Housing crisis

Data points to a simmering housing crisis in the making – Reuters

  • Home ownership and real estate activities in the broad sense are down 6.0% in 2Q

A simmering housing crisis in the making as a by-product of the current economic turmoil as the sector experiences both demand and supply cuts.

According to data released by the Department of Census and Statistics, housing and home ownership in Sri Lanka captured by ‘housing ownership and real estate activities’ fell by 6.0% in the second quarter from compared to the same period in 2021, which caused spelling issues in the period ahead.

The contraction in the sector could be the precursor to much larger problems such as rising homelessness and the economy’s inability to meet the housing needs of those working harder for upward social mobility.

In the first half of 2022, the housing sector, which accounted for 4.8% of Sri Lanka’s total economy, shrank by half a percentage point. This could worsen in the second half of the year due to the shortage of foreign exchange to import building materials and other household goods such as furniture, fixtures and appliances.
The collapse of the housing sector is the result of both supply and demand side cuts.

As home builders scramble to find the building materials they need due to the aforementioned supply crunch caused by the shortage of foreign exchange, on the demand side people have significantly lost the affordability of their homes because of the exorbitant construction costs.

In addition, many can no longer afford home loans, as mortgage rates have more than tripled in just six months.

The average mortgage rate, which was capped at 7.0% by the Central Bank for most of last year, jumped between 20 and 30%, depending on the bank, term and category of borrower.

The housing market in Sri Lanka and the home loan market have exploded in the two years of the pandemic, which has put enormous pressure on house prices, which in some cases have increased by more than 50% or more. .

Although demand has suffered a steeper fall since March this year due to soaring mortgage rates, house prices have remained high due to the sharp increase in construction costs, leaving many potential buyers on the sidelines , possibly for years, as policies remain extremely restricting building and construction activities.