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Sri Lanka averts a condominium housing bubble

Sri Lanka’s apartment prices are to go up with the government’s decision to remove tax exemptions on condominium housing units, industry sources said.

But the aim of the Finance Ministry to prevent the mushrooming of high rise buildings in Colombo and suburbs will lead to a property bubble soon, oficials predicted.

Central Bank Governor Indrajith Coomaraswamy announced that they were closely monitoring the real estate sector after fears that excessive credit may have fuelled a property bubble that could cause distress to everyone.

Sri Lanka’s high-end luxury apartment developments is to fall in to trouble, as at least two projects that failed to take off resulting in cautious lending to the sector.

He said a low interest regime about three to four years ago encouraged money into real estate which at the time appeared to give the highest rate of return on investment.

Under this set up Finance Minster Mangala Samaraweera , in his maiden budget has made a proposal to make the condominium housing unit sale liable for tax.

The sale of condominium housing units which were made exempt from 1 November 2016 have been made liable again after a very short span of 1 year.

However this will pose several challenges to apartments developers who just went through a significant change from a liable regime to an exempt regime (in November 2016) and would now have to change back to a liable regime from 1 April 2018.

This would have significant impacts on the pricing of units as the VAT inputs that are now absorbed as a cost would be compounded by output VAT on sales from 1 April 2018.


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