THE Investment Magazine / RIU Real Estate Update:

THE Investment Magazine / RIU Real Estate Update:

Budget update 2019

16 Things the budget have in store for the real estate sector

The budget proposal for 2019 was tabled to the Parliament on 5 March 2019 by Minister of Finance Mangala Samaraweera. The RIU welcomes several initiatives proposed in the budget that have the potential to uplift the real estate sector and, is, overall, of the view that such proposed initiatives would drive the demand for real estate in Sri Lanka. The following section will scrutinize the proposals that have a bearing on the real estate sector and their potential impact.

Construction Sector

  1. Proposals have been brought forward to reduce the cost of construction for larger developments. According to this, investments above USD 50mn will be exempted from PAL, CESS and NBT during the project construction period until the commercial operations commence.
  2. In a move to help the local construction companies, new rules will be introduced to compel foreign construction companies to form joint ventures with local firms when bidding for government projects.

Infrastructure

  1. The Southern Expressway is a prime example where the southern coastal belt experienced rapid development as connectivity improved. The government indicated that the Ruwanpura expressway project would commence in 2019 and the RIU expects this project to benefit developments in Ratnapura and cities along the way.
  2. The Light Rail Transit project is one of the most anticipated projects and LKR 5,000 m has been allocated in 2019, with LRT the traffic situation being expected to ease. Furthermore, the land prices, especially in suburbs such as Malabe, which are along the LRT passage, are likely to progress.
  3. Colombo City is at the heart of most of the commercial activities in the country. Therefore, the physical outlook of Colombo is essential to instil confidence among potential investors and attract tourists. It is notable that LKR 1,000 m is allocated for the development and maintenance of Colombo City and LKR 8,000 m has been allocated for the urban rejuvenation programme.
  4. The present government’s flagship project, Megapolis, involves developing suburbs to foster liveability and enhance the regional economy. It is observed that LKR 3,000 m has been allocated for the UDA’s “Sukitha Purawara” programme and some of the suburban cities that will be developed under this particular programme are Homagama, Kottawa / Makumbura, Maharagama, Piliyandala, Kaduwela, Battaramulla, and Malabe

 “Sukitha Purawara” programme and some of the suburban cities that will be developed under this particular programme are Homagama, Kottawa / Makumbura, Maharagama, Piliyandala, Kaduwela, Battaramulla, and Malabe

Industrial Real Estate

  1. Several tax incentives have been proposed to be accessible which would spur the growth of new industries. investments approved by BOI exceeding USD 50 m have been granted tax deduction ranging from 100 to 150 % of the expenditure incurred on depreciable assets, excluding intangible assets for a period of 10 years from commercial operations.
  2. In addition, export industries are given a boost with a concessionary rate of 0.25% for turnover from the export of goods or services. With such deals, it is expected that the demand for the industrial real estate, especially in the industrial zones have the potential to progress. As a by-product of this policy, the land prices in close proximity to the industrial zones may see the prices to rise marginally.

 

Residential Real Estate

  1. As indicated by the RIU data, 15% of the luxury apartment buyers are comprised of foreigners who are likely to be expatriates. A proposal has been put forth to grant residential VISA to foreigners who invest USD 400,000 or more in condominiums. This will help improve the demand for condominiums.
  2. The government presents a loan scheme named “Home Sweet Home” for the newly married couples with 6% concessionary home loan facilities up to LKR 10mn repayable in 25 years. The RIU sees a great opportunity for developers to supply tier 3 apartments and affordable housing units to meet the demand from this proposal.
  3. The government puts forth the “Sihina Maliga” programme which will offer individuals who are employed in other countries to build a house by borrowing up to LKR 10 m, with a grace period of 2 years and a repaying within 15 years. This is another opportunity for developers to supply affordable housing units to cater this market.
  4. Perhaps, the only shortcoming in terms of the real estate sector observed in the current budget is the removal of VAT exemption for condominiums above LKR 15 m. Ongoing RIU research into the socio-economic impact of VAT on the real estate and construction industry indicates some negative blow-back from this initiative that may also impact FDI. More on this later.

 

Leisure Real Estate

  1. To support the booming tourism industry and strengthen the rupee, NBT will be exempted on foreign currency receipts of specified hotels. Furthermore, the applicable CESS rates have been proposed to reduce. RIU believes that these steps will greatly enhance the profitability of hotels.
  2. LKR 10,900 m has been allocated for the creation and maintenance of urban wetland projects. Urban wetlands can induce setting up commercial undertakings such as hotels in the close neighbourhoods, driving the land prices up.

 

Commercial Real Estate

  1. Withholding tax will be exempted from rent payments up to LKR 50,000 per month. RIU sees this as a positive initiative towards refining the attractiveness of the grade B and C commercial space.
  2. By 2023, all government offices and commercial buildings should accommodate access to disabled persons. Therefore, the developers need to incorporate relevant design specifications to accommodate this law.

Disclaimer

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisers. This material should not be quoted as authority or used as a basis to commit yourself to a course of action without a study of the relevant laws.

 

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