Wed, 01 Dec 2021 Today's Paper

Sri Lanka mulls to limit credit flow to real estate sector

14 August 2017 09:47 am - 0     - {{hitsCtrl.values.hits}}

A A A

By Chandeepa Wettasinghe
A regulatory credit crunch may likely be implemented for the construction and real estate sectors to protect the financial system, the Sri Lankan government had said in a letter to the International Monetary Fund (IMF). 


“To strengthen our financial system, we intend to undertake several measures: Deploy, as needed, macro-prudential tools such as a sector-specific limit on the loan-to-value ratio including in the construction and real estate sectors,” the letter said. 


Signed by Finance and Mass Media Minister Mangala Samaraweera and the Central Bank Governor Dr. Indrajit Coomaraswamy, the letter indicates the continuously rising concerns of the regulators over the possibility of an asset bubble. 


The letter was written in June and published in the report for the Second Review of the IMF’s US$ 1.5 billion Extended Fund Facility, but Dr. Coomaraswamy had issued cautious statements over a possible asset bubble stemming from luxury apartments over the preceding months. 


He had also said that private credit has to be observed to discern whether loans taken for other purposes are leaking into real estate. 


It was recently revealed that his comments had followed dwindling pre-sales of apartments, possibly driven by reduced economic expectations and tighter monetary policy, instead of the comments causing the decline as believed by real estate firms. 


Lower pre-sales may cause property developers and in turn construction firms to depend on alternative finances to complete projects. However, developers insist that they have not started projects for which a majority of costs have been covered through pre-sales. 


Fortune 500 real estate consultant firm JLL has forecasted that the supply of property development will eventually be absorbed by the market. 


Many artificial elements are pushing up real estate prices in Colombo, as reported by Mirror Business last week. 

Construction is one of the major drivers of growth in Sri Lanka, and makes up around 8 percent of Gross Domestic Product (GDP). 


This is still much lower than economies of similar sizes. 


However, unlike such other economies, Sri Lanka performs poorly in tradable goods and services, which should ideally lead to higher demand in improved real estate. 

 

  Comments - 0


Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment





Focus on Laggala Gem mining big shots bigger than the law

The truth is now being uncovered regarding an illegal mining racket in state

How and why the TNA was formed twenty years ago

The Tamil National Alliance (TNA) is now twenty years of age. The premier pol

India lays emphasis on culture diplomacy with Sri Lanka

Indian Prime Minister Narendra Modi wanted to inaugurate the Kushinagar Inter

Bittersweet memories of a ‘City that never slept’

At the heart of Eastern Province lies a now abandoned ghost town punctuated w