Incentives to construction industry would spur growth - Chairman, Blue Ocean Group | Daily News


Incentives to construction industry would spur growth - Chairman, Blue Ocean Group

Chairman of Blue Ocean Group, S. Thumilan
Chairman of Blue Ocean Group, S. Thumilan

Real estate and construction is one of Sri Lanka’s major revenue generating sources. The country’s post war impressive growth has led this sector to have an increased demand for residential property from the high and middle-income sectors.

The size and scale of the real estate market had always been an attractive and lucrative sector for many investors, said Chairman, Blue Ocean Group of Companies S. Thumilan. Real estate has continued to show a significant contribution to Foreign Direct Investments (FDI) brought to the nation in previous years.

However, due to ad hoc decisions and high taxes introduced a few years ago, it had put a tab on the local real estate industry from achieving its true potential.

These internal issues as well as external factors faced by Sri Lanka’s real estate developers, are quite discouraging.

Since the beginning of 2019, the property market in the country witnessed a prevalent uncertainty, due to multiple overshadowing reasons, one of which is the increase in material cost.

The latest prices paid for materials used in residential construction saw an escalation of almost 60%, terribly affecting the developers and contractors.

Many direct and indirect taxes on apartments that had a serious impact on developers too, increased suggestively, affecting the construction development costs and thereby resulting in a huge drop-out in gaining decent profit margins, since apartment prices are fixed and developers are forced to incur price escalation. Even though developers suffered, most customers benefited incredibly, by receiving huge returns.

Similarly, the uncertainty of the economic and fiscal policies such as implementation and proposing of various taxes on the industry, had letdown investor confidence in buying apartments.

Existing investors, including expats investing from overseas markets, have lost their confidence due to exchange rate escalation and ad hoc legislature. The depreciation of the rupee has also seriously impacted imports of luxury fittings, building materials, Custom duties and taxes.

The October 2018 internal constitutional crisis and the April 2019 Easter Sunday tragedy, too created a political and economic turmoil which lead to the slowdown of the industry as well as the confidence of the economy.

However, with the appointment of new President Gotabaya Rajapaksa, things have formed around and the country and is at present, moving in the right direction.

One of the major initiatives taken to revive the industry is the tax reduction and elimination of intolerable taxes. Pay As You Earn Tax (PAYE) and Value Added Tax (VAT) reductions, too will support the industry to be developed in the long term.

On the guidance of President Rajapaksa, the reduction of tax components in the construction industry on PAYE tax, fell from a 28% to 14%, while VAT dropped from 15% to 8% for apartment and housing projects which was esteemed by leading institutions and the trade chambers in the construction sector, according to Dr. Rohan Karunaratne, President of the Chartered Institute of Building (CIOB).

With the erratic exchange rate, real estate developers face many challenges at present. Particularly to the construction companies that import luxury fittings, building materials, and equipment, the exchange rate fluctuation has been a tough encounter since they bear the increased cost allowing existing investors to pay less.

It is quite important to take necessary measures to stabilize the exchange rate by encouraging investments and thereby strengthening the rupee against the U.S. Dollar by the end of 2021.

Immediately stabilizing all financial banking institutions of the country and providing liquidity support through the Sri Lanka Deposit Insurance and Liquidity Support Scheme, will positively affect not only the real estate market, but the country’s economy as a whole.

According to the government policy for the next five years, Sri Lanka would ban foreign contractors from competing for state projects and provide a slew of benefits for domestic construction companies.

Accordingly, Sri Lanka would take overall State construction work for the domestic firms. The reduced competition could push up profits of construction firms and raise the cost of state procurement overall, analysts say. Furthermore, the policy states that the building construction approvals will be reduced to three weeks, by establishing a system that will enable all approvals to be obtained through one place via the internet.

Government intervention in real estate and construction industry could be encouraging or a further source of risk. Developers experience adverse consequences arising from regulatory policy changes designed to curb a perceived bubble.

Nevertheless, we are confident that the new Government would continue to form stable, economic policies that would be favourable for the real estate and construction industry as well as other local businesses.

Being the parent to LINK Engineering, the Blue Ocean Group of Companies have taken up diverse construction projects, including massive government projects and major developments that enhance Sri Lanka’s overall industrial presence.

Having more than 36 projects across the country, the company has been awarded multiple accolades for its excellence in construction and development over the years. The vast contribution to numerous projects had helped Blue Ocean gain a good reputation as industry leaders in Sri Lanka.

Link Engineering, providing various essential services in the construction field with over four decades of experience in the construction trade, is one of the pioneers in the industry with a great reputation as a government constructor in Sri Lanka.

Blue Ocean apartments are in various prestigious locations across Colombo and its outskirts. The niche areas captured include, Alfred House Gardens and 19th Lane in Colombo 3; Glenfall Road, in Nuwara Eliya, Layard’s Road in Colombo 4 and Hotel Road, Mount Lavinia, to name a few.

By 2025, the company hopes to achieve the milestone of completing 50 condominium apartments, while attracting new businesses, retaining clients and solidifying our reputation as the best developer.

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