Capital Trust Properties predicts high returns for real estate compared to other asset classes in the medium to long term. And now is the time to invest
The prophesied property bubble never came. Not long ago, analysts predicted the property market will crash as high-rises sprouted in the city. However, since the covid-19 pandemic struck, the property market’s prospects have never been better. Minoli Wickramasinghe, Managing Director of Capital Trust Properties, says that now is the perfect time to invest in property. A subsidiary of Capital Trust Holdings Limited, Capital Trust Properties has interests in Property Investment, Property Brokering, Property Management Services and Real Estate Advisory. Here, Wickramasinghe takes a deep dive into the Sri Lankan real estate market and investment prospects in a post-Covid environment.
Can you give us an overview of the real estate market under the present economic conditions and the pandemic?
If we look at the condominium market, everyone expected it to fall, but amidst the political instability in the past four years, prices have held steady. With rapid urbanisation, land prices are increasing, and people will opt for the conveniences of vertical living. Most condominium projects have been halted or delayed due to rising construction prices. Therefore, we may not see a glut of apartments but the opposite. The property market is benefitting from falling interest rates. People can now take out a mortgage on a property at a low rate of interest and acquire an asset that will appreciate over time. The only sector negatively impacted by the pandemic is commercial property, but it is temporary. The A-grade inventory is small and hence, can be easily absorbed even from a slight upturn in the economy
Can you give us an overview of Capital Trust Properties?
Founded in 2010, Capital Trust Properties was primarily a property brokering firm. We soon expanded our coverage, investing in land, apartments, and commercial buildings. We now have a considerable portfolio of properties. We ventured into development with the formation of Capital Trust Residence and built three world-standard apartment complexes which won many global accolades and awards. CTP is also the registered agents for CBRE, Colliers and Knight Frank, reputed global property agents. We cover real estate transactions from A to Z: from surveying to fittings and validating the pedigree of a property, we will undertake all that on behalf of our clients.
Why is real estate a compelling investment option compared to other asset classes such as equity?
In my opinion, it is a safe investment in a country like ours. If you take the medium- to long-term, it is a high yielding asset class. The country’s strategic location and limited space will always result in the appreciation of value. We have so far seen unbelievable capital appreciation in land values. Property is a compelling option because uncertainty heavily impacts yields of fixed income or equity assets. Any externality can have a direct impact on these assets too but not affect rental returns or land value. In terms of interest rates, the Average Weighted Prime Lending Rate is at 6.5%, the 12-month Treasury bill yields less than 5%, and fixed deposit rates capped at 6.8%. However, property remains an exciting option.
THE CAPITAL APPRECIATION ON LAND ASSETS IS MORE THAN 50%, AND IN SOME CASES, 100%. AND THIS WITHOUT ANY EXTERNAL DEMAND EITHER.
Can you give us a feeling of what investor sentiment is like right now?
There is a lot of liquidity in the hands of investors, but there is a wait and see mentality. Since lending rates have declined, home loan interest rates are now less than 9%, so we see an increase of investor confidence compared to the last four years, and people are looking for high-yield investment opportunities.
What kind of ROIs can investors expect over the next few years?
The rental yield on apartments and commercial real estate in the past has been about 6-8%. However, the capital appreciation on land assets is more than 50%, and in some cases, 100%. And this without any external demand either.
Sri Lanka is a picturesque country with an abundance of natural resources with a rich culture and heritage. We have pleasant weather year-round which appeals to people in developed countries, particularly in the West, who would like to invest in a second home here. However, foreign exchange rules are too prohibitive to encourage investors alongside cumbersome processes, red tape, and policy uncertainty. The Sri Lankan diaspora have interests in holiday or retirement homes. Global superpowers like China, the U.S. and even India, are interested in investing in the country and property will enjoy demand, and value will continue to appreciate.