Construction boom likely to slow down

High interest, shortage of labour, soaring material cost are some of the reasons

By Indika Sakalasooriya
Sri Lankan real estate and construction boom is likely to face a temporary slow down despite the construction of many lavish condominiums in the heart of Colombo. Industry analysts pointed out that shortage of casual labour, soaring prices of the constructional raw materials, and country’s security situation, high interest rates and mis-identification of the area of demand in the real estate market have all contributed to the situation.
As they point out the construction boom that started during the year 2004 is destined to come to a juncture by now as the Tsunami construction work has been almost completed. Hence this slowing down in the industry is expected and quite natural.

Murtaza Jafferjee, Managing Director of JB Securities is of the view that the recent hike in the interest rates is the main reason that caused significant dampening in the real estate and construction boom.
Jafferjee points out that even the richest in the country buy real estate with bank borrowings while only the percentage of bank financing may vary. The rich may only borrow 30 to 40 percent of the amount while the middle class person has to borrow almost 90 percent of the amount needed to buy a piece of land, he pointed out.

“Almost all the middle class income people buy land on mortgages. But with high interest rates as 20 percent many cannot afford to do that. So this factor of non-affordability in the short run will slow down the industry and land prices will not appreciate at the same speed as it used to be” he said.

The country’s growing median age group is in constant search of shelter but right now there is a lack of affordability and this gap between marginal demand and marginal supply is causing a down turn in the industry” he further remarked.

According to industry sources around 350,000 people are in need of middle class housing units and the demand is estimated to rise to 650,000 units over the next few years. “If the industry is to sustain the momentum the government should grant land to the private sector to construct affordable houses” Jafferejee said.
Indika Rajakaruna, Senior Research Analyst, Asha Phillip Securities predicts that the slowing down of the real estate industry will lead to a certain price reduction of land. “What I feel is that the Sri Lankan real estate sector is not catering to the correct segment. The condominiums that are being built only serve a niche market and the wider market is not addressed by them. Along with high interest rates this factor has resulted in the diminishing of the boom” he said.

He is of the view that along with high cost of construction raw materials, casual labour going out from the country to regions like Middle East also have contributed to the slowing down of the construction and real estate industries. Complementing this point Murtaza Jafferjee said that if the industry is to survive, new construction modulations with state –of- the –art equipments and machinery and less dependent on man power should be introduced as soon as possible.


Lankan eviction time longest in Asia

By Samantha Whybrow
Property owners beware. If your tenant does not pay rent, it will take an average of 730 days to evict them. This is at least double the average of any country in South Asia.

Research made available by the Global Property Guide, an international research and news group providing information on property trends around the world, reveals that a backlog of cases in Appeals Courts means Sri Lankan landlords could wait up to 2 years to evict a non-paying tenant.
The research group also revealed that, comparatively speaking, rental yields in Sri Lanka are amongst the lowest in Asia.

According to the report, a Sri Lankan landlord can expect a 4.24% return on their investment, based on a 120 sq. m. apartment located in the premier land in Colombo. Chinese investors could expect a 7.7% return on investment, while Indonesian investors could expect the highest returns at 13.4%.
However, yields are as high as 10% along the Western coastline, the researchers state.
The research group provides information mainly for foreign investors.
While potential investors are encouraged by the high yields on beachfront properties, they are also warned against investing due to the ongoing conflict situation, the “prohibitively high” transaction costs (110%), and high rental income taxes.


Change the management but not the owners

Workers say after experiencing privatization

The need for a change in management though not necessarily a change in ownership is the view taken by many workers who have experienced privatization, according to a study released by the Centre for Poverty Analysis (CEPA) on Thursday.

“Many workers related privatization to their own welfare and agreed that privatization of the company had been beneficial,” said Nilakshi de Silva, co-author of the report. “However, some workers, especially those with more years of education, tend to look beyond their own experience, at issues such as the impact on development of the country,” she continued.

Co-incidentally released on the same day as a headline from a major newspaper announced the death of the Public Enterprises Reforms Commission (PERC), a jam-packed audience turned out to hear this latest research report from CEPA, analyzing the social impacts of privatization on employees in the manufacturing sector.
The fact that such a crowd turned out is perhaps indicative of the public interest in this issue despite the current ‘no privatisation’ policy of the government. “We’ve never had so much interest in our forums before,” remarked de Silva as more people tried to crowd into the tiny space.

The researchers found that while workload under privatization had increased, workers were not necessarily unhappy about it. “Often, under government control, the organizations were overstaffed, so workers now do more work with less staff,” said de Silva. However, a shift to performance based incentives provided a trade off for the increased workload it seems.

The news was not all positive and many workers were unhappy with increases in rules and regulations that accompanied privatization. Some concerns about job security were also expressed. The authors also found that workers fear about privatization

Studies of the impact of privatization often focus on company profits or productivity. However, this study focused on the perceptions and experiences of workers through interviews and surveys. The authors stressed the importance of their approach, noting “too often people mistake worker perspective for union perspective.”
Indeed, one of the findings of the study was that, “in an environment much less influenced by party politics, many employees have abandoned previously strong trade unions.”

A union official present at the release was particularly vocal throughout the discussion period, questioning the need for this study at all given the current political context. Malathy Knight-John, Research Fellow, Institute of Policy Studies, had to draw some order, noting, “just because it is the stated policy of this government of no privatization does not mean we should not discus the issue. This is something that happened in this country.”
The study was criticized by the audience for its focus on workers from the manufacturing industry, meaning the results could not be generalized to other sectors.
The authors acknowledged this limitation although noted they deliberately chose to focus on an industry that employed less skilled, less affluent workers to understand more about the impact of privatization of workers more vulnerable to impoverishment.
The full report, along with other research papers on poverty issues in Sri Lanka, is available from CEPA


Over 25,000 enrollments for Arpico Privilege Loyalty Card

The Privilege Loyalty Card launched recently by Arpico Supercentres & Superstores has proved to be extremely popular with over 25,000 enrollments in just under 3 months. The loyalty card which enables shoppers to earn loyalty points on all their purchases at Arpico outlets and then redeem them on the basis of each Loyalty Point equating to the same value in Rupees, has been very well received by shoppers, according to officials at Richard Pieris & Co. the entity behind Arpico.

“The response greatly exceeded our expectations even resulting in capacity issues in processing the applications at the pace they started coming in” said Anil Senewiratne, Customer Relationship Manager at Richard Pieris. “The Arpico Privilege loyalty scheme offers its members a unique shopping experience with special gifts, discounts, prizes, surprises, exciting in-store deals, free shopping and even customized offerings.” Senewiratne said.

Arpico also kicked off a Consumer Promotion recently, open exclusively to members of the Privilege Loyalty Program where 3 lucky winners will receive return air tickets to Bangkok with paid accommodation for 3 days. The draw for the promotion, which is scheduled to run until 31st July, is to take place mid August 2007.

Richard Pieris & Company entered the retailing sector five years ago and has been successful in introducing the hypermarket concept to Sri Lanka. Within a short period of time it has managed to become a household name for convenient shopping as Arpico outlets are well stocked with more than 35,000 high quality products including fast moving consumer goods, kitchenware, toys, giftware, glassware, furniture, consumer electronics, clothing, stationery and many more.

Arpico Supercentres claim to offer the best of quality, the best in variety, and the best in freshness, with all perishable items stored under hygienic conditions in in-built cold rooms meeting international standards, with a wide range of the best brands at competitive prices within a comfortable environment and the assistance of friendly staff, all leading to unmatched convenience.


PUCSL to regulate petroleum related industries

By Santhush Fernando
The Public Utility Commission of Sri Lanka (PUCSL) is to be vested with powers as the regulator of petroleum industries by a proposed amendment to the Ceylon Petroleum Corporation Act.

Petroleum Resources and Petroleum Resources Development Minister A. H. M. Fowzie told The Nation Economist that it has been decided to appoint the PUCSL as the regulator of petroleum related industries.
With these changes the PUCSL which was established in 2002 will become a multi-sector regulator to regulate certain physical infrastructure industries in the country.

It came into operation in mid 2003 with the appointment of the first set of Commissioners and its Director General. Initially the PUCSL Act provided for regulation of the Electricity and Water Service industries. Although in March 2006 Petroleum was also added to the list of industries to be regulated by the PUCSL, no legal provisions had been laid.

Although the liberalization of petroleum industry started off in 1994 with the sale of CPC’s profit making Lanka Lubricants (Pvt) Ltd to Caltex, no regulator was in place. This, many analysts say led to the unchecked arbitrary price hikes of many petroleum related products including fuel, gas and even lubricants.
Under the proposed changes the PUCSL will be vested with wide-ranging powers not only in relation to pricing of fuel, liquid petroleum gas (LPG) and lubricants, but also with powers to regulate oil exploration, refining and bunkering (marine services) activities conducted in Sri Lanka.

Earlier the PUCSL advised and assisted the Ministry of Petroleum and Petroleum Resources Development in formulating fresh agreements with existing lubricant market participants, culminating with the execution of agreements with Chevron Ceylon Limited (Caltex Lanka), Lanka Indian Oil Corporation Limited (Servo), Ashland Inc. (Valvoline), Shell Trading Middle East Pvt Limited (Shell) and BP France S.A. (BP/Castrol) in January 2007.

The Commission consists of five members who are appointed by the minister in charge of Policy Development with the concurrence of the Constitutional Council. The composition of the Commission should be such that it consists of at least one member each from the professions of engineering, law and business management. The members have a five year term.

At present Mr. K. A. S. Gunasekera is the Chairman of PUCSL while Prof. Priyantha Wijetunga is the Director General of the Commission.
The new Act will also contain provisions to vest the state-owned oil giant-CPC with a wide ranging mandate including powers to commence oil exploration activities and to recommence lubricants and bunkering services which were privatized in 1994 and 2002 respectively. (See related story on CPC)









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