‘FTAs, proposed trade agreements, a boost for business relocation’ | Daily News

‘FTAs, proposed trade agreements, a boost for business relocation’

The Altair Project, a residential and commercial development under construction at Colombo 2, at 68 stories and 240 meters, will be one of the tallest buildings in Colombo when it is completed. The building with an investment of US$ 250 million is situated adjacent to Beira Lake on two acres. The ongoing Project Development of Altair apartments
The Altair Project, a residential and commercial development under construction at Colombo 2, at 68 stories and 240 meters, will be one of the tallest buildings in Colombo when it is completed. The building with an investment of US$ 250 million is situate

The recently-inked comprehensive free trade agreement (FTA) with Singapore and FTA being negotiated with China together with the enhancement of the existing agreement with India and Pakistan will encourage business relocation to Sri Lanka.

This should have positive effects on rental markets,” Chairman of the Condominium Developers Association of Sri Lanka, (CDASL), Pradeep Moraes has said in a recent interview.

He also said that around 10% of investors in Sri Lanka’s luxury residential property developments are foreigners because purchase of residential property is not as yet linked to residency privileges.

“The low foreigner count is because the purchase of residential property in Sri Lanka is not linked to residency privileges, unlike several countries in the Caribbean, South-east Asia, and the Middle East, as well as certain Mediterranean countries in the EU,” Moraes has said in an interview with Oxford Business Group. (OBG)

“However, this is now being remedied with a proposal to grant residency visas connected to investment.”

Moraes said the CDASL welcomes the government’s move to offer a 10-year residential visa for the purchase of property valued at US$ 500,000 (about Rs 79 million at current rates) or more, and a five-year visa for purchase of property between US$ 300,000 and US$ 500,000.

“We estimate that luxury residential property can generate US$ 750 million in FDI in the short term,” he disclosed.

Asked by OBG how he sees the capital gains tax impacting the local real estate market, Moraes said: “Seeing as 10% is a modest tax, the impact would be minimal. A number of other markets have much higher levels of taxation and still experience vibrant real estate growth.

The tax has been implemented in a clear and open way, the figure has been made public, and now the market can factor it in and go about its business.”

Questioned whether there is enough purchasing power in Sri Lanka to support further developments in the luxury residential segment, he pointed out that according to the global real estate consultancy Knight Frank, Sri Lanka recorded the second-highest growth rate internationally in the ultra-rich community in 2016.

“Over 60 to 65% of buyers of luxury residential property are Sri Lankans already living in the country, and around 25 to 30% are expatriate Sri Lankans.

“In our experience, luxury condominiums continue to be purchased with over 90 per cent equity and without borrowing.”

“Over 90% of such developments are in the relatively affluent Western Province, predominantly in Colombo.” 

 Additionally, 99% of luxury and ultra-luxury apartments in completed projects and around 51% of those under construction have been sold, according to investment Management Company JLL, with over 60% of both sold to resident Sri Lankans.

“Most of the larger projects have been undertaken by reputable international developers who do not borrow locally and have certainly done their due diligence.”

He added that an inequitable distribution of wealth combined with the previously relaxed tax regime, had led to a gross underassessment of wealth, some of which was sent overseas. “Luxury real estate offers a desirable and commercially sound option for attracting these funds into the local economy. There is certainly enough purchasing power to justify further luxury developments.” Moraes reasoned.

Asked how the market has reacted to calls to restrict lending to the real estate sector, he noted that the Central Bank of Sri Lanka has engaged with all stakeholders and is satisfied that the real estate industry is not a cause for concern.

“It has broadcast this view, going on, in fact, to say that the luxury segment was the least vulnerable. As with markets everywhere, mind-set and speculative concern can and will affect performance, as was seen in Colombo with the six-month slowdown in sales in 2017. Thankfully, this has now corrected, and sales are proceeding satisfactorily once again.”

On the subject of the impact of real estate investment trusts (REITs) on the Sri Lankan market, he expressed the view that REITs would have a phenomenal impact on both the industry and the economy as a whole.

“Investments could increase exponentially, as REITs facilitate the entry of small local investors who otherwise lack the means to purchase as individuals.

They also reassure foreign investors that their purchases benefit from professional guidance and market knowledge,” Moraes said. He said the stumbling block to the implementation of REITs is the issue of the 4% stamp duty payable to the provincial councils. REITs by their very nature propagate multiple transactions and it was feared that the business model could not sustain repetitive taxation. However, evaluation undertaken by industry players, the Colombo Stock Exchange and the Securities and Exchange Commission points to the aggregate of capital gains and rentals providing a cumulative return that remains attractive, he revealed.

 


 

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