Research Intelligence Unit RESEARCH INTELLIGENCE UNIT

Sri Lanka Real Estate Market Report 2021 Real Estate Market Update KeyPrepared Highlights for RIL Properties ByJuly Research 2020 Intelligence Unit (RIU) Research Intelligence Unit RESEARCH INTELLIGENCE UNIT

Economic Performance Economic Indicators Research Intelligence Unit

10.0% RESEARCH INTELLIGENCE UNIT 5.2% GDP Growth Rate 2020 Following the negative economic impact from 5.0% • 2.4% 2.3% the April 2019 Easter attacks, Sri Lanka 0.0% progressed towards a gradual recovery in early -0.4% Bangladesh Bhutan Nepal Pakistan Afghanistan Sri Lanka South Asia India Maldives 2020. -5.0% -5.0% -5.5% -6.8% • However, occurrence of the COVID-19 pandemic -10.0% -9.0% halted the progress, with the economy -15.0% experienced downward pressure, as the global economy, as well as the outrys main export -20.0% markets. -20.5% -25.0% • According to ADB, Sri Lakas GDP contracted by 5.5 percent in 2020 and expect to grow by 4.1 GDP Growth Rate 2021 Forecast percent in 2021 12.00% 10.50% • The forecast for the following year seems to be 10.00% a lot more optimistic as industries bounce back 8.00% 8.00% 7.10% 6.80%

6.00% 4.10% 4.00%

2.00% 1.70% 2.00% 1.50% 1.50%

0.00% Maldives India South Asia Bangladesh Sri Lanka Pakistan Bhutan Afghanistan Nepal Source: ADB, RIU Economic Indicators Research Intelligence Unit

4.3% RESEARCH INTELLIGENCEInflation UNIT 4.2% 4.2% 4.2%

4.2%

4.1% 4.1% 4.1%

4.1%

4.0% 4.0% 4.0%

4.0%

3.9% Jul Aug Sep Oct Nov Dec CCPI (Y-o-Y)

• Sri Lakas 12-month consumer inflation edged up to 4.2 percent at the end of the year.

• Food & Non-food prices driven mostly by a rise in transport costs.

Source: RIU, CBSL Economic Indicators Research Intelligence Unit Exchange Rate RESEARCH INTELLIGENCE UNIT 186.5 186.1 186 185.8 185.6 185.5 185.5

185

LKR/US$ 184.5 184.2 184.2

184

183.5

183 Jul Aug Sep Oct Nov Dec

Historical

• Sri Lanka has maintained a stable rupee and created conditions to bring back foreign investors to capital markets during 2020.

• However, as of today we see the rupee has fluctuated during the past two weeks and has escalated to LKR 192.7 against the USD.

Source: RIU, CBSL Economic Indicators

Interest Rates Research Intelligence Unit 14.00% RESEARCH INTELLIGENCE UNIT 12.29% **AWPR: Average Weighted Prime 11.84% Lending Rate- The weights average 12.00% 11.21% of the rate at which the 10.82% 10.55% commercial banks have lent to 10.00% their best customers.

***AWLR: Average Weighted 8.00% 7.47% 6.66% Lending Rate 6.19% 5.85% 5.83% 5.81% 6.00% • Downward pressure has 4.00% been a global trend

2.00% 0.46% 0.44% 0.36% 0.33% 0.33% 0.34% 0.00% Jul Aug Sep Oct Nov Dec AWPR AWLR LIBOR (US$ 1Yr) Month end

• Low interest rate regime continued in the past 3 quarters & Investors benefitted with drastic drop-in interest rates.

• Drop-in interest rates, however, is a great opportunity to obtain long-term loans at low-interest rates

• Individuals who depend on interest earnings looked out for alternative investment opportunities Source: RIU, CBSL Economic Indicators – Share Market Stats

Research Intelligence Unit Change in ASPI RESEARCH INTELLIGENCE UNIT ASPI ASPI (M-o-M) 8000 14.00% 12.30% 6,774.22 7000 6,243.76 12.00% 5,984.84 5,726.59 10.00% 9.03% 8.50% 6000 5329.33 8.00% 5000 6.00% 4.00% 4000 4.00% 2.00% 3000 -0.48% 0.00% 2000 -2.00% July August September October November December -4.32% 1000 -4.00% -6.00% 0 ASPI (M-o-M) August September October November December

• The share market was one of the 1st sectors to be hit, back in March 2020.

• However, from the data we could see the CSE is particularly encouraged by the interest of local investors since recommencing trading operations, who have demonstrated an appetite for the attractive valuations in the market Source: RIU, CBSL A Silver liig for Touris o Real Estate

Research Intelligence Unit Change in Tourist Arrivals RESEARCH INTELLIGENCE2018 UNITComparison 2019 Comparison 2019 2020

0% 0.0% 0.0% 0.0% Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun -10% -4.5% -6.5% -9.5% -20% -17.7% -30% -22.5% -27.7% -28% Change in Tourist Arrivals -40%

-50% -47%

-60% -57% -70% -70.8% -80% Tourist Arrivals (Y-o-Y)

• The number one source for luxury apartment sales are the local HNIs and expats. Since the airports are being closed from the beginning of last year, we witnessed prospective overseas buyers, including investors and end users at advance stages of negotiations pressed the pause utto.

• Overall, the country attracted merely 507,000 arrivals in 2020 compared to 1.9 Mn arrivals in 2019.

• However, a silver lining to be seen in 2021, as Sri Lanka Tourism has prepared to resume tourism gradually in Q1 2021.

Source: RIU, SLTDA RESEARCH INTELLIGENCE UNIT

Luxury, Semi-Luxury Apartment Market Overview

• In order to better understand the dynamics of the apartment market in Colombo, RIU has been developing a classification of the Research Intelligence Unit market into three tiers. RESEARCH INTELLIGENCE UNIT Type of Facilities We consider several factors that include the price, 24 Security locations, size and the branding of the development CCTV as well as the features that are available. Fire protection & Detection System Garbage Disposal System The luxury apartments market can be categorized Elevators into upper, upper-mid and mid-range.

Hot water Geysers (Tier 3) (Tier Children Play Area The table on the left provides a guide for Vehicle Park understanding the market with reference of facilities.

Private Balcony MARKET (Tier 2) Stand by Generator

Air-conditioned apartment Block MID RANGE THE OF MARKET UPPER MID RANGE THE OF Gymnasium Swimming Pool WiFi Laundry Service Elevator Central Gas Supply system Children Pool Games room (Indoor) Banquet Hall Changing & Meal Room for Driver Convenience Store Walking Tracks, Squash, Tennis Court, Basket Ball ground Salon/Sauna Restaurant/Bar Source: RIU Business Center UPPER END OFTHE MARKET1) (Tier Weighted Avg. Price (USD/ LKR/ Sq. Ft.) Research Intelligence Unit

Tier 1 Tier 2 Tier 3 Category Locality RESEARCH INTELLIGENCE UNIT 2019 2020 2019 2020 2019 2020 Colombo 01 $337 $337 $220 $220 Colombo 02 LKR LKR LKR LKR Prime -- Colombo 03 62,682 62,682 40,920 40,920

Colombo 07

Colombo 04

Colombo 05

Colombo 06

Colombo 08 $227 $227 $127 $110 LKR LKR LKR LKR Non-prime Colombo 09 -- 42,222 42,222 23,622 20,460 Colombo 10

Colombo 12 Colombo 14 Colombo 15

• Wee segregated prime & non-prime residential locations according to specific areas. We could see Colombo prime locations such as Col, 01, 02, 03 & 07 fetches the highest prices in Colombo

• In 2020, Luxury (tier 1) & Semi Luxury (tier 2) prices remained unchanged. However, Tier 3 Prices have reduced by around 15% Source: RIU Research Intelligence Unit RESEARCH INTELLIGENCE UNIT • According to research in 2020 Q3 & Q4, the interest in property among buyers grew.

• We noticed a rise in expats looking to buy properties in Sri Lanka as their second home. Investors looked for good bargains during this time.

• In the Tier 3 market, Developers and Sellers offered discounts of up to 15%. Maximum Discount (Tier 3 Market) Category 2020 Q3 2020 Q4 Tier 3 10% 15%

• Reduction of housing loans by some banks to below 10% had a positive effect on the affordable and mid range property market.

Source: RIU Investment potential in property development Research Intelligence Unit RESEARCH INTELLIGENCEAbsorption % UNIT • New apartment supply didt add up to the inventory last year. However, with the existing supply, tier 1 apartments had Absorption % a slow progress in 2020 but we saw an escalation in sales for Category 2019 2020 Change tier 2 & tier 3 apartments in the last two quarters. Tier 1 69% 73% Up • Sales velocities of apartments have faltered in the short term. Tier 2 67% 83% Up Tier 3 44% 57% Up • And we know Sri Lanka has maintained its reputation for having one of the highest rental yields in the region over the past few years. There are instances it went up to 9%. Monthly Rental Rate $US/ sq. ft Last year the rental yields were between 3 – 4% due to COVID Rental (US$/ Sq. ft.) • Because the rental demand in Colombo by the expatriate population crashed. Category 2019 2020 Change Tier 1 1.55 1.45 Down • Especially the luxury apartment market, because it mainly caters to HNIs, expatriates, politicians and foreigners.

• It is expected that rental yields will continue to be low in the Rental Yields short term. Percentage (%)

• We see this as a temporary slump in rental demand, and Category 2019 2020 Change having resourceful expats all around the globe, we All tier 7% 3 - 4% Down undoubtedly see it bounce back in the short – medium term Source: RIU Research Intelligence Unit RESEARCH INTELLIGENCE UNIT

Commercial Real–Estate Market in Sri Lanka Location wise Absorption of Grade A & B Offices Research Intelligence Unit AbsorptionRESEARCH % INTELLIGENCE UNITUSD / Sq. Ft. Category Area 2019 2020 Change Category Area 2019 2020 Change Colombo 1 Colombo 1 Prime Colombo 2 76% 68% Down Prime Colombo 2 2.17 2.17 Static Colombo 3 Colombo 3 Colombo 4 Colombo 4 Colombo 5 Colombo 5 Non-Prime Colombo 9 65% 48% Down Non-Prime Colombo 9 1.69 1.52 Down Colombo 10 Colombo 10 Colombo 15 Colombo 15

• Most of the Grade A offices locate in the prime areas in Colombo.

• Vacancy rate for Grade A office spaces were on the rise and rents remained unchanged. However, we witnessed a 10 % reduction in Grade B & C rents.

• Theres a trend we saw that tenants leaving grade A office spaces and going into smaller spaces soon after the 1st lockdown.

• The main change is that most industries identified work from home is possible.

• Work from Hoe was not a new terminology. However, the pandemic made this go on a fast track and it affected occupancy levels and rental rates of the commercial real estate. Source: RIU Analysis RESEARCH INTELLIGENCE UNIT

Retail Market in Sri Lanka Rent - Before and After COVID US$/ Sq. Ft/ Month Research Intelligence Unit Rent $US/ Sq. ft. Before COVID After COVID

7.90 Before After RESEARCH INTELLIGENCE UNITRetail Mall Change

7.00 COVID COVID Dutch Hospital -Fort 1.39 0.35 Down

5.64 Colombo City Center 7.90 1.97 Down 4.91

4.59 One Galle Face 7.00 1.75 Down 3.96

3.79 Liberty Plaza 3.96 0.99 Down

3.00 Crescat Boulevard 5.64 1.41 Down

1.97 Liberty Arcade 3.00 0.75 Down

1.76

1.75

1.41

1.39

1.32 1.23

1.15 Liberty Plaze II 4.59 1.15 Down

0.99

0.96

0.95

0.75

0.44 0.44

0.35 0.35

0.33 Damro - Marino Mall 4.91 1.23 Down 0.24 Race Course 0.96 0.24 Down Independence Arcade 1.39 0.35 Down

Majestic City 3.79 0.95 Down

Arcade

Unity Plaza Unity

Race Course Race

Kzone Ja-Ela Kzone

Liberty Plaza Liberty

Majestic City Majestic

Independence Liberty Plaze II Plaze Liberty

Liberty Arcade Liberty Unity Plaza 1.32 0.33 Down

One Galle Face Galle One Kzone Moratuwa Kzone

Crescat Boulevard Crescat K-zone Moratuwa 1.76 0.44 Down

Dutch Hospital -Fort Hospital Dutch

Colombo City Center City Colombo Damro - Marino Mall Marino - Damro K-zone Ja-Ela 1.76 0.44 Down

• The retail market faced substantial shifts and the amount of retail sales dropped to a new low. Tenants from prime retail malls provided discounted rent rates as lower foot fall negatively impacted sales yield during 2020. On average, retail rents in malls have been reduced by 70 - 75 percent in 2020.

• The industry suffered because of tourism being hit.

• We believe the pressure on yields is going to be constant in the current environment in the short term Source: RIU Analysis Occupancy Research Intelligence Unit RESEARCH INTELLIGENCE UNIT Retail Mall 2019 2020 Change (Q/Q)

Colombo City Center 86% 70% Down

One Galle Face 70% 78% Up

Liberty Plaza 88% 80% Down

Crescat Boulevard 90% 65% Down

Liberty Arcade 90% n/a n/a

Damro - Marino Mall 90% 75% Down

Majestic City 88% 55% Down

• We ould see Oe Galle Fae has upped its oupay opared to 9. Thats eause the all as ely opeed i the Q4 of 9 ad soe of those shops eret oed i yet y the tie e oduted the surey.

Source: RIU Analysis RESEARCH INTELLIGENCE UNIT

Colombo Bare Land Market Bare Land Market Research Intelligence Unit

2018 (Mn) 2019 LKR (Mn) 2020 LKR (Mn) Location minRESEARCH max avg. minINTELLIGENCE max avg. min maxUNITavg. Colombo 1: Fort Area N/A 16.00 19.20 17.60 • Land values in central Colombo remained unchanged despite the Colombo 2: Slave Island 14.50 17.00 16.00 7.00 18.00 14.60 13.50 17.50 15.66 sentiments that was caused by the pandemic. Colombo 3: Kollupitiya 16.50 24.50 20.00 12.00 23.00 18.80 8.50 26.00 19.78

Colombo 4: Bambalapitiya 9.50 23.00 17.70 7.00 17.00 16.12 2.00 24.00 16.00 • Consequently, bare lands have been a uyers market for the past few Colombo 5: Narahenpita 2.50 15.00 10.70 3.77 17.00 10.20 2.70 18.00 9.49 years, and is a strong indication that it will continue to remain strong Colombo 6: Wellawatte 4.80 23.00 12.80 2.75 13.00 11.50 2.75 20.00 11.00 considering its long-term investment opportunities. Colombo 7: Cinnamon Garden 15.00 19.00 17.70 2.30 20.00 17.30 11.00 25.00 17.62

Colombo 8: Borella 2.60 16.30 7.50 6.50 16.36 13.10 3.50 15.00 9.00

Colombo 9: Dematagoda 1.70 3.90 3.20 n/a n/a n/a 2.85 4.70 4.08

Colombo 10: Maradana 6.70 9.00 7.00 7.00 17.00 11.00 9.00 20.00 14.50

Colombo 11: Pettah n/a n/a n/a n/a n/a n/a 15.00 15.00 15.00

Colombo 12: Hulftsdorf n/a n/a n/a n/a n/a n/a n/a n/a n/a

Colombo 13: Kotahena 3.00 3.50 3.40 n/a n/a n/a 2.80 5.00 3.90

Colombo 14: Grandpass n/a n/a n/a n/a n/a n/a 5.00 7.00 6.00

Colombo 15: Mutwal 3.00 5.00 3.50 2.80 3.50 3.37 2.70 3.80 3.14 Source: RIU Research RESEARCH INTELLIGENCE UNIT

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