number of local and international real estate developers operating in Sri Lanka across the luxury, mid-luxury and affordable housing segments. Sri Lanka’s apartment market is still in its infancy with only approximately 10 percent of occupied housing being apartments in the city.

In my view, to stay ahead of the competition, real estate companies need to always look at the requirements of the customer and then work backwards to develop the ideal product. You also don’t need to reinvent the wheel as Sri Lanka is behind some of our regional peers in terms of apartment living. Therefore, companies here can identify what has worked in the different growth stages of each market and implement some of those strategies in Sri Lanka.