Thursday, 16th September 2021

Retail real estate sector under attack from E-commerce and virtual store concept

Sri Lanka: Emergence of e-commerce and virtual store concept is noticeably replacing physical stores, threatening the demand for retail real estate sector across many countries in Asia including Sri Lanka, said Nalin Herath, Managing Director of Home Lands Holdings and Survey Systems.

Structural trends such as demographic shifts and technology changes are expected to disrupt real estate fundamentals and impact strategies, Herath told Daily News Business.

“Retirees leaving work force has lowered the demand for office space in many countries across the world. Furthermore, Millennials contribute to continuous urbanization, in which renting out option seems to surge above owned home option. This will be having a clear impact on demand for rented and owned property in multifamily and single family markets,” he said.

Commenting on Real estate sector in Sri Lanka, he said sector will grow healthy in Lankan soil if only industry best practices, appealing yet equitable and transparent tax policies, consistency and corporate governance could be promoted within the country’s socio-economy.

According to him, during the last couple of years, demand for residential, commercial and industrial real estate have increased resulting prices to increase, yet in a reducing frequency, with residential land price inflation showing the sharpest slowdown.

“Even though the land prices in the country have been increasing, according to researchers, the rate of year-on-year increase has slowed down during last three quarters,” he said.

The residential land price inflation showed the sharpest slowdown, when compared to commercial and industrial land prices. It could be highlighted that the demand for condominiums in and around Colombo has grown within last couple of years resulting in increased price, he said that this can be considered to be much owing to the ongoing comprehensive transportation face lift including; Light Rail Transit (LRT), Outer Circular Expressway and Elevated Highway.

Furthermore, strong tourism flows has added demand to the leisure real estate, which is much prominent in Sri Lankan context. Also a trend can be seen that the giants in leisure and hospitality industry entering real estate.

He also noted that both real estate developers and customers are facing hindrance due to restricted lending and constrained asset to credit exposure.

“We as developers are facing difficulties in financing our real estate projects. Anyway the impact on the customers is largely cushioned as most of them are financed by the payment schemes offered by the developer itself,” he pointed out.

However due to limited opportunities in obtaining external financing for real estate business, the developers will have to have a second thought when offering in-house installments schemes to the customers, resulting the customers to seek external financing which has anyway been restricted.

“This will indirectly affect the customers as well and the domestic real estate market operations will slow down at the end of the day,” he added.

Currently Colombo can be called the most economically and technologically exalted city in the country and this has made the commercial capital and its suburbs much more appealing for both local and foreign investors. The rising demand for real estate property has obviously led to price hikes, he said.

Commenting on price scenario of houses and apartments in Colombo, he said the price of a mid-range house in Colombo and the closest suburbs amounts somewhat between Rs. 10-20 Mn, a mid-range apartment is priced between about Rs. 30-45 Mn. While price of a luxury house comes roughly between Rs. 50-60 Mn, a luxury apartment is around Rs. 70 Mn and above in the commercial capital.

Highlighting major challenges faced by the industry, he said restricted lending, imposition of Capital Gains Tax and withholding tax and lack of encouragement from the government and Central Bank have created a number of negative impacts on the real estate and construction industries.

Top of page