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An island of opportunity

Sri Lanka's exotic culture and natural beauty are a hit with tourists

PUBLISHED : Wednesday, 03 October, 2012, 12:00am
UPDATED : Wednesday, 03 October, 2012, 11:48am

Don't mention the war, Basil Fawlty warned. In the context of Sri Lanka, it was hard not to during 26 years of devastating internal conflict.

But in 2009, the dialogue changed. The civil war ended and people no longer associated Sri Lanka with trouble and strife, noticing instead its exotic culture, natural beauty and untapped potential. In this now-peaceful island nation, they saw a land of opportunity.

Tourists began arriving in droves, with arrivals up 46 per cent year-on-year in 2010, and 30 per cent last year, according to government figures. In the six months to June 2012, a 21 per cent increase was recorded, and more than 1 million visitors are expected by year's end.

The Asian Development Bank attributes the benefits of peace to economic growth of 8.3 per cent last year. Noting that foreign direct investment (FDI) inflows of US$1 billion far exceeded the government target last year, the bank forecasts 7 per cent growth this year and beyond. "Overall, Sri Lanka scores a good performance rating," its report says.

The positive flow-on to property markets is highlighted in a report by KPMG and the Research Intelligence Unit. It reveals a "significant growth phenomenon" for Sri Lankan real estate since 2009, with a marked increase in price levels across all property sectors, including land, residential housing, commercial premises and condominium-style apartments.

Increased foreign investment in prime blocks of commercial lands in the city of Colombo, the acquisition and resale of leisure properties by private investors, and a general increase in confidence levels of household investors were cited as drivers in the January 2012 report. The report also found a lifestyle shift in Sri Lanka, as buyers have a growing acceptance of apartment-style living, and cities become more accessible and better-equipped with infrastructure. A growing leisure sector is also contributing to a need for quality accommodation. According to the report, further transformation is likely to take place in Colombo as it moves towards becoming "a picturesque and yet commercial city which could emerge as a trade hub for South Asia".

Reyaz Mihular, managing partner, KPMG Sri Lanka, notes a number of emerging opportunities for institutional and individual investors.

"Recent growth trends have shown increasing activity in the construction industry, housing, property sales and apartment projects," he says. "Individuals are also likely to have benefited from increasing property prices and appear to continue to invest in tangible real estate assets."

By mid-year, the hype had softened. Steps taken to cool the economy, rising interest rates and tightened liquidity had an impact on the property market, Mihular says.

"However, we have seen deals done for selected properties, and continued overseas interest in properties for mixed developments."

Leisure properties in select locations such as those with beach frontage remain in high demand, he says. "With hotel capacity anticipated to fall short of tourist demand, a number of leisure properties are under construction and more expected in the near future."

Meanwhile, overseas money continues to flow, primarily from China, including Hong Kong, which has become Sri Lanka's biggest investor in road, airport and port development projects. Mihular notes that two of the largest foreign investors in Sri Lanka at the moment are Hong Kong-based companies. "China Merchants Holdings (International) is investing over US$500 million to build a new terminal, the South Harbour project, at the Colombo Port, while the Shangri-La Group is constructing a 500-room, five-star hotel property and mixed development in the heart of Colombo, and one hotel on the south coast," he says.

Overseas Realty (Ceylon), connected to Singapore's S.P. Tao Group and the Bank of Ceylon, the largest state-owned bank in Sri Lanka, is developing Havelock City, a large-scale apartment development in Colombo that will also feature a mall and office space.

The units of two-, three- and four-bedroom-plus penthouses have views of the city and sea, offering luxuries seen for the first time in Sri Lanka, according to the developer. Squash courts, gymnasium, sauna, day care centre, recreation rooms, pool, restaurants and function rooms are among the amenities. Prices start from US$213,444 for a two-bedroom, 1,249 sqft unit.

Also in Colombo, Singapore's Keppel Land, the property arm of Keppel Corporation, is developing a high-end condominium project in the affluent Kotahena district. The project, a joint venture with Sri Lankan property developer CT Properties, will provide 260 residences at an investment cost of about S$70 million (HK$442.04 million).

Kevin Wong, CEO of Keppel Land, describes the group's first foray into Sri Lanka as "strategic and timely" given the country's positive growth, and with growing affluence amongst its population. The improved political and economic conditions also bode well for the country as it looks to attract more foreign direct investments, Wong says. "Sri Lanka is experiencing rapid growth and the sound fundamentals are expected to drive demand for homes."

Ranjit Page, chairman of CT Properties, agrees that the condominium market in Colombo is a growing segment, especially for high-end developments. "The stable government and positive economic outlook will contribute to higher disposable income, which will boost the purchasing power of local homebuyers and overseas investors keen on the potential capital appreciation of well-located, high-end property developments," he says.