Sri Lanka is experiencing a surge in real estate investment following a steady period of impressive economic growth over the past decade. As the country seeks to ramp up its prominence among South Asian markets, GDP growth will be paralleled with growing salaries and with this comes an increase in demand for superior quality housing. Additionally, growing demand for quality office and commercial space from local and foreign businesses is spurring on private sector investment. The proposed International Financial Centre at the Port City alone will add 5.65mn square metres of new mixed-use real estate.
Arun Pathak, Managing Director of WelcomHotels Lanka (Private) Limited, said: “The economic growth of Sri Lanka is being led by large real estate developments in Colombo from multiple investors including the US$ 15 billion reclamation project, with an expected further investment of US$ 25 billion in developments on the reclamation, that are all poised to reposition the importance of Colombo, and indeed Sri Lanka, as a key regional business and financial hub. This makes prime real estate a great buy as the market is at the beginning of its growth curve.”
He adds that high quality assets here offer good long-term return opportunities, especially in the current scenario in which asset prices are relatively lower than other regional business and political centres. “This may not last very long as these are expected to catch up, at least regionally, in the next few years.”
Indeed, as a rapidly developing emerging market, Sri Lanka is becoming increasingly attractive to global real estate investors. According to KPMG’s recent report “Paradise Island—Luxury living in the tropics”, real estate investors are being rewarded with ROIs averaging 17% per annum and rental yields of up to 9%. Indeed, since the end of civil conflict in 2009, Sri Lanka has delivered a series of increasingly luxurious prime residential developments. As highlighted in KPMG’s new report:
- Over 6,000 new apartments are due to be built by 2020
- The luxury market is driven primarily by local Sri Lankan investors (61%) as well as Sri Lankan expats (18%) who are keen to invest in their country of origin. The remainder of the market comprises owner-occupiers (17%) and institutional investors (4%)
- From drawing board to completion, high end new-build properties in Sri Lanka are achieving an average ROI of 10% per annum. Investors entering the secondary market have achieved 15% ROI per annum on an average. Historically prices have registered increases of 40-45% in the 1st year to the 3rd year after completion
- Rental yields are achieving a generous 9% per annum, whilst secondary market investors are averaging 5-7% per annum. Foreign professionals are the most prominent tenant within the luxury market (67%), followed by local end users (19%), local tenants (13%) and foreign tourists (1%)
Commenting on the country’s future prospects for real estate investment, KPMG Sri Lanka’s Principal Shiluka Goonewardene, said, “Regionally Sri Lanka remains attractive as an emerging market, when considering the ROI on real estate. The positive outlook for the global economy is an encouraging sign that the rewards will continue for some time to come.”
Recently developers have brought luxury real estate in line with top global urban destinations and several new luxury and branded residential developments – including Cinnamon Life, Altair, Shangri-La at One Galle Face and Ritz-Carlton at The One—have been springing up across the city, with more in the pipeline. Attracted by the strong economic growth, developers from further afield are increasingly setting their sights on Sri Lanka, especially Colombo; in addition to substantial existing Chinese investment in Colombo, Japanese firm Belluna Co. recently announced plans to invest US$500mn in real estate developments here.
The development’s proximity to the International Financial Centre in the forthcoming Port City and its commanding location on Colombo’s most exclusive Central Business District strip, owning a home at Sapphire Residences ensure that residents are ideally placed to keep a finger on the pulse of international finance, trade and commerce.