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. “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.” 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.