Having a house and a vehicle of one’s own is a common dream. However, there is no optimal situation or sufficient support for the people of Sri Lanka to fulfil these basic necessities.
Speaking to The Sunday Morning, Sanken Construction Managing Director Ranjith Gunatilleke said that owning a house was extremely difficult, as it depended on a person’s financial background and the type of accommodation they were searching for.
He also said that an average or middle-income earner such as an engineer, doctor, or someone married to a person of a similar profession, who was starting their career and living in comfort in Sri Lanka, may require a monthly rent of at least Rs. 200,000.
“To own that type of apartment or house today, it will cost at least about Rs. 40-50 million in Colombo or other cities. Then it might take more than 30-40 years for a person to borrow that amount from the bank and pay both the bank interest and part of the capital,” he said, describing the challenging situation facing the housing market.
While this is the fairly recent phenomenon in the country, sales of new condominiums (a building or complex of buildings containing a number of individually-owned apartments or houses) increased by 33.8% compared to the previous quarter and by 30.3% Year-on-Year (YoY) according to the Central Bank’s ‘Real Estate Market Analysis – Condominium Market Survey’ for Q3 2023.
Gunatilleke said that when purchasing houses, buyers already faced a 4% stamp duty. However, with construction entailing a net 18% for Value-Added Tax (VAT) and an additional 3% for the Social Security Contribution Levy (SSCL), resulting in a total of 20% in expenditure, it has become exceptionally expensive to construct a house today.
Moreover, even without these taxes, labour costs have surged significantly due to the high cost of living. Consequently, the current market posed a challenge for business people, particularly executives at both senior and mid-levels, making it unaffordable for them to purchase a house in the early or middle stages of their lives due to the burdensome tax system, Gunatilleke added.
As per the ‘Condominium Market Survey,’ the price index for new condominiums in the Colombo District continued to escalate during Q3, with a 17.8% YoY growth and 8.5% growth compared to Q2. As per the report, developers are unable to lower prices of new condominiums even under low demand as a result of the high costs incurred in construction.
“The Government certainly can’t provide assistance, which is the primary reason professionals are leaving. If we consider it at a much lower level, such as the low-income group, they can never aspire to own a house independently unless supported by their families,” he said.
He also said that there should be a tri-party arrangement for mortgages involving banks, customers, and the Government, but in Sri Lanka, this had become impossible due to a lack of discipline in the banking system.
Independent economist Rehana Thowfeek, speaking about the affordability of owning a house, said that there was limited land available, with about 80% of the land supply owned by the Government. She added that consequently the land accessible to private owners as well as overall supply was limited, with this scarcity contributing to the high cost of houses.
Additionally, trade policies inflate import costs, a measure taken to protect domestic producers. However, this approach allowed domestic producers to reap massive profits at the expense of the people, she added.
She also said that other policies, such as the ‘one cement factory per port’ policy, also impacted inputs for housing construction. Thowfeek highlighted a recent study by the Advocata Institute which revealed that a basic 500 sq.ft house could only be afforded by the richest 30% of households in Sri Lanka.
“Around 70% of Sri Lankan households cannot afford a 500 sq.ft house. The Government should amend trade policies to benefit the people rather than a select few business individuals,” she said.
Affordability of vehicles
Ceylon Motor Traders’ Association Chairman Charaka Perera pointed out that price was the main factor within the vehicle market that made it difficult for individuals and families to afford a vehicle in Sri Lanka.
He said that for the last four years, new units had not been entering the market, causing used vehicle prices to nearly double. Before the onset of Covid-19, a majority of people purchased vehicles through leases and finance schemes. Now, due to the surge in used vehicle prices, even with financing options or leases, this has become unaffordable. Many struggle to meet the required down payment and the lease rental is well beyond their means.
“About two years ago, prices doubled. Now, with the introduction of VAT in January, there is an additional 18% increase in vehicle prices. This makes it even more challenging. Furthermore, for a lessor, VAT is not a claimable factor. As a result, the VAT component on the sale of the vehicle becomes an additional cost that the finance company has to fund for the consumer,” he added.
Perera also said that when a customer purchased a vehicle under these conditions, the lease portion increased by 18%, which made it even more challenging.
“Consequently, a black market has emerged, causing legitimate companies in the used vehicle business to exit the market since selling has become impractical. Individuals have taken over, steadily raising prices by approximately 10%. This price hike allows them to increase their profit margins on each sale. Unfortunately, this shift has broader implications, as these individual sellers are not registered companies, meaning they are not required to disclose their income or turnover. Consequently, the Government stands to lose revenue from income and profit taxes that were previously collected from registered businesses,” he explained.
He also said that despite concerns about excessive vehicles, especially in urban areas like Colombo and Kandy, comparing the number of vehicles per 1,000 people with other countries, especially developing ones, revealed that there was significant progress yet to be made. “The need for vehicles in the market is the primary reason for the surge in used vehicle prices. The lack of supply and a substantial demand are the driving forces behind this increase. Typically, when there is high demand coupled with low supply, prices tend to rise.”
“Some authorities argue that there are too many vehicles in Sri Lanka. However, upon closer inspection, especially in rural areas, the necessity for vehicles becomes evident. Whether it’s a two-wheeler, three-wheeler, or a small car, there is a significant demand. Therefore, the Government must find a way to make vehicles more affordable for the public or invest in developing the public transport system. Due to its inefficiency, whether it be the lack of public transport in many areas or the suboptimal efficiency of public transport even in key cities, the need for vehicles has grown significantly. Unfortunately, it is the people who are facing this problem,” Perera said.
Meanwhile, Thowfeek said that she did not think that private vehicle ownership should be considered as a basic necessity.
“The true necessity lies in public transportation – high quality, reliable, comfortable, safe, and accessible. Unfortunately, successive governments have failed to prioritise and provide such a system. Due to this, Sri Lankans often aspire to own their own vehicles for the sake of comfort, safety, and convenience. High taxes on vehicles make them expensive and only affordable for the higher income classes.”
She noted that governments should have invested significantly more in public transportation, making it a national priority. Primarily, the focus should be on trade policy and the need for regulation rather than the provision of housing. In terms of vehicles, attention should be directed towards improving public transportation.
Burden on the people
Perera explained how many people had been struggling to afford a vehicle even prior to the pandemic.
“Pre-Covid, the down payment for two-wheelers was about Rs. 300,000, with a 30% down payment equating to about Rs. 90,000. We witnessed many people pawning their jewellery to come up with the down payment. This was the situation before Covid. Now, imagine the current scenario, where the cost of a vehicle has doubled. How can a poor man, striving to get a bicycle or scooter for his family’s transportation, afford it? he questioned.
“In Sri Lanka, the dream for many families is to own a house and a means of transportation – be it a bicycle, scooter, or a small car. However, for the common man in this country, it has gone beyond being a dream; it’s not even possible,” Perera noted.
“Despite being an essential need for getting children to school, commuting to work, or reaching a hospital in an emergency, it’s now an unattainable goal. This issue urgently needs attention from the authorities. When you visit a showroom and witness how people struggle to find the money for the down payment, it’s truly disheartening,” Perera concluded.
Thowfeek stated: “With incomes and purchasing power decimated due to high inflation, even basic food items are not affordable to many, so vehicles and housing are beyond comprehension. People are extremely dejected and disillusioned because they don’t see how they can improve their standards of living. There is a major impact on the psyche of the people, which is translating into impacts like increased migration.”
Meanwhile, Welfare Benefits Board member K.H. Jessi Mueller, speaking to The Sunday Morning, said: “People think that having a house and owning a vehicle is a luxury. Strangely, our society doesn’t recognise this as a basic necessity.”
Mueller added that there was no support from institutions such as banks and the Government and no schemes were in place to assist the people. “Consequently, people are struggling to achieve these dreams. I believe it’s time for a change and the need has emerged to provide people with more affordable facilities.
“Currently, many view owning a house or a car as a luxury, not a realistic goal for a lifetime. This mindset needs to shift. While the Government offers duty-free cars to doctors and experts, ordinary individuals with low-paying jobs find it challenging to afford such necessities. Everyone should have the opportunity,” Mueller concluded.
Attempts to contact the Ministry of Finance in this regard were unsuccessful as State Minister Shehan Semasinghe was overseas and attempts to reach State Minister Ranjith Siyambalapitiya proved futile.