04/05/2023
Announcement to clients
We are currently experiencing an unusual situation in the real estate market in colombo metropolitan region, according to our observation based on client inquiries we receive we have seen a drop for inquiries in colombo 1,2,3,4,5,7,8,10,11,15 by over 90% and colombo subarbs like Nawala, Rajagiriya, has seen over 70% decline in demand and inquiries and battaramulla, nugegoda have seen 60% reduction in demand.
Real estate market is determined by 3 primary factors and 2 secondary factors
Location -Average price of location
Number of listings and Average prices (determined by the type, location features, conditions of property)
Average Demand - measured by client inquiries
(Location preference, Physical Cash at disposal, possible maximum loan disbursement)
Secondary factors are
Market interest rates and loan approval rate
Savings rate/capital creation rate of consumers
Now if key indicaters such as availability of listings are at all time low are down (supply)
And demand is high
Even in a unfavourable rate hikes real estate market will stay afloat
Unfortuantely due to high migration rates, and foreclosures in the market, the listings will be high resulting in the biggest market crash in sri lanka.
We speculate the real estate market will crash on several phases in the next 2 years in this region starting from 20%-30% reductions and in high valued areas where perch value goes above 5 million and we will see a reduction of 30% - 50%, the crisis will worsen with recent decision on January to hike interest rate on past fixed housing loans will create a higher risk of default and after September for rescheduling of bank loans start on Non Performing Loans, there are certain companies eying for these properties and they will most likely to grab all good properties rather than individual Sri Lankans through auctions.
If you are desperately searching for a house in these coming few months would be good for buying, but we tell our clients to avoid buying in colombo metropolitan areas mentioned (except for colombo 6) right now as we assume after auction second wave of prices will cause further decline.
We recommend to buy in suburbs like Kottawa, Boralesgamuwa, Thalawathugoda, Hokandara, Athurugiriya and Malabe, where the prices will drop, but will match most consumers sweet spot when acquiring properties. all of these suburbs have under 25 min access to colombo. These areas the prices will not fall due to market correction. Other places which are far away from colombo like Homagama, Piliyandala, Padukka prices remain relatively stagnated but we will not see major decline.
Over 90% of the clients in these past few months recorded capital below 15 mn to make their housing dream a reality, indication suggests until 2024 the housing interest rates will not drop below 17%, and lot of 20- 35 year old consumers have little capital, in 5 years time majority of housing buyers demography will be determined by this age group.
The post covid world with energy price hikes drove the savings to an all time low, and higher borrowing cost will lead to major market price corrections on real estate industry.
So new situations require new investment advice and if you cant keep up with the newly changing market, that's all right we will handle it for you. The last thing you want is to buy over priced property where market sentiments do not match which will result your investment to decline its value.
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