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PwC highlights nexus between property and road development in Sri Lanka

27 June 2019 10:01 am - 0     - {{hitsCtrl.values.hits}}


Post-war Sri Lanka has seen a dramatic revival to its infrastructure growth. Over the past decade, high-rises, new cities and modern road networks have become an increasingly common sight, not just in the commercial capital of Colombo but throughout the country. 

For a country that always mainly relied on roads, which were built many decades back, the expressways connecting Colombo to the country’s Southern Province and the country’s main international airport have no doubt become two of Sri Lanka’s most success stories in terms of the country’s expressway network. 

The statistics are a testament to the demand that Sri Lankans have for expressways, making the country’s only three expressways – the Southern Expressway, Outer-Circular Highway and Katunayake Expressway, success stories in Sri Lanka’s developing road network. 

The Southern Expressway (from Kottawa to Galle) was open to the public in 2011, followed by the Katunayake Expressway, which connects Colombo directly to Bandaranaike International Airport in Katunayake, which was opened in 2013. 

The Southern Expressway subsequently was extended from Galle to Matara and this new stretch was open for public use in 2014, along with Phase 1 of the Outer-Circular Expressway, while Phase II of the Outer-Circular Expressway was subsequently completed in 2015. 

The success stories of these vital expressways no doubt have warranted consecutive governments in power to seriously focus on expanding the road network in the country, connecting the commercial capital to other key cities across the island, which will lead to enhanced efficiency and time-saving, which would also have a positive bearing on the country’s economic landscape.

Yet another vital expressway, the Colombo-Kandy Highway and Phase III of the Outer-Circular Expressway as well as the Matara-Mattala extension, which is part of the Southern Expressway, will be declared open to the public in the near future. Refer Figure 1 for a summary of the expressway network in Sri Lanka.


Land Price Index of Sri Lanka 
The Central Bank of Sri Lanka has been measuring the land price movements in the Colombo District from 1998 onwards. The Land Price Index (LPI) covered five divisional secretariats until 2017, when it was broadened to cover the entire Colombo District. 

The five divisional secretariats originally covered in the LPI were Colombo, Dehiwala, Homagama, Kesbewa and Kaduwela. Table 1 indicates the movements in the LPI during the 2012-18 period. 

Movements in real estate prices along expressways 
With the construction of expressways in the county, the land prices located specially near the exit points of the Southern and Outer-Circular Expressways have skyrocketed during the 2012-15 period. 

The easy access from Colombo to the Southern Province also resulted in an increase in apartment complexes, office buildings, specially in and around the Galle District, which up until recently was unaccustomed to such forms of developments, which also includes high-rise buildings. 

Table 2 indicates the land price movements near the exit points of the expressways. 

With the construction work for the Colombo-Kandy Expressway kicking off in 2015, there has also been an increase in the land prices in the adjacent areas, where the expressway is currently being constructed.  For example, we noted a significant increase in the land prices around Gampaha, Mirigama and Veyangoda during the 2016-19 period, as illustrated in Figure 2 and Table 3. 

With the construction of the expressways, many property development companies have launched both land development and apartment projects along the expressways, capitalising the ease of commuting to and from Colombo. 

How should we read this information as investors in real estate? 
While the land prices may depend on the locality and unique factors relating to the specific property being considered, we may need to pay attention to the general trends in land prices along the expressways to time the investments. Therefore, it is increasingly important to understand the potential upside already captured in the current price, in anticipation of the future completion of the expressways. 

If we are employing the same analysis for the Colombo-Kandy expressway, we may look at cities given in Table 4 close to the exit points.  Another potential for the investors is to identify the arbitrage opportunities provided by the Colombo-Port City elevated highway and New Kelani Bridge- Athurugiriya expressway. When the Colombo Port City is completed, it is believed that part of its workforce will not be living inside the port city. Such people may seek affordable accommodation in the vicinity of the port city. 

As of now, the land prices in Colombo 1, 3 and 7 are in the range of Rs.15 million to Rs.17.5 million per perch. However, the elevated highways may provide easy commute between other cheaper cities within or close to the Colombo Municipality and port city. Refer Table 5 for such cities.    


Nexus between property development and expressways
Property developers no doubt can take advantage of the various new expressways in the pipeline by planning ahead and investing in areas which are in close proximity to these expressways and exit points, which no doubt will see an increase to the price point in the coming years. 

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