Progress in Construction, Housing and Urban Development in 2006
Construction Sector
During 2006 the construction sector recorded a growth of 8.0 per cent over a relatively high growth rate of 8.9 per cent in 2005. Tsunami related construction work continued to progress during 2006 as well, particularly in terms of housing projects, but at a lower growth momentum than in 2005 during which urgently required reconstruction activities took place.
Construction activities related to the development of the road network and improvements in the power sector, together with projects to increase the public access to water resources consumed a significant portion of the spending from foreign funding.
The expansion in the sector was also reflected in the growth in construction material consumption of both locally produced and imported items. Particularly cement consumption, which is a key indicator in the activity levels of the construction sector, continued to grow considerably in 2006 as well.
Private sector construction in housing and condominium projects expanded during the year as reflected by the growth in advances obtained from the banking sector for the purpose of housing construction. But the significant price increase in construction materials had a dampening effect particularly on small scale construction activities. The overall price increase in building materials were observed in the price indices published by the Institute for Construction Training and Development (ICTAD) with an increase of 19 per cent over an increase of 14 per cent in 2005.
The small industry sub-sector which recorded an impressive expansion of 9.8 per cent in 2005 decelerated to 5.3 per cent during 2006. The expansion in the construction sector exerted a positive impact on the small scale production of timber milling, rock metal production and tiles, bricks, cement blocks and related building materials.
Cement and building materials grew at a higher rate with the increased performance of the construction sector and the infrastructure development projects. Major manufacturers of cement and building materials have increased their capacities in order to meet the increasing domestic demand.
Housing Demand
The demand for houses and urban infrastructure is expanding rapidly with the population growth and urbanisation. The population is growing at 1.1 per cent annually, whereas the urban population is growing at a higher rate of 3 per cent. Trends indicate that more than half the population of the country would live in urban areas by 2016, requiring rapid development of urban infrastructure.
The annual new demand for houses in Sri Lanka is estimated to be around 100,000. In addition, there is an estimated housing shortage of 350,000. Further, about 30 per cent (about 1.3 million) of the existing houses are semi-permanent or improvised or unclassified needing substantial improvements.
Of the total number of about 114,000 houses destroyed or damaged from the tsunami, construction of 61,000 houses has been completed by end 2006 and construction of balance houses was in progress.
The long-term housing development policy, as indicated in the Ten-year Vision of the Government, envisages meeting a large part of the backlog and growing demand for houses. The policy aims at ensuring planned human settlements taking into consideration the population density, land suitability and environmental sustainability.
Adoption of vertical development approaches in high and medium density areas, implementation of participatory approaches wherever possible, developing housing finance market with primary and secondary mortgage financing facilities and providing government assistance for needy groups also constitutes the housing policy.
In addition to individual housing, government supported programmes and private sector investments are expected to provide 645,000 housing units during the ten year period up to 2016.
There are several government institutions engaged in facilitating housing development for targeted groups. The National Housing Development Authority (NHDA), the main public sector institution that implements housing programmes especially targeting low-income households, has introduced several new housing programmes. NHDA completed 46,021 housing units under various housing development programmes in 2006. Real Estate Exchange Ltd. (REEL) is planning to uplift the living standards of shanty dwellers of about 66,000 in urban centres within the next 10 years by providing them with better housing and other infrastructure facilities. The REEL has initiated construction of 910 housing units during 2006. It has so far liberated 666 perches of prime lands in Colombo by providing better housing facilities for settlers in those areas.
Private sector continued to play a vital role in the housing sector. Condominium housing development backed by corporate property developers has become one of the promising areas of investment. Construction of condominium housing is in increasing trend with corporate property developers being encouraged with various direct and indirect fiscal incentives, mostly under BOI status, and the growing interest of expatriate Sri Lankans to invest in the real estate sector.
Financing
Construction of houses expanded significantly benefiting from the growing housing finance market. Housing loans granted by financial institutions too increased in 2006 for individual construction of housing. Major commercial banks have granted 97,983 housing loans to the value of Rs. 34,227 million during 2006. The housing banks namely, the State Mortgage and Investment Bank (SMIB), Housing Development Finance Corporation Bank (HDFC Bank), and National Savings Bank (NSB) have granted 35,137 housing loans to the value of Rs. 12,187 million in 2006, in comparison to 22,501 loans in 2005.
Impediments
Rapid development of the housing sector is challenged by certain impediments. Exorbitant land prices in urban areas, problems in land titles preventing primary mortgages, lack of long-term funds for lending by financial institutions, lack of a secondary mortgage market, scarcity of skilled labour in the construction sector and rising prices of building material remain as major challenges.
The construction sector nominal wages increased within a range of 12 - 13 per cent as the demand for construction workers continued to rise in 2006. However, when adjusted for inflation, their real wages dropped marginally during the year. (Source Central Bank of Sri Lanka 2006 Annual Report).
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