December 15, 2017 –
Padukka area is the most affordable place to buy a house in Colombo
According to the Land Affordability Index compiled by the leading property website LankaPropertyWeb.com, which compares the land prices of a province against the average earnings of the residents in that province, North Central Province comes up as the most affordable for its residents, while not surprisingly Colombo is the least affordable.
On the house affordability conducted within the Colombo District, Hanwella DS came up as the most affordable for a two-bed house while Padukka came up as the most affordable for more than a two-bed house.
Land Affordability Index
The LankaPropertyWeb.com Land Affordability Index LAI (SL) provides an average Sri Lankan’s ability to purchase a pot of land (7 perches) based on the median income of a given year. Greater than 1 of LAI (SL) suggests an average Sri Lankan can afford to buy plot of land in a given area. The affordability changes based on household income level in different regions, and interest rate of the country.
The recent land price data collected by the LankaPropertyWeb.com indicates average Sri Lankan cannot afford to buy a plot of land in any of the provinces in generally (in which they live). Most affordable province to buy a plot of land is the North Central whereas Colombo seems to be too expensive for an average Sri Lankan. Sabaragamuwa and Uva are the next best available areas that average Sri Lanka can afford.
Purchasing a land plot from North Central, Sabaragamuwa and Uva is four times affordable than purchasing a plot from Western Province. The highest 10% income-earning householders are able to purchase any land plot in the country except the Western Province. Level of affordability has increased significantly in North Central province in 2017 than in 2016, but only exception was observed from the Eastern Province, where price level has declined compared to other provinces.
The Land prices in the 2nd quarter of 2017 in the country indicates lowest per perch price is at North Central Province, whereas, Western province records highest per perch price. South and Central province prices are trailing very closely.
House Affordability (in Colombo District)
It was found that affordability of purchasing a house with two bedrooms from Colombo city is the least possible for an average Sri Lankan and purchasing from Hanwella area is the most affordable. The index value is less than 1 for Hanwella (0.4) suggests how difficult for an average Sri Lankan to purchase a house in Colombo district.
The affordability of purchasing a house is easier in Padukka than any other place in the Colombo district for an average Sri Lankan. Purchasing a house within the Colombo city, Sri Jayewardenepura Kotte and Dehiwala is less affordable compared to other areas in Colombo District. Further, an average Sri Lankan’s ability to purchase a house is thirteen times greater in Padukka than in Colombo city.
The highest 10% income earners have three times greater affordability over Colombo average householders to purchase a house with more than two bedrooms and also two and half times ability to purchase a two bedroomed apartment from Colombo city area.
Despite rapid growth of the property prices in recent years in many parts of the country, the loan extended for general public by the commercial banks has started to decline on a quarterly basis after 2015. Due to the high credit expansion in 2014 and 2015 with low interest rate, Central Bank took several measures to control the situation since it fuelled consumer expenditure to extremely high levels and brought a balance of payment crisis to the economy.
Housing Loans on the increase after decline?
The loan and advancers offered by commercial banks to private sector for purchasing houses, new construction and repairs has grown on absolute terms, but the growth has been in the declining trend especially after the last quarter of 2015. The last quarter of 2016, suggests that credit to housing has started growing up again. But the year on year growth has been on average 30% from 2015 onward. This is significantly high credit growth comparing with other industry sector.
Construction of larger houses on the decline?
The Greater Colombo Housing Approvals Index provides insight about the official approvals given by the administrative agencies for different sizes of house planning requests, especially in Colombo metropolitan area. After the end of civil war in 2009, significant growth can be observed in more than 2,000 sq. ft. housing approval compared to smaller size houses. It is notable that growth of approval for smaller sized houses in Colombo metropolitan area has been on the declining path throughout last 10 years while mid-size houses do not show any growth after 2010. Even the housing approval index of more than 2,000 sq. ft. had a steady growth after 2009; steep decline can be observed at the end of 2016.
Cost of modern house construction up 5%
Central Bank maintains the cost of construction index in Sri Lanka for modern housing, semi-permanent housing and overall costing for housing. The chart indicates the year on year growth of the cost has declined significantly during 2013 to second quarter of 2014. But the declining path turned other way around after 2nd quarter of 2015 till second quarter of 2016. Cost of construction of modern houses and all housing has been stable in 2016. Semi-permanent housing cost of construction has grown by 4% on average for last three years while modern housing cost has been grown by about 5% on average during last three years.