Getting into buying and selling properties in Sri Lanka in 2022 might look scary for many with the economic crisis the country is going through. Yet seasoned investors know that real estate is a great way to get a good return on your money during times like this.
In Sri Lanka, the inflation rate is increasing rapidly. As of March 2022, the country’s inflation rate was 7.1% which was at 3.5 percent three years ago. And experts are predicting the rate to increase further in the next few months.
This means the decline of the purchasing power of the Sri Lankan rupee with time. This can also be explained by the rise of consumer goods while the value of the Sri Lankan rupee keeps falling.
The country’s economy is in the worst shape than ever before, with the depleting foreign currency reserves, devaluing of the Sri Lankan rupee and social and political unrest in the country. This makes people wonder about the best investments to get the best value out of their hard-earned money. If this sounds like you, you must investigate real estate investments.
This can be residential properties, commercial properties, or bare lands. No matter what types of property you go with, all real estate investments work well even during periods of inflation in any market. Therefore, they are known as inflation hedge investments, investment tools that gain or retain their value over time.
Here are 3 reasons why real estate is a good investment during inflation.
One of the most advantageous characteristics of real estate is appreciation. This means the growth in the value of a property over a period of time.
If the value of the house or the land you buy rises with time, you can easily ask for a higher price when selling your property, which often will be in years.
In most parts of the island, property value keeps increasing. The best example of this is the numbers shown in the report published by the Bank of Ceylon. According to their report, the Land Valuation Indicator (LVI) for Colombo District grew to 155.1 during the first half of 2021. This is a 9.5% yearly gain.
Another advantage of becoming a property owner is the ability to produce cash flow. If you pick your property wisely, you are able to generate a monthly or yearly income easily. Although the money you get from your land will not be enough to cover all your expenses, it will be a nice addition to support your lifestyle.
There are many ways that you can generate income from your property. If it’s a house, you can rent the place and get a monthly income. For commercial properties you can lease the place with long term arrangements. You can easily lease bare land for agricultural or commercial purposes.
The best part is the rent and lease can be increased as the years pass. So your income will grow from year to year. Make sure to think about the terms related to rent and lease when you are signing the contract so you can increase the rent or lease annually.
Assume you’re borrowing money to buy a piece of land in Sri Lanka. The debt you owe will be reduced over time. For example, let’s say you owe LKR 5000000/-. In 10 years, the value will depreciate due to inflation.
Yes, you will have to pay the same amount in numbers. But the value of your payment will be far less. Thus, another advantage of investing in real estate amid inflation is depreciating debt.
Types of properties that do well in inflation
When selecting a property in Sri Lanka to buy during inflation, you need to make sure it ticks off the following boxes.
- Ability to lease for short durations
- Ability to pass price increases along with the markets
- Resilient demand in the market
Residential properties, industrial properties and hotels are a few of the property types that you can find in Sri Lanka’s real estate market that satisfy all the above points.
But this doesn’t mean that investing in bare land is a waste of money. Even though there can be a limitation to generating an income source from bare lands, they still have value appreciation.
Interest rates are important to consider if you are financing your property with a bank loan. In 2022, local interest rates for property loans have increased. However, they are still lower than pre-pandemic levels, which means a huge advantage for individuals wishing to get into property buying and selling in Sri Lanka.
Every crisis brings new opportunities. Despite the economic horror going on in the country this might be your chance to get into real estate and make some profits. Be sure to understand what you need and what are your goals and plans for the property to get the best out of your return. When you are looking to buy or sell a property in Sri Lanka, be sure to try Ikman.lk, the best online platform for property buying and selling in Sri Lanka.