Demand for housing will continue to rise: mortgages are just one reason
Lowered housing loan interest rate gives a boost to the real estate industry. But there’s more to it that meets the eyes.
An announcement in December 2020 by The Central Bank of Sri Lanka imposed the maximum interest rate fixed at 7% for the first five years of the loan tenure. It gave a massive impetus to the Sri Lankan real estate market. Extended towards salaried employees in public and private sectors, it covered a huge chunk of the population aspiring to buy their first house.
With the lowered interest rates, the market received a shot in the arm.
Many industries reached a roadblock in sales with lockdowns and had to stall manufacturing due to the slowdown caused by the pandemic. Globally, the real estate market saw a rising demand – spurred by assured returns and the longevity of the asset.
In Sri Lanka, the real estate industry is now abuzz with activity. According to LankaPropertyWeb, Sri Lanka’s leading property portal, a comparison between January 2020 and January 2021 shows an increase in visits by 23%; while an increase in leads generation to advertisers on the site by 20%.
In fact, LankaPropertyWeb states that between December 2020 and January 2021, it witnessed acceleration in visitors by 22% and leads by 20%. The site also quotes that January 2021 saw the highest number of visitors since the start of the pandemic. This burst of interest in residential property is witnessed across the industry. Another popular property site, house.lk, reported a 26% jump in visits in January 2021 as compared to December 2020. They reported an all-time high number of visits to the site in January this year.
In many ways, this new interest in buying housing units is unprecedented. Here’s a deep-dive:
A slew of factors is driving this change
The reduced interest rate on housing mortgages allows potential home owners to realise their dream homes. They simply need to invest a small amount of capital and build their residential asset by spreading the rest of the property cost over a comfortable period of time.
Commercial banks are also getting highly competitive. They have customized their policies, simplified the mortgage loan process, shortened the approval period and have even gone ahead and increased the eligible age to apply for these loans. In fact, Sri Lankans working abroad can apply and repay the housing loan in foreign currency as well.
Today an investment in real estate is more profitable than saving money through a fixed deposit. The usual 5-year rate for fixed deposit is 6.5%. Compare this to LankaPropertyWeb’s data, investing in property would get an average price increase of 22% in the Sri Lankan property market. Whereas Sri Lanka’s overall residential land price increase is 26% (Q3 2019 – Q3 2020).
Sociological reasons are at play too
The population growth across the world has kept up a steady demand for housing. Despite the pandemic, the demand for property is on the rise. With increased repatriation and discounts offered by developers, more reasons are added to make this financial decision.
Covid and lockdown brought about a change in lifestyle. People are re-evaluating their residential areas and also the vicinities. They are choosing self-contained units with the luxury to isolate, and the facilities and amenities for healthy living have gained favour globally. Sri Lankans are no different in this shift in outlook.
People are changing homes and a new generation of residents with new age needs are entering the housing market.
Development will drive the demand
Colombo is fast morphing into a metropolis. To keep up with the growing upper and middle class segments, the city will have to grow vertically. The urban density is increasing as well, putting more pressure on public transport systems. City planners are sprucing up development in all departments to cater to the growing population and demands. As the city moves closer to being a South Asian metropolis, the demand for residential units is going to escalate as well.
Many factors are at play here, shaping the city as it keeps up with the demands of the people residing in it, and of the future residents. Real estate is witnessing its growth curve.