CB Gov. assures sustained growth in SL property market
Sri Lanka’s Central Bank (CB) Governor, Dr. Indrajit Coomaraswamy says the CB had no intention of restricting the country’s property sector and intended to assure the sector enjoyed sustained growth.
Until Coomaraswamy introduced stricter policies and regularly tried to stabilise the credit system, the country had had low interest rates until 2015 and excess currency production had increased asset prices resulting in a balance of payments crisis.
“We are trying to find out by working closely with the property developers association to have a granular understanding of what is happening there and whether or not we need to have macro-prudential measures. We want sustained growth in the sector. We do not want in any way to stifle the sector,” he said.
He said there were indications of the industry steadily slowing down, adding that here was high demand for middle and lower cost housing with concerns over luxury housing.
“Sector-wise measures are needed especially when administrative controls such as loan-to-value ratios are imposed on specific sectors instead of raising rates generally. Like a balloon squeezed from one end makes air flow to the other end, bubbles will go from cars, to property, land or stocks, usually to sectors that had not boomed recently,” he added.
However the BOP crisis is past and short-term rates which respond to market signals first have already started to ease, though lending rates are yet to fall.Over-ambitious projects are the first to run into trouble, which may have a knock on effect on other sectors as buyers and creditors get cold feet, analysts say.¹
Bubbles and BOP crises and asset-price bubbles happen when a central bank prevents rates going up early enough to curb excessive consumption and mal-investment in overly speculative ventures, which become unviable when rates go higher.²
OSL TAKE:
The Central Bank’s assurance of promoting sustained growth in the property sector is a positive sign that the country’s property industry will continue to remain an excellent investment opportunity.
¹http://www.economynext.com/Central_Bank_wants_Sri_Lanka_property_sector_to_have_sustained_growth__Governor-3-8807-1.html
| Article Code : | VBS/AT/02102017/Z_4 |