Fairway Holdings reacts to CB Gov’s comments on industry

Responding swiftly and strongly to the statement made by Central Bank Governor Dr. Indrajit Coomaraswamy with regard to the apartment development industry, stalwarts of the industry have said that it was irresponsible and damaging.

“I know we are living in a post truth world, but some of the broad generalisations made by the Governor are excessive, precipitous and don’t seem to be grounded on established facts,” said Hemaka de Alwis, Chairman of Fairway Holdings.

De Alwis was reacting to the Governor’s claims that the apartment construction industry appeared to be overheating, was using credit lines meant for SME’s and provided a safe haven for black money.

The apartment construction sector, despite the recent removals of tax concessions, has been one of the few robust segments of an otherwise lethargic domestic economy.

The growth in the industry is driven by several factors. Despite two-thirds of the population living on one-third of the land area around the Western Province, Sri Lanka is one of the least urbanised countries in the world.

In fact Sri Lanka’s urbanisation rate of 20% is well behind the average for South Asia and half that of the global average. The UN World Urbanisation Index of 2011 puts Sri Lanka at 199 out of 203 countries.

In recent years however, the natural drift towards urbanisation has been intensified by a high degree of centralisation, particularly of educational institutions, around Colombo.

This combined with weak traffic management, inefficient arterial roadways and lack of an effective mass transport system has created a strong demand for vertical urban housing around Colombo.

While agreeing that there is a possible bubble in the segment identified as ‘luxury’ by the governor, de Alwis said, “The mid-range market is driven by solid fundamentals, underlying a gradual move towards modern city life. Sri Lanka is not an isolated case but part of a global trend towards urbanised vertical living - there is clearly no bubble, as there is no unrealistic pricing but a strong trend of demand-driven growth. Surely when the highest segment sells at double the price per square foot of the mid-range, there is every possibility of an unrealistic element in the pricing because the cost and quality base is the same – but the point is the whole industry can’t all be tarred with the same brush.”

Given the robust market fundamentals and short project cycle times of two to three years, banks might be disposed to favour the industry.

However, in contrast to the governor’s claims, the trend depicted in purchases of Fairway Apartments show that only 10% of Fairway’s customers use bank loans to finance their purchases, and 75% of the customers ‘buy to live in’. Both indicators suggest that people are converting existing assets into apartments to support an urban lifestyle change.

Meanwhile the World Bank has highlighted the fact that urbanisation is a vital driver of economic growth, job creation and prosperity, and it goes on to warn that a failure to address urban housing, public service and infrastructure will retard such benefits. De Alwis said, “Banks not offering SME’s sufficient credit and the existence of black money are clearly financial regulatory issues. Conflating them into an apartment development issue is irresponsible and damaging.”