Sri Lanka property firm hit by falling prices

May 30, 2009 (LBO) – The real estate arm of Sri Lanka’s Carsons Cumberbatch group said it was writing down the values of properties by 450.3 million rupees as prices slumped in the wake of tight monetary policy. “This year has been a challenging year where we saw a significant market correction on the property prices as a result of tighter credit conditions and a change in investor and customer attitude on real estate,” Equity One Ltd, a Carsons property firm said in a statement.

“The property values have reflected changes in interest rates and risk.

“Unrest in the financial markets and uncertainty in the wider economy have added to the crisis of the property market.”

Fair or Unfair?

Under ‘fair value’ accounting rules – which permit asset values to be brought into a firm’s profit and loss account whether or not they are actually sold and cash received – many companies have reported high profits in boom years.

But when central bank monetary policy tightens (money printing slows) and interest rates go up, asset-price-inflation can reverse.

The ‘fair value’ concept goes against a time honoured accounting convention, based on historical cost.

Critics have said that fair