Megalopolis and its impact on property prices | Daily News

Megalopolis and its impact on property prices

 

 Sri Lanka has the proud heritage of being a developed nation in ancient times. It is believed that even before recorded history of 2500 years; there existed developed cities with proper infrastructure.

As recorded in historical chronicles, great cities such as Anuradhapura and Polonnaruwa existed with many aspects of urban development and sustained its existence over a period of 14 centuries. The buildings were advanced in terms of maximizing airflow, sustainability and comfort and still continue to inspire modern architect today.

However, urban development in the post-independence era has been less impressive, typically stretching out along the main truck routes into the capital in the form of low-rise vertical developments that are an eye-sore at best.

Moreover, lack of town planning and vision is currently leading to externalities such as rising levels of traffic congestion, a poor public transport system, a scarcity of public open spaces and air pollution. According to a report released by an international research agency in 2011, Colombo was listed amongst one of the worst cities to live in.

However, in very recent times, the post-civil war era has witnessed the emergence of some “city beatification” and vertical developments in many parts of the capital in the midst of a rapidly growing economy and a scarcity of land which has essentially necessitated that more residential, commercial or leisure use space is better utilized and the real estate foot-print is maximised. While there are government drafted zoning plans that continue to guide land use in Colombo, the seemingly spontaneous emergence of tall buildings in all parts of the capital is essentially driven by market forces. We shall return to this argument about market forces and its interplay with government plans later in this research article.

The immediate concern of many commentators is that despite the visible improvements that has taken place in the city, the lack of an overall strategy that will address multifarious concerns of the capital and its immediate surroundings in the Western Province, poses serious threats to the future growth of this part of the island which represents the economic growth engine of the island economy. Such a scenario threatens to reverse much of the recent progress made.

The Megalopolis project

The Western Megalopolis is a project that embraces the plans, implementation and strategies that are diverted to develop the Western Region of the country in order to achieve Sri Lanka's national goal of becoming a high income developed country. Western Megalopolis’ grand plan envelops the entire spectrum of activities that are involved in achieving this great national objective.It is envisioned that the following three methods would be engaged in positioning the nation towards this goal:

1) Enable the national economy to capitalise on the gains of economies of agglomeration that would result in urbanization;

2) Eliminating negative aspects that results from development of urban infrastructure especially unplanned, hap-hazard urbanisation;

3) Reducing per unit capital cost of infrastructure provisioning.

The Western region constitutes of three administrative districts, namely Gampaha, Colombo and Kalutara. The Colombo city is the economic, commercial, financial, and intellectual hub of the country. The western region is centered on the city of Colombo and leads the rest of the country in every sphere of activity.

The administrative capital of Sri Jayewardenepura,Kotte is located in the outskirts of the city of Colombo. The present population of this region is around 5.8 million, with about two million living in the city of Colombo and its suburbs. The total population in the proposed Western Megalopolis is envisaged to reach 8.7 million by 2030.

The Western region covers only six percent of the total land mass of Sri Lanka but accommodates about 29% of the total population of Sri Lanka. The western region also produces more than 40% of the total GDP of Sri Lanka.

Over the past 10 years, the population growth in the western region was marginal but the level of urbanization was very high, especially in the Gampaha District. This is mainly due to land availability and its proximity to employment and economic centers, such as the city of Colombo, Port, airport, industrial areas and BOI zones.

Presently, the population in Gampaha district is almost the population of the Colombo district and the projection is that Gampaha districts population would surpass the population of Colombo district in the near future.

As RIU has been monitoring land prices in Colombo for over a decade we can note that land prices in central Colombo have hiked at extraordinary rates since the end of the war in 2009. This landmark achievement was the most significant factor to impact the property market.

In the short-terms, we do not expect any major impact of the Megalopolis plan on property prices. We can expect to witness continued interest in apartments, houses and lands from local individuals, expats and to a lesser but growing extent, foreigners.

If we consider the luxury apartment segment, current supply is set to move from 3000 units to 6000 by 2019 with projects such as Altair, Shangri-La and Colombo City being completed.

In the long term, land prices in the suburbs and beyond will receive a boost from receiving the benefits of better planning in a similar way to the impact of recent city ‘beautification’ on Colombo central land prices. However, there will be significant differences between areas that benefit from new road and rail infrastructure initiatives from those areas that do not. Therefore, the impact on different geographical locations on the western province will need to be assessed on a case-by-case basis. There will certainly be winners but there may also be some losers.

With reference to the much talked about Colombo Port City project, the green lights that were given to what will be the single biggest private sector development project in the history of the island, turned to amber with the change in political power in 2015. However, this ambitious project is said to now be incorporated under the overall Megalopolis plan and will go ahead following some additional compliance and environmental impact studies in on order to confirm that there will be no negative impact on the coastline. It is also expected that foreign ownership will be limited to long-term lease agreements as opposed to freehold ownership which was previously agreed.

Assuming that the project will go ahead as planned, its impact on the Colombo real estate market will be a long-term consideration. Whilst it's true that the additional 575 acres of water-front land will add to the supply of real estate stock in the city, we can expect that much of the demand for port city land will arise from new areas of economic activity along with port related businesses and leisure sector developments. The SLPA Chairman had remarked recently that the area will be” developed as a port city with roads, water, electricity, communication facilities to set up shopping areas, water sports area, mini golf course, hotels, apartments, recreation areas, marinas and with a lot more additions that will develop the area as a modern city.”

Therefore, we would expect the Port City to elevate the profile of Colombo and increase the demand for its real estate from both local as well as foreign investors.

The economy of Sri Lanka and western region has grown at a steady pace over the last few years. The projection is that this momentum would be maintained and sustained in the coming years.

Sri Lanka's GDP/Per Capita is about US$ 4000 and therefore is considered a middle income country. GDP for western region is projected to reach over US$ 230 billion by 2030.

By 2020, the projection is that the per capita income in Sri Lanka will be around US$ 12,000 on the assumption of an average annual growth rate of 7-8%. The economic development in the next 15 years is crucial as the country has to move from labor intensive to skill intensive industries and to a knowledge based economy.

Where real estate is concerned, the long-term growth prospects are in the hands of those who will manage the macro-economy of the country.

In whatever eventual form and shape the Western Megalopolis Development program will be implemented, it is expected to change the economy of the country and people, life styles, employment generation, transportation, tourism, infrastructure and the entire gamut of activities in everyday life of not only in the region but in the entire country.

This development program will open doors for many foreigners to come into the country for business and work and many more expat Sri Lankans will return to Sri Lanka.

This scenario will create an unprecedented growth in the real-estate market that will cover apartments, gated communities, residential houses, modern commercial spaces, leisure property and lead to the development of smart cities. We expect the long-term impact of the Megalopolis to be extremely positive on the real estate market.

However, how much it will resemble the original plans remains to be seen. 


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