Existing property developers are concerned about news stories detailing the start of new condominium projects within Colombo. The developers allege that there was a general understanding that the approval process would be slowed down until the glut in the market had time to clear. They note that many completed projects remain widely unsold and the announcement by certain developers that they are breaking ground on new developments would further hurt market sentiment.
Developers wishing to remain anonymous noted that both the market for rental properties and outright purchases within Colombo Municipal limits remained in large oversupply. They noted that many ongoing developments were to be completed soon further adding to the availability of apartment space in the city.
Larger diversified entities in the property development sector have been able to cross-subsidize their projects with profits from their other businesses. Cross subsidized projects have offered considerably favourable terms of credit and pricing to cut down on their inventory. Purchasers can obtain apartments from these sellers with little down payment and are only subject to servicing the interest for multiple years.
Developers noted that though Real Estate Investment Trusts had been in planning for many years they were yet to see any initiative in the space take off. They further noted that on a case-by-case basis it would make sense for the government to allow outright land ownership of development projects to foreign entities thereby broadening the pool of potential counterparties.
Developers complained that they were being undercut by illegal developments in the South of the city and by well-financed projects in the centre. They noted that the situation could become direr with the accumulated interest costs and economic downturn.
With a large exodus of foreign tenants following the pandemic and a further shock to tourism there is very little scope for resurgence in demand in the next few years. Given interest costs, the developers are afraid that they will lose what little equity they have in the projects.
Developers argue that multiple regulators should step in and stop any new project from being undertaken until the completed projects get sold. The problem has also extended into the office rental space with major players showing declining occupancy and expecting fierce competition from Cinnamon Life and Havelock City. Certain prominent co-working spaces have already closed.
Demand for retail space has also taken a downturn in recent years. Many prominent stores and restaurants have closed.
With the advent of digitization, the floor area required to house a banking operation has reduced thereby in the long term reducing demand by the banking sector for branch space.
Developers were further concerned that with recent corporate disclosures the Vauxhall Land Development project would begin work thereby forcing more price competition over the long term in the sector. (DP)