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Price not only determinant of construction boom: industry

27 February 2015 04:39 am - 0     - {{hitsCtrl.values.hits}}

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By Chandeepa Wettasinghe

Industry experts said that there will not be a construction boom in either infrastructure or domestic units despite the reduction in cement and steel prices outlined in the interim budget, while saying the long-term outlook remained positive.

“There’s a drop in construction after the election. Not because of the prices, but because of the political situation,” T. C. I. Group Managing Director Nelu Fernando told MirrorBusiness.

All infrastructure projects which commenced without due processes such as conducting environmental impact assessments are now under review by the new regime.

Further, the retrospective and ad-hoc taxes included in the budget have also created an adverse investor climate according to economists and sources from the private sector.

However, it seems to be a temporary lull according to UltraTech Cement Lanka (Pvt) Ltd. General Manager Sandeep Holey. He said that investors would not take any risk on big projects until the end of the next election and the announcement of the new budget for 2016.

Meanwhile, UltraTech Cement Lanka CEO Kiran Redkar believes that construction of houses would not increase as well despite the relief.

“From before election or after election, there won’t be any changes. It will remain the same. Inflation will also continue to be in the same level. This is our projection. 
Even with the prices of cement or prices of anything coming down, not much of a difference will go on,” Redkar said.
He said that people shouldn’t hurry to build and then have to stop four months down the line with the change of a government.
Fernando too said that levels of construction on non-infrastructure projects would remain the same. Redkar had also partly based his belief on the low credit growth in 2014 despite the fall in interest rates; with Central Bank figures showing an annual reduction in imports of building material of 3.6 percent for the year.

Central Bank statistics in 2013 also showed that Sri Lanka imported nearly 75 percent of its cement and clinkers, in addition to over half of the other construction products.

Holey said that infrastructure and house construction grew by an average 18 percent in the period between 2009-2013, while slowing down to 15 percent growth starting in 2014.

“We hope something drastic will happen to bring some momentum,” Redkar said.

However this could already be happening, as December saw a credit growth of 8 percent, with top banks such as Commercial Bank of Ceylon PLC and Sampath Bank PLC witnessing over 20 percent growth.

This is correlated with the Central Bank’s report on imports of building material increasing by 18 percent year-on-year for the month as well, during uncertain election times.

Despite such contradictory signals, fingers point towards a long-term increase in construction.

“Construction growth is directly related to population growth,” Institution of Engineers, Sri Lanka’s Civil Engineering Sectional Committee Chairperson Prabodha Jinasena said.

Holey meanwhile said that the per capita consumption of cement in Sri Lanka is 220kg; half of that of the world average of 440kg.
“This just shows the potential scope for growth in construction,” he said.

However, Jinasena also said that with the shift of population towards Colombo due to job opportunities, and the lack of space in the city, high rise construction could increase, changing the figures.  

The Nielson Company Managing Director Shaheen Cader recently told MirrorBusiness that there could be a positive shift in spending on consumer durables such as housing and automobiles; especially in the lower income segments.
 
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