SL’s costly construction sector may potentially deter national economic progress – By Rohan Parikh

Home » SL’s costly construction sector may potentially deter national economic progress – By Rohan Parikh
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Globally, the housing development industry has proven to play an integral role in uplifting and bolstering the economic development of a nation. For example, through my experience in the South Asian region, we could observe that countries such as India and China saw an accelerated rate of development. Their enormous real estate booms backed this.

Rohan Parikh

However, in Sri Lanka, the construction sector faces a different kind of pressure. This may be a key reason behind the island nation’s slow, uphill battle to achieve economic prowess during globally trying times.

Being an international investor and having been exposed to a broader range of the South Asian real estate scene, I fully endorse and support Sri Lanka’s development journey, especially given that the island has the advantage of a very strategic and resourceful location in South Asia, which has been ripe for investors especially in manufacturing and real estate- mainly in the high-end, high-rise development sector.

However, this notion does not keep investors oblivious to governing bodies’ mandates and policy-level decisions, which may elude some potential investors’ interest. They are justifiably concerned about the rising costs in Sri Lanka’s construction and housing sector, which may impact their return on investment (ROI) and margins in the long run.

Housing is the single most significant expense for most citizens in the country. In that context, it is essential to be aware that facilitating affordable housing from a government level is a prime solution to lower labour costs throughout the nation. The possession of a house also serves as a critical security asset and symbol of wealth for people. Also, a value-driven housing market essentially allows workers to live near their work, increasing the efficiency of the labour market.

For Sri Lanka, though, before the economic obstacles of 2022, construction cost was already amongst the highest in the South Asian region. High labour costs, exorbitant import duties, and an acute shortage of skilled labour mainly caused this. These reasons collectively contributed towards making an already unstable industry even worse, deeming it nearly impossible to provide affordable housing for middle-class and lower-middle-class citizens.

To shed some clarity on the current situation, construction costs have been and will continue to be, adversely affected and inflated due to higher import costs and currency devaluation. Furthermore, continued punitive import duties on crucial construction materials, lack of local alternatives for expensive imports, value-added tax (VAT) on apartment sales, declining developer and investor confidence owing to withdrawal of excise and other benefits will have an impact too. 

In this context, it is theoretically sound to speculate that continuing to push an already expensive product higher and higher in cost will not be ideal for Sri Lanka’s economic and financial empowerment. In return, this would essentially deprive many middle-class, first-time, and aspirational buyers from pursuing their dreams which would ensure Sri Lanka’s economic stability.

We are aware that a roof over one’s head is a basic need to actively contribute to strengthening the national economy. Taking that into consideration, I hope the Sri Lankan Government will introduce some concessions and provide relief to the housing development sector. Being the decision-makers, I trust that they realise the potential positive impact it will have on the economy with a workforce and populace that is settled enough to further add to the country’s economic well-being.

Housing development is both labour & material intensive. A boost to the housing sector will help improve the overall employment rate. Also, as a ripple effect, it will generate business for the local manufacturers of parts like doors, windows, pipes, wires, and a lot more thereby boosting the country’s economy.

Looking at the bigger picture, we must realise that in the long run, a fair, competitive and progressive housing and construction sector would make way for a stable middle class. It secures the working class’s income while giving them the security and assurance to actively and fully contribute to the national economy.

 (The writer is an international investor with experience in the South Asian real-estate market, and is also the Chairman of Iconic Developments)

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