‘Buy to let investors’ a threat to older apartments: JLL

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By 2018-02-14

By Zohara Ghaffoor

New infrastructure and increased connectivity will drive affordable housing construction in outlying suburbs, while old apartment blocks are threatened by 'buy to let investors' investing in luxury apartments, said Jones Lang LaSalle (JLL) in its outlook for Sri Lanka's residential real estate in 2018.

The international investment management company specializing in real estate added that residential apartments may face the risk of discounting due to an uptick in supply.

New infrastructure such as roads and bridges, for example the Rajagiriya flyover, has improved connectivity and lessened traffic, positively impacting the growth of the residential sector in outlying suburbs, according to JLL Managing Director - Sri Lanka Operations, Steven Mayes.

Further the sector seems to be more lucrative due to accumulated demand over a long period of time and under supply of affordable housing with payment facilitates. Residential......apartments have an opportunity through public/private partnerships or private development enterprises.

Moreover, residential apartment builders are said to face the pressure of discounting apartment prices due to a possibility in over supply and high apartment prices prevailing in the market.

In the case of the residential rental market projects, such as Astoria and Shangri La will feed into the residential apartment market through 'buy to let investors'. This, however, will affect the demand and price of older apartment blocks, unless amenities and facilities are on par with new apartments. Hence, even though there is still sufficient demand in the market to absorb the majority of this new inventory, the old stock will come under pressure, the report said.

The report said the slowdown in construction, was a repercussion of the sluggish sales and increased supply in the market.
However, according to the report the overall picture on the residential apartment sector for 2018 seems to be unclear as January had seen increased sales for some projects and sluggish sales for others.

According to the Research Intelligence Unit (RIU)'s 3Q 2017 real estate report, Colombo 1, 2, and 3 recorded a decline in growth from Rs 44,975 per square feet in the 1Q 2017 to 41,230 per square feet in the 3Q.The Greater Colombo Area (GCA) which includes Dehiwala, Nugegoda and Mt. Lavinia however recorded a positive growth of 12.2 % seeing apartment prices shooting up from Rs 17,824 per sqr feet in 1Q of 2017 to Rs 20,000 per sqr feet in 3Q.

Kotte and Jayewardenepura recorded a significant decline in apartment price growth of 14.3% from Rs 19,306 per square feet in 1Q to Rs 16,527 per square feet in 3Q.

Colombo 7 and 8 which generates the second highest apartment prices saw a decline in growth of 4% from Rs 35,264 per square feet in 1Q to Rs 33,836 per square feet in 3Q.Central areas of Colombo 1, 2, 3 and 4 fetched the highest prices in the market and were 33 per cent higher than prices in other parts of the GCA.

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