Wednesday, February 9, 2011

Construction sector; booming or backtracking?

By Athraha De Silva

Closing in on two years since the conclusion of the war against terrorism that raged for over 30 years and ripped fear in the hearts of all in Sri Lanka the economy is now in a state of recovery. The country is recognized once more as the place to be in since  the world knows now that they need not fear to enter the hearts and hearths of Sri Lanka. Many sectors are forecasting a boom in time to come, one such sector being the construction and real estate sector. During the tragic and tremulous war that was waged, there was one time when the construction sector managed to start up activities, that being during the cease fire. However that period was insufficient to cause a big impact in the construction industry as the recommenced war abruptly halted construction once more.

During the conflict and post conflict periods Central Bank figures noted that the construction industry was at 7-8% mainly due to Government investment on Infrastructure Projects. "However, we in the private sector were on a downturn and our industry suffered enormously due to scarcity of work," said Surath Wickramasinghe, President, Chamber of Construction Industry to the Daily Mirror Business. A number of around 28 Real Estate projects were also stalled during this time.

Now we are free, we proclaim in the most clich├ęd manner possible. With this newfound freedom the construction sector is aiming for a boom. "The construction industry is at present buoyant with several positive and also speculative interest indicated by both local and foreign investors/developers" said Wickramasinghe. "We are confident regarding the future of the construction industry since there are several indicators such as the Stock Exchange, Foreign Investment in the Seven Star Shangri-La Hotel and two or three Mega Real Estate Projects being ready to commence work within the next 2-3 months"

 However Wickramasinghe noted that even at present the upturn is not being felt for the Private Sector despite several Mega Projects being spoken about.

The expected attraction of foreign business to Sri Lanka requires adequate hosting and living facilities for those incoming to Sri Lanka as well as for Sri Lankans who may have prospects to change living accommodations. Hence the commencement and recommencement of real estate projects is vital at this time. Notable projects that are underway are the Ceylinco Celestial Residencies, Havelock City, Dawson Grand, JKH projects and so much more once delayed projects are now underway.

Budget gains

The New Year brought with it the Budget 2011 which indicated several benefits for the construction industry. The reduction of the corporate taxation from15% to 12%, VAT and duty concessions for import of construction machinery from 15% to 13%, training skills for construction as well and research and development to bring down the cost of construction, to be treated as an allowable expenditure against Income Tax, the construction of 80, 000 homes are just a few indicators that the Budget 2011 is aiming to help the development of the Construction Industry. Recently the government announced the removal of the 1% service charge levied by the UDA on the construction cost which is another plus point for construction prospects.


However several restraints and bottlenecks backtrack the development of this industry. Information on availability and packaging of land for prospective investors and developers is missing thus causing Sri Lanka to lose out on Investment opportunities. "I am personally aware regarding the recent visit of the Malaysian and Thailand Trade Delegations and having been briefed by the BOI, UDA, Tourism Authority and other Agencies the Investors were mainly given broad information on the availability of land, its locations and on Tax incentives," said Wickramasinghe. "They were not provided with a comprehensive prepared information document with the land valuation, survey plans, necessary clearances from the statutory agencies for development of the land, brief for the development and other requirements that an Investor/Developer would look at."

"Projects do get delayed due to the acquisition of land," stated Viraj De Silva, CFO, MTD Walkers, one of the largest publicly listed construction companies in the country. "It is an inherent problem in the construction industry. Unless there is a change in the law that the government can acquire the land faster but otherwise it is a bottleneck" he added.

Furthermore there are situations where the UDA changes the regulations during the process of construction, even after projects have obtained preliminary approval and the building permit drawings are prepared. An example, stated Wickramasinghe, is the 40 floor development for the UDA undertaken by a foreign developer where the requirement for car parking was reduced from 2000 square feet per one car parking space, and being further reduced to 1000 square feet per one car parking space. This has resulted in the developer having to provide car parking almost to 50% of the building area. Developers noting this would not be interested to develop in Sri Lanka.

"There are certain delays in funding lines being approved,' said De Silva. 'Until funding lines are in place we cannot kick off any project. That is of course a bottleneck for any project being approved."

"If the Inter-Ministerial Committee could be setup then obtaining building approvals and its payments terms could be 'fast tracked' to facilitate the Investors and Developers," commented Wickramasinghe.

Lack of skilled labour

Another element affecting the progress of construction is the lack of skilled workers in the construction industry. It was noted that if a construction sector boom of 9% is to be achieved in coming years then it would require a million skilled workers in the industry. However this is a capacity that is in shortage in Sri Lanka. Statistics available with the Ministry of Construction, Engineering Services, Housing and Common Amenities state that the number of skilled construction workers is 300, 000. Construction is an area where the youth are not attracted to. However with the recuperating Northern and Eastern provinces training programmes in Construction for is citizens has already been initiated. The CCI commenced work on this aspect with centres being setup in the Northern and Eastern regions.

"The Chamber has succeeded in obtaining funding from the government of Germany and is in the process of establishing seven training centres in seven divisional secretary divisions in the district of Batticaloa," CEO, CCI, Dakshitha Thalgodapitiya told  to DM Business.  "In addition to this programme in the District of Batticaloa, with the assistance of USAID, the Chamber is establishing seven centres in the Northern province - four in Vavuniya district, two in the district of Mannar and one in Kebithigollawa in the Anuradhapura district" he added.

 Each of these projects will have a deliverable output of 5000 workers. In a Project initiated by  the Holcom/ NAITA Partnership 500 young person's both male and female are being trained in Masonry at the Rehabilitation Centre at Vavuniya. However we may still lack the necessary workforce and this aspect needs to be improved on.

Local and foreign investments have improved in terms of construction but there is still a lack of contracts being awarded to locals. "Despite the Government giving several assurances that Multi-lateral, Bi-lateral funded projects will have a local Consultancy and Contracting component, so far besides the foreign counterpart offering sub-contracts there is no direct partnership with the local," said Wickramasinghe.

Future prospects

Looking at the present state of Construction we wonder what does the future hold for construction and real Estate in Sri Lanka? "There is an immense potential in the Construction Industry and Infrastructure development because Sri Lanka has been lacking in infrastructure development for many years," said de Silva.

The Government looks forward to futuristic Urban Development in the City of Colombo. There is a growing enthusiasm to attract many investors to participate in the relocation of the underserved housing in various parts of the City but this land is provided on an ad-hoc basis.

"One solution to solve the prevailing problem of relocating 60,000-70, 000 persons living in underserved settlements could be looked at in the following manner," said Wickramasinghe.

 "It is not difficult to identify land outside the City, at least in 6 different locations each 100-150 acres in extent to design 6 comprehensive neighbourhoods/townships to accommodate the target number of families. These would be self contained with modern infrastructure facilities, and access to education, recreation, leisure, social and cultural activities. It would then be possible to provide an efficient transport network to speedily provide the residents' communications to the City and important locations".

The land that would be liberated by means of this concept could pave the way to design a World Class City with integrated state of the art infrastructure to attract leading Investors/Developers to be competitive with countries like Singapore. Thus it would trigger foreign and local businesses to flourish and develop the City to promote global business. If this potential is recognized it could well lead to a successful rise in the state of the economy in Sri Lanka.

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1 comment:

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