Sri Lanka’s real estate sector has been on a roller coaster ride in recent years. Yet, the Managing Director of Capital Trust Properties Minoli Wickramasinghe remains optimistic.

“Real estate will not go wrong in a country like ours,” she said in a recent LMDtv interview, highlighting factors such as Sri Lanka’s strategic location, limited buildable land area and importance to geopolitical superpowers.

Nevertheless, she touched on the impact of recent challenges, beginning with the Easter Sunday attacks back in 2019.

Wickramasinghe explained: “Firstly, the attacks had a negative impact on apartment rentals and then came the pandemic, which drastically affected the real estate market. During this period, we witnessed shifts in the real estate sector. For example, we saw working from home (WFH) become very prevalent and many vacant commercial properties.”

“The pandemic also resulted in a drastic decline in tourism,” which caused the luxury real estate market to grapple with vacant spaces, she added.

Wickramasinghe also discussed the impact of the economic crisis, focussing on delays in the construction of several major projects.

“Soon after, we went into political unrest and then near hyperinflation, which increased construction costs by 200 percent, making building residential and commercial properties unfeasible,” she lamented, adding that apartment prices too increased drastically during this period.

She observed: “Real estate is a good hedge against inflation and exchange risks, so land and commercial prices remained depressed since construction costs were high.”

However, the sector is slowly but surely seeing the promise of a revival today. Wickramasinghe opined: “With a rapid recovery in the economy and positive growth in GDP, we are also seeing an influx of tourists.”

“Since the Port City Colombo project is still not completed, many who are involved want office spaces on the mainland. We see commercial spaces being taken up rapidly and occupancy rates reaching 90-100 percent,” she revealed.

She added that “residential apartments are also filling up, which is a good thing since we saw apartment rental yields at very low levels over the last four years.”

High construction costs are not new to Sri Lanka. As Wickramasinghe explained, costs have historically been high due to the fact that “90 percent of our construction comes from imported raw materials.”

And she warned: “Costs are a major factor because we don’t have economies of scale like other countries so we need to be mindful of that.”

The demand for real estate is increasing, albeit with changes in customer dynamics. Wickramasinghe elaborated: “Due to the economic hardships we witnessed – like fuel and gas shortages – Sri Lankans now want affordability, convenience and minimalistic qualities when it comes to real estate. Individuals want more affordable housing and easy living so they opt for more urbanised living options like apartments.”

Corporates are also seeking more flexibility. “Co-working spaces have emerged as a popular choice among companies,” she noted, adding that businesses are looking to reduce capital expenditure, and opting for more plug and play models.

On the other hand, she pointed out that corporates are reversing the WFH trend, resulting in an increase in occupancy rates. Looking to the future, Wickramasinghe believes that the sector will perform well if the country achieves economic stability and policy consistency.

“We still do not have sustainable inflows in terms of foreign direct investments (FDI) for the real estate sector and the right type of tourists,” she asserted.

She stated: “I feel we have two projects that can start the trigger [towards growth] – one is Cinnamon Life with its casino and the other is Port City Colombo, which I feel will take another five years.”

“And with that, if we make the right moves, we’ll be a good destination for real estate,” she summed up.