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Monetary policy review on April 22: Central Bank                                          
Thu, 17 April 2014 18:43:11
Sri Lanka land prices seen rising
14 Mar, 2011 18:17:04
Mar 14, 2011 (LBO) - Land prices in Sri Lanka are set to rise with interest rates seen "benign" this year and remittances from migrant workers who send money back to build homes staying strong, the central bank said.
Residential land prices, which declined sharply after reaching a peak in 2007, have started to rise again since June 2009, the bank said.

Industrial land prices also peaked in 2007 and have begun to increase since June 2009 in the Colombo municipal area.

"As the interest environment is likely to be benign in 2011 an increase in a Land Price Index could be expected," the regulator said in its financial system stability review for 2010.

"Further, remittance income is expected to be robust during the next year as well and this would also push up the Land Price Indices.

"Accordingly Land Price Indices are unlikely to decline in the near future."

The central bank said that when interest rates are low land prices tend to rise, and they fall when monetary policy is tightened and rates rise.

"When interest rates are low, asset prices tend to inflate. Conversely, when the monetary policy is tightened with raising of interest rates to address high demand pressure due to low interest rates and credit expansion, asset prices tend to fall."

The central bank said that according to its land price indices for residential, commercial and industrial lands, over the last decade all type of land prices have "increased substantially" until 2007.

The bank said there was a connection between remittances and land prices and that when private remittances increase the Residential Price Index also in general increasing.

Price increases in areas outside the Colombo municipality have been significantly sharper, although price levels of these areas still remain well below that of the Colombo municipality.

"During asset price inflation, financial institutions make profit through value gains, whereas demand in the economy increases due to the wealth effect on consumers," the report said.

"When the asset prices fall, financial markets, investors and financial institutions are adversely affected and such instances may even lead to financial crises and economic downturn."
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READER COMMENT(S)
6. Rafeek Mar 23
Yes, investing in property is better than a fixed deposit in a Finance Company.
5. Senaka Mar 23
Investing in real estate is a good investment.
4. Leslie Mar 16
What is the good in paying such high prices for bare lands and poorly designed houses?
Is it bubble time?
3. Afzal Mar 15
Sellers are quoting fancy prices, but nothing is moving.
2. Murshid Mar 15
Although property owners are quoting fancy prices, nothing is moving because still it is buyer's market. A perch value in Colombo 6 is around Rs 1.5MM to 2MM, Colombo 4 is 2.2MM to 2.5MM and Colombo 5 is 1.5MM to 2.2MM.
1. jeani Mar 15
Sri Lanka realestate overpriced.