Real estate industry at crossroads

The Sri Lankan real estate market is having a difficult time coping with the effects of the recent economic crisis and the slow pace of recovery. With signs of an impending housing crunch in Colombo, the alarm bells may soon start ringing for both developers and potential homeowners alike. Contrary to common assumption, only a small number of new projects are now in development in Colombo since most developers have been negatively impacted by the crisis. As a result, it is anticipated that the market will experience a scarcity of flats.

In the developed world, home prices are rising in line with inflation, but this trend appears to be changing as interest rates change. As Canadian home prices see their first yearly dip in over 10 years, American home prices have been declining across the Atlantic. British home prices have been declining for four months now in Europe. This may indicate that a new housing and financial catastrophe similar to the one that occurred in 2008 is imminent. However, a few additional measures to see whether this is a possibility must be observed. 

The primary factor is how reliant on the property market economies are. Changes in housing prices do not immediately affect the economy. Instead, the effect on the economy is seen in investment; when home construction slows, builders lose their jobs and, as a result, spending falls. In 2006, homebuilding accounted for 26% of total investment, a very little variation from today’s 24%. The danger this poses to the banking system is another factor.

The global financial crisis in 2008 is a result of mortgage holders’ inability to continue making loan payments in the face of rising interest rates. As these loans started to fail, the general public became aware of other obscure financial instruments known as “mortgage-backed securities,” which packaged and marketed several mortgages to investors, banks, and pension funds. 

Commercial banks now own around $ 2.7 trillion in mortgage-backed securities, up from about $ 990 billion in 2009. Today this translates to a roughly threefold rise. Although we would have expected banks to have learned their lessons from the last time, it seems that the current low-interest rates have compelled them to forget and forgive and once again enter the market for mortgage-backed securities. 

While the local market continues to be influenced by foreign investment, the ripple effects of a looming crisis may spread to Sri Lanka. The capacity of local developers to innovate and adapt is crucial for the Sri Lankan real estate market as it deals with the challenges posed by the post-crisis environment. One of the numerous challenges that developers must face to prosper in the market is the housing constraint in Colombo. But the industry can still move forward with the right mindset, approaches, and alliances. However, the key missing ingredient would be Government spending on construction.

The Government must move swiftly to encourage developers to invest in new projects in order to overcome the impending housing shortage in Colombo. This can entail providing infrastructural assistance, simplifying approval procedures, and giving tax rebates and other financial incentives. The Government can not only assist to alleviate the lack of affordable housing in Colombo by supporting the building of new housing stock but also stimulate economic growth and open up employment possibilities in the construction industry. 

In turn, this might encourage the demand for additional goods and services, advancing the economy of the nation as a whole. Despite the significant obstacles the Sri Lankan real estate sector faces, the future is still promising for developers who are open to change and innovation even given a gloomy foreign condition in real estate. Developers can prosper in the post-crisis environment and build a better future for everyone by focusing on quality, sustainability, and customer satisfaction.