John Keels Holdings Property expects the Central Business District in Colombo to outperform suburban property developments in the long term.
Though they expect there to be some short term failings in the sector due to COVID-19 they feel that the investment potential remains strong.
Head of JKH Property Nayana Mawilmada said, “Are our cities going to change? Is everyone going to move to the suburbs and Colombo falter? I think no. If I was to make a forecast you are not going to make the kind of gains you expect in the suburbs. You will probably see a much bigger rally in the centre of the city and that value will retain. COVID-19 is a blimp in time, two years maximum.”
Mawilmada was speaking to Echelon on October 22 on their webinar ‘On Solid Foundations’ which looks at the investment outlook for real estate. JKH has recently expanded its property pipeline with land acquisitions from Finlays and plans to expand development in the Victoria golf course.
Sales velocities of apartments have faltered in the short term. They, however, are a strong investment given the current interest rate environment with rates being below inflation.
The rental demand in Colombo by the expatriate population has crashed during the COVID-19 crisis and there has been a considerable decline in rental yields. It is expected that rental yields will continue to be low in the short term.
Mawilmada said, “We have had a fairly large exodus of expats and the expats were really keeping the rental market in particular in the CBD propped up. That started in Easter and we were starting to come back but then we got hit again (COVID-19). The yields will continue to suffer and this will be the same in offices.”
Mawilmada said that property as an asset class needs to be thought of more broadly. Investors should consider an allocation to the commercial and retail property. Retail has been hit in the short run because of tourism.
Founder Acquest Chandaka De Soysa said, “If you go back to 2011 we saw a lot of capital go into real estate both the suburbs and central Colombo and we saw capital values go up as high as 500% for some properties. The market was overheated in 2017 and it had to cool off.”
De Soysa blamed political uncertainty, various comments affecting sentiment, and the Easter bombing for dragging down the market in the previous period.
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