Sri Lanka could see oversupply in luxury property market: Oxford Business Group

Supply is set to overtake demand at the high end of Sri Lanka’s residential property market, with a series of large-scale projects under way in and around Colombo.

The supply of luxury apartments in the commercial capital could reach 6,000 units by 2018-19, according to a recent report by the Research Intelligence Unit (RIU), up from 783 in 2009 and 2657 this year.

Potential for oversupply

Several residential projects are expected to be completed in the years ahead, including John Keells Holdings’ $850m Cinnamon Life waterfront project, which is billed as the largest private sector investment in the country, according to the company’s website. The 4.5m-sq-foot integrated resort is scheduled for completion in 2018 and will include an 800-room hotel, apartment and office complexes, a convention centre and a shopping mall.

Colombo’s Havelock City mixed-use development is also expanding, investing some $130m to add another four residential towers and nearly 650 units. Other luxury residential projects, such as the Astoria luxury condominium development, two 194-metre Shangri La residential towers and the 240-metre Altair skyscraper, will further add to stock in the city.

Though sales are steady, the increase in the supply of top-end residential units in the capital could outstrip existing demand. “In the premium residential segment, insufficient demand will be a problem,” Pravir Samarasinghe, CEO of Overseas Realty (Ceylon) – the company developing Havelock City – told global research and publishing firm, Oxford Business Group in a recent meeting. “There is a maximum offtake of 500 units a year in Colombo, and there are probably 3,500 under construction over the next three years.”

Demand growth

Nonetheless, sales could see the demand gap narrow over time as the economy gains momentum, according to Pradeep Moraes, Director and President of Sales and Marketing at Altair/Indocean Developers, the group developing the Altair skyscraper – Sri Lanka’s largest residential tower. “The improved political and economic environment will drive many more people and businesses to come to Sri Lanka,” he told Oxford Business Group.

Demand could also be spurred by wealthy Sri Lankans returning to cities in search of better accommodation, according to Moraes. “In the past there was an exodus out of town in search of larger properties, but there is a new emerging segment for rental apartments in the city,” he told OBG. This in turn could boost sales, encouraging buyers to invest in upscale properties for residential rentals.

Currently, more than a third of premium residential sales are generated by Sri Lankans living abroad, while less than 4% of investments are made by foreign buyers, according to Samarasinghe, with the balance coming from locally based, high-net-worth individuals.

Unlocking accessibility

While much development has focused on Colombo, improved transport infrastructure is expected to open up opportunities for property investment in areas away from the coast and Sri Lanka’s main cities.

The Colombo-Kandy Expressway, currently under construction and due for completion in 2017, is forecast to cut travel time between the two city centres from four hours to 60 minutes or less, making the daily commute from Kandy to Colombo a viable option for those working in the capital.

The project is expected to provide benefits similar to the Southern Expressway, which first opened in 2011. The second phase of the project, linking Colombo to Matara, became operational early last year, reducing travel times on the 161-km journey from four hours to 90 minutes, according to local press.

The high-speed Colombo-Kandy Expressway is set to transform Kandy into a centre for real estate investment, with moves already under way to develop high-end residences, such as Dynasty Residence, a 19-storey luxury apartment building and hotel under construction near the expressway.

Rajagiriya, south-west of Colombo, could be another attractive alternative for buyers, according to Anuj Puri, Chairman and Country Head of JLL India. Given its location between the administrative and commercial capitals of the country, Rajagiriya has seen an increase in real estate prices in recent years and is expected to generate greater demand going forward.    

Some 1,184 luxury apartment units have already been completed in the city, according to the RIU, with several other major high-end projects in the pipeline, including the 130-unit The Elements and the 164-unit Clearpoint Residences – both of which are scheduled to open in 2017.

Further improvements to connectivity across Sri Lanka, including upgrades and construction of roads to the east of the island and reopening of routes closed due to previous unrest in the north, could help property development opportunities expand to other regions of the country.