An Empirical Study on Demand for Condominium in Colombo
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International Journal of Sociology and Anthropology Vol. 4(1), pp. 31-37, January 2012 Available online http://www.academicjournals.org/IJSA DOI: 10.5897/IJSA11.104 ISSN 2006-988x ©2012 Academic Journals Full Length Research Paper Living in high-rise: An analysis of demand for condominium properties in Colombo R. G. Ariyawansa1* and A. G. P. I. Udayanthika2 1Department of Estate Management and Valuation, University of Sri Jayewardenepura, Sri Lanka. 2Government Valuation Department, Sri Lanka. Accepted 28 November, 2011 Colombo has witnessed a higher concentration of low-rise and high-rise condominiums during the last few years. This paper examines the contributing factors for living in high-rise that has created a market for condominiums in the city of Colombo. Managers of purposively selected ten high-rise condominiums and 30 households from 03 low-rise condominiums were interviewed for the primary data collection. With the help of elementary statistics, data were analyzed descriptively. The study revealed that demographic and economic changes in the city during the last few decades have influenced the creation of the condominium property market in Colombo. In case of low-rise condominium properties, well-educated middle-income earners who have migrated to the city for various reasons have raised the demand. At the same time, foreigners and affluent Sri Lankans have raised the demand for high-rise condominium properties considering the security, convenience and location of properties. Key words: Condominium, demographic and socio-economic factors, housing, ling in high-rise, property market. INTRODUCTION During the past few years, Colombo is having a boom in increase in population density has prompted high-rise development of condominium properties; due to the apartments to evolve as a higher growing sector in the demand for condominium in the city, is increased area of housing. Within Colombo, a mixed housing (Wijeyaweera, 2006). Colombo as the largest development can be seen. When the large extent of metropolitan city in Sri Lanka, its’ economic development slums and shanties are excluded, the balance stock has been significant in the country. When a city is consists of mix housing units occupied by middle and developed, usually a large population migrates into the upper income groups. These include single houses, city for better living, employment purposes, education, annexes, flats and apartment buildings. Therefore, multi- and so on, which increase a continual demand for storied apartments are important for the housing stock of housing and other infrastructure development. In the Colombo. Most of the high-rise condominiums are sold at case of Colombo, most of the developable lands have higher prices due to higher demand. The target groups of already been utilized. There are small individual parcels high-rise condominiums are foreigners who work in Sri of land scattered throughout the city which are offered for Lanka and non resident Sri Lankan professionals who housing and commercial uses at relatively high prices invest these properties as retirement option as well (Perera, 1995). Hence, it should be noted that scarcity of (Senevirathna, 2005). Therefore, high-rise condominiums land, particularly in the urban areas supplemented by the are termed as luxury apartments. These offer facilities similar to properties in developed countries (Ariyawansa, 2007, Wijeyaweera, 2006). The other type of condominium that is semi luxury is *Corresponding author. E-mail: [email protected]. Tel: popular among the middle-income people. Most of these 094-71 8190712. semi-luxury condominiums are low-rise and are located in 32 Int. J. Sociol. Anthropol. Table 1. Condominium housing model determinants. Demand side factor Supply side factor Demographic factor (family size, number of families etc...) Land cost Personal disposable income Construction cost Price of housing service Prime lending rate Stock price Cost of capital Commodity price Retail price index (inflation) Expected appreciation of house price Expectation of housing price Mortgage interest rate Housing completion Total outstanding mortgage Housing stocks Tax rate Money supply Source: Ting (2001). the Wellawatte area. People from the North and the East owners of individual unit in common (Gajanayake, 2006; who sought refuge in the city during the war have bought Wedamulla, 1997). In Sri Lanka, legal framework for most of these semi-luxury condominiums (Wijeyaweera, condominium concept has been provided by the 2006). Generally, location, surrounding development and Condominium Act No 12 of 1970 and this Act was scenic beauty are common determinants of the demand replaced and introduced as Apartment Ownership Law for condominium properties (Zarin and Bujang, 1999). No 11 of 1973. Under the Section 02 of the Law, the However, this study attempted to analyze the particular condominium property means “a property comprising factors that determined the rising demand for high-rise land with building or buildings of more than one unit of apartments in Colombo. Specially, it analyzes the socio- residential or non-residential accommodation”. In fact, the economic factors that encourage living in high-rise in liberalized economic environment and urbanization condominiums in Colombo. process that has prevailed in last four decades has made heavy emphasis on the need of more residential properties in the city of Colombo. Associated with the METHODOLOGY issue of scarcity of land, the current socio-economic situation has raised the demand for residential Primary data was collected from 10 high-rise condominium condominiums. properties which are termed as luxury condominiums in the city. Interviews were conducted with the residence managers using a semi structured questionnaire. Further, 30 occupants from 3 low- rise condominiums in Colombo were interviewed inquiring about The theory of demand and supply their household size, occupations, income, rent paid and the reasons for selecting a condominium etc with the help of structured All commodity markets including real estate markets are questionnaire. Secondary data was collected mainly from the Colombo Municipal Council, the Colombo Land Registry and the interactions of two distinct groups, that is, buyers and Condominium Management Authority. Residents were interviewed sellers or demand and supply forces. However, analysis in low-rise condominium as it was convenient to meet them. of demand for “real estate” is different from analysis of However, for luxury apartments, it was decided to interview demand for other goods because real estate has some managers as it was extremely difficult to meet residents. Data unique characteristic (Cam et al., 1988). In order to apply analysis was done descriptively with the help of elementary simple supply and demand analysis to real estate statistics. Firstly, the analysis was done by means of secondary data gathered through literature search. Secondly, the analysis was markets, a number of modifications need to be made to done by means of primary data collected from managers and standard microeconomic assumptions and procedures residents. (www. wikipedia.org/wiki/Real-estate economics). Such characteristics of real estate markets must be accommodated according to the context. These THEORY AND CONCEPT characteristics include durability, heterogeneity, high transaction costs, long time delays and immobility etc. An Condominium concept empirical study carried out by Tine (2001) examines economic and market factors that derive demand, supply It is well known that a condominium is a building or a and pricing of condominiums in Singapore and has structure which has two or more stories consisting of identified several macro-economic determinants of house parcels, owned and/or used separately by individuals and prices. These are shown in Table 1. Another study remaining portion of the property being owned by the carried out by Zarin and Bujang (1999) on factors Ariyawansa and Udayanthika 33 Table 2. Main factors that influence demand. Main factor Ranking Location of development 1 Characteristics of the building 2 Price 3 Recreational facilities 4 View 5 Marketing 6 Financing 7 Management 8 Surrounding area 9 Investment 10 Reputation of the developer 11 Zarin and Bujang (1999). influencing demand for condominiums in Johor Bahru, apartments and that the emergence of modern Malaysia, points out that demand for condominium construction technologies too has affected the property is mainly generated by “overall population development of high rise buildings. growth”, “urbanization”, “level of income” and “mortgage finance”. Apart from the aforementioned factors, this study SUPPLY OF CONDOMINIUM PROPERTIES IN mentions eleven other factors that influence the demand COLOMBO for condominium properties. These factors were ranked into 1 to 11 showing the most and the least important (Amendment) Act No 39 of 2003, it is mandatory to get a factor as shown in Table 2. certificate for common amenities and common elements from the General Manger of the Condominium Management Authority to register a condominium plan. DEMAND FOR CONDOMINIUM PROPERTIES IN Condominium Management Authority has started to issue COLOMBO this certificate since year 2005. Database of Condominium Management Authority indicates that There has been a significant growth in the residential nearly 90% of certificates issued are for the Colombo apartment market in Colombo during the last two district by the year 2010 (Condominium Management decades. The main