Compiled by Lourdes Abeyeratne

REALTY IN THE SPOTLIGHT

Nadeem Shums sheds light on factors contributing to real estate demand

Q: What is your assessment of the real estate sector’s performance in recent months?

A: Following the COVID-19 induced curfew that was enforced across the country in March and April, we witnessed renewed interest in the real estate sector in the context of demand for major ongoing development projects.

Investors are seeking reputed developers and stable returns while real estate is also considered to be a suitable hedge against inflation.

Q: Could you outline the main factors that have contributed to the demand for real estate in the present environment?

A: An important contributing factor to the increase in demand for real estate is the prevailing low interest rate climate, which has led to funds shifting from low yielding fixed income instruments to other asset classes such as real estate.

Investors and home buyers are also purchasing apartments through attractive mortgage packages with interest rates as low as eight percent. In addition, the banking sector has become more flexible.

Within the real estate sector, buyers are also able to capitalise on innovative mortgage packages that have been introduced to the market by property developers.

For example, one such offering enables buyers to pay 20 percent of the purchase price upfront without further payments for an interest free period of two years while also having an option to take advantage of a grace period on capital repayments of up to five years.

Moreover, we have witnessed a strong demand from Sri Lankans living and working overseas who have been purchasing apartments in recent months.

Q: Has government policy adequately supported the real estate sector’s growth – and what more could be done to boost its performance?

A: Yes. Following the imposition of the islandwide curfew, the government’s decision to reduce interest rates has most certainly given the real estate sector some momentum.

Furthermore, this administration has made an effort to introduce REITs, which will provide the sector impetus to continue growing in the future.

An area that the government could potentially look into – in an effort to boost the real estate sector – is attracting more foreigners and ensuring that they view Sri Lanka as a viable investment destination.

This could be achieved by offering foreigners residence permits for investments in apartments and permitting investors to borrow a share of their investment locally.

Q: In your view, which segments within the sector should investors consider in terms of potential returns?

A: It is my view that the potential for earning returns on real estate has more to do with the type of product, location and developer.

For instance, there is potential for growth when it comes to the luxury developments in Colombo as prices continue to remain at quite attractive levels for major ongoing projects compared to similar integrated developments located elsewhere in the region.

Therefore, with large-scale infrastructure projects such as the Port City (Colombo International Financial City a.k.a. CIFC) and other developments that are underway in the city, Colombo is beginning to garner attention as an investment destination.

In addition to this, the mid-luxury sector could also offer returns as there is a robust local market that can afford apartments in this segment as witnessed in the strong demand for such projects.


Q: What must potential investors consider before investing in real estate?

A: First, investors must be clear about their objectives for such investments – i.e. if they are looking to purchase apartments to live in or as pure investments. For the latter, investors need to pick the right product at the right price, which offers a suitable yield and potential capital gains.

Investors must also ensure that they select the right location and developments that are backed by reputed developers.

Q: What do you consider to be the main challenges facing the sector in the prevailing scenario?

A: The major challenges that the real estate sector has faced is the depreciating value of the rupee in recent years and high cost of construction. In fact, our construction costs are 20-30 percent higher than some neighbouring nations in the region.

Q: And what is your outlook for the real estate sector over the next year or so in the light of the COVID-19 crisis across the globe?

A: In my assessment, if interest rates remain at present levels and the COVID-19 pandemic is controlled, the sector is likely to witness an upward trajectory over the next 12 months.

The interviewee is the Head of Sales of John Keells Properties and an Assistant Vice President of John Keells Holdings