By: Staff Writer
September 02, Colombo (LNW): Sri Lanka’s land prices, particularly in the Western Province and Colombo, have shown a notable increase, as reflected in the latest Land Valuation Indicator (LVI) compiled by the Central Bank.
The LVI for the Colombo District rose by 6.9% year-on-year in the first half of 2024, with residential and commercial land values each climbing by 8.5% and industrial land values by 3.7%.
This growth marks a faster rate of increase compared to the second half of 2023, though industrial land values have lagged behind residential and commercial properties.
The Land Price Index (LPI), which has been in place since 1998 and was renamed LVI in 2020, has expanded its coverage over the years to include all 13 DS divisions in the Colombo District.
This rebasing, which took 2017 as the base period, reflects the dynamic nature of the property market in Sri Lanka.
The increasing land prices, however, add to the financial pressures faced by the middle class, particularly when combined with the escalating cost of construction.
The construction costs in Sri Lanka are exorbitantly high, driven largely by the steep prices of raw materials.
For example, cement and steel are significantly more expensive in Sri Lanka compared to neighboring countries like Thailand and Singapore.
These high costs are exacerbated by import restrictions, tariff barriers, and a list of items excluded from Free Trade Agreements (FTAs), which limit access to cheaper construction materials.
Tariffs and para-tariffs, such as those imposed on tiles, further inflate construction costs. In 2021, total tariffs on tiles were about 83%, with additional costs from high energy prices making locally produced materials less competitive.
The narrative of ‘saving dollars’ through import restrictions is often used to justify these high tariffs, though in reality, it shields local manufacturers who struggle to compete without these protections.
The impact of high construction costs is profound for Sri Lanka’s middle class.
The financial burden of building or buying a house often forces them to forgo other significant life choices, such as higher education, investments, or wealth creation.
For instance, a 500 sq ft house is affordable only to those in the 70th income percentile, while a 1,000 sq ft house is within reach for those in the 75th percentile, highlighting the economic strain on the majority of the population.
This challenge is not limited to housing but extends to other sectors like tourism, where high refurbishment costs make it difficult for hotels to remain competitive.
The solution lies in creating a more competitive market by removing construction materials from the negative list and eliminating para-tariffs.
This would reduce construction costs, enabling the middle class to allocate resources to other areas of their lives, thereby stimulating broader economic growth.
