Sri Lanka rating agency warns of real estate market downturn

Oct 23, 2007 (LBO) – Lanka Rating Agency has warned of a possible slump in the property market which has been growing rapidly in recent years and shows signs of a classic ‘bubble’. LRA said that real estate markets are vulnerable to “waves of optimism and herd behaviour that result in bubbles.” It said in a statement that real estate firms, banks and regulators would do well to learn lessons from other Asian property bubbles that collapsed causing heavy losses to investors.

“. . . Sri Lanka too has seen the property market being driven by the prospects of the cease-fire and the economic dividends that followed,” said the statement by the Investor Education Division of Lanka Rating Agency (LRA).

These dividends were flushed liquidity, low interest rates and higher inward foreign remittances coupled with favourable macro-economic conditions.

“However, these property market drivers are dissipating and this may trigger a reversal of trends in the fortunes of real estate,” the rating agency warned.

“Weak regulations and the lack of information regarding property markets in Sri Lanka, compared to other East Asian economies, are likely to further aggravate this situati