SL’s costly construction sector may potentially deter national economic progress

Globally, the housing development industry has proven to play an integral role in
uplifting and bolstering the economic development of a nation. For example, through my
experience in the South Asian region, we could observe that countries such as India
and China saw an accelerated rate of development. Their enormous real estate booms
backed this.
However, in Sri Lanka, the construction sector faces a different kind of pressure. This
may be a key reason behind the island nation’s slow, uphill battle to achieve economic
prowess during globally trying times.
Being an international investor and having been exposed to a broader range of the
South Asian real estate scene, I fully endorse and support Sri Lanka’s development
journey, especially given that the island has the advantage of a very strategic and
resourceful location in South Asia, which has been ripe for investors especially in
manufacturing and real estate- mainly in the high-end, high-rise development sector.
However, this notion does not keep investors oblivious to governing bodies’ mandates
and policy-level decisions, which may elude some potential investors’ interest. They are
justifiably concerned about the rising costs in Sri Lanka’s construction and housing
sector, which may impact their return on investment (ROI) and margins in the long run.
Housing is the single most significant expense for most citizens in the country. In that
context, it is essential to be aware that facilitating affordable housing from a government
level is a prime solution to lower labour costs throughout the nation. The possession of
a house also serves as a critical security asset and symbol of wealth for people. Also, a
value-driven housing market essentially allows workers to live near their work,
increasing the efficiency of the labour market.
For Sri Lanka, though, before the economic obstacles of 2022, construction cost was
already amongst the highest in the South Asian region. High labour costs, exorbitant
import duties, and an acute shortage of skilled labour mainly caused this. These
reasons collectively contributed towards making an already unstable industry even
worse, deeming it nearly impossible to provide affordable housing for middle-class and
lower-middle-class citizens.
To shed some clarity on the current situation, construction costs have been and will
continue to be, adversely affected and inflated due to higher import costs and currency
devaluation. Furthermore, continued punitive import duties on crucial construction
materials, lack of local alternatives for expensive imports, value-added tax (VAT) on
apartment sales, declining developer and investor confidence owing to withdrawal of
excise and other benefits will have an impact too. 

In this context, it is theoretically sound to speculate that continuing to push an already
expensive product higher and higher in cost will not be ideal for Sri Lanka’s economic
and financial empowerment. In return, this would essentially deprive many middle-class,
first-time, and aspirational buyers from pursuing their dreams which would ensure Sri
Lanka’s economic stability.
We are aware that a roof over one’s head is a basic need to actively contribute to
strengthening the national economy. Taking that into consideration, I hope the Sri
Lankan Government will introduce some concessions and provide relief to the housing
development sector. Being the decision-makers, I trust that they realise the potential
positive impact it will have on the economy with a workforce and populace that is settled
enough to further add to the country’s economic well-being.
Housing development is both labour & material intensive. A boost to the housing sector
will help improve the overall employment rate. Also, as a ripple effect, it will generate
business for the local manufacturers of parts like doors, windows, pipes, wires, and a lot
more thereby boosting the country’s economy.
Looking at the bigger picture, we must realise that in the long run, a fair, competitive
and progressive housing and construction sector would make way for a stable middle
class. It secures the working class’s income while giving them the security and
assurance to actively and fully contribute to the national economy.

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