New Act needed for more dynamic forms of condominium ownership

By Kirthi Hewamanne
A new Act is needed to protect consumers, and foster the Condominium Industry. There should be a new law that can keep pace with the changing needs of the consumers and businesses. That will also support the economy and will help to create more jobs.

The Condominium Industry was a vibrant and growing part of the Sri Lanka Real Estate market. In Colombo and the suburbs the market was particularly dynamic. The majority of housing starts in the country, in the last 5 years they have been condominiums. This includes Housing Estates, and they should definitely come under the Condominium Concept to protect the buyers.

However, there has been a sharp drop in condo sales, and it has almost reached a crisis point. The banks are reluctant to give mortgages for condominium buyers and also to fund condominium projects. This situation can be viewed as a short term crisis. There could be a dramatic change in the market, when the terrorist problem is brought under control. This could happen within the next 12 month period hopefully.

Is this the right time to buy?
For serious buyers, now is the time to look around and make decisions. There are over 4000 new condominium apartments in the market. With the escalating cost of building materials, and all other related costs also going up, the condominium prices will increase when the market gets active again. Our inflation rate is very high. Real estate is a solid investment and a hedge against inflation.

What is the most saleable price range of condominiums?
There is a steady demand for condos priced below Rs.8 million. This is the affordable price range for the great majority of Sri Lankan home buyers. Therefore, the developers should not ignore this market. The government should give more incentives and concessions, including land, to the developers, who cater to this segment of the industry.

Will there be a continued demand for luxury condominiums?
More affluent Sri Lankan home buyers will go for luxury condominiums. These are in the Rs.30 million ranges or higher. There are investors who buy condominiums in the range of Rs.30 to 60 million. There will be a demand for these condominiums when the political situation improves. This will happen when there is a comprehensive economic development plan and it is effectively implemented. Foreign investment is an important factor. The large number of Sri Lankans living overseas will come back to the local condominium market, when the security situation improves.

The condominium lifestyle - is it popular in Sri Lanka?
Condominiums are not everyone’s ‘cup of tea,’ but this is the best alternative home ownership style in urban areas. It is often said that buying a condominium is buying a lifestyle. It will give you an instant community feeling, and also provides more security and hassle free living, with all the benefits and facilities available.

What should be done to attract more home buyers to condominiums?

It is imperative that the developers change their marketing strategy and conduct awareness programmes on condominium living, to attract prospective buyers. Many facilities and benefits available should be clearly highlighted. There should be professional condominium sales executives and property managers engaged in this industry. They should have an in depth knowledge of the concept, to make prospective purchasers comfortable and confident, of this relatively new home ownership style.

Group insurance, travel, medical, dental and bulk buying, programmes can be introduced for the benefit of unit owners. A lot of recreational activities and sports tours should be arranged.

How could those who lived in large homes with a lot of furniture, get used to a 3 bedroom condominium?

“Less luggage, more comfort, make your journey pleasant.” The decision to live in a condominium is also a decision to change your lifestyle. The residents who have already taken these decisions are sure to enjoy living in a well managed condominium.

With are the changes taking place in the world economy, how is it going to affect

Sri Lanka?
The world economy is moving towards the East. China and India are going to be the economic super powers. There is no reason for any serious investors to bypass Sri Lanka. There will be a real estate boom! Therefore, this is the most appropriate time to bring changes to the Condominium Act.

Why should the present Act be changed?

The definition of ‘Condominium’ is often too rigid to permit new and more dynamic forms of condominium ownership. The Apartment Ownership Act was last revised in 2003. Since then many condominium owners, property managers and other individuals who are engaged in this industry have become disenchanted with the Act. The current framework of rights and responsibilities are being seen as out of focus. Responsibilities are not clear and the legislation is often inflexible.

What are the new types of Condominiums can be introduced?

The new types of condominiums are: Vacant land condominiums, Common elements condominiums, Amalgamated condominiums, Phased condominiums, Leasehold condominiums and Industrial condominiums.

These new types will allow the industry to address a variety of consumer needs by allowing freehold and leasehold condominiums beyond the standard condominium types now in existence.

What are leasehold condominiums?

Standard condominiums should also be able to construct, on leasehold lands. Institutional lands can be used for condominium projects, and these institutions can still hold title to the property and earned revenue too. Leasehold condominiums can also be developed on government owned lands. This type of condominium will reduce the unit prices considerably.

What are the new types of condominiums which will be more popular in Sri Lanka?

The Common Elements Condominiums can be a ground breaking concept, increasing the range of options in planning and designing, community housing and resort type projects. All housing estates will also come under these types of condominiums. This will give increased protection to the consumers/homebuyers.

How can the condo owners have more protection for their investment?

The new Act should provide increased protection to the consumer through more detailed disclosure requirements prior to the sale of a condominium. The following issues must also be addressed in the New Act.

An owner’s share, on termination of a condominium, after the life span is over, will be significantly small. However, if the condominium is maintained properly the building will ‘last for ever!’ The Condominium Managers have a major responsibility to make sure these buildings are well maintained.

The condominiums built, during the building boom in 1980’s are now completing their first life cycle. Now they are facing major repairs. Reserve funds established during the creation of these condominiums were not meeting replacement and repair costs needed.

There should be mandatory post construction audits of common elements, carried out by independent engineers. On going reserve fund studies should also be conducted to ensure adequate funding is available for repairs, throughout the life of the condominium.

The new Act must also offer alternatives for resolving disputes between Condominium Corporations and unit owners, such as mediation or arbitration. The buyers should find out the percentage of units the developer intends to lease, as this will give an idea of how many tenants are going to be in the building.

If the Board makes occupancy standard by-laws, this would help to control overcrowding that may result from renting out units.

The new Act should cover the secondary sales of condominiums and by-laws should be introduced to protect the purchasers.

Renting of condominiums should also be regulated by the Condominium Corporation to ensure that no undesirable tenants move into the building.
The Way to Revise the Act

Regulations to the Condominium Act must be developed after extensive consultations with many stakeholders, including unit-owner Associations, Condominium Managers, Developers, Planners, Engineers, Architects and Solicitors.

The Ministries of Housing, Urban Development and Consumer Affairs, have to join with stakeholders to develop a solid regulatory framework. These ministries must combine the expertise of their own personnel with that of the industry experts to produce regulations which will deal with a variety of novel and complex condominium concepts.

However, the task of drafting the Regulations to accompany the new concepts in the new Act can be monumental. The whole exercise is to develop a solid regulatory framework that will enhance the legislation which will help and protect everyone in the industry.

How could the government help the industry at this crucial time?

The introduction of a 5% tax of the total construction cost is a heavy burden at a time of escalating building material costs and other overheads. The government should postpone collecting this tax from the developers at present.

The developers and the contractors should form an Association to make it a strong lobby group. They should be able to advise and work with the government on all Real Estate issues affecting the industry and the country. This is done in most developed countries.

Multiple Entry Visas should be issued to foreigners who buy luxury condominiums. They should be given incentives to spend more time and money in Sri Lanka. The Condominium Industry should work together with the Tourist Industry at Building Resort Condominiums and apartments for tourists, which will help both industries.

There have been 250,000 British citizens who have bought tourist condos and chalets in Spain. This brings the Spanish economy a large amount of foreign exchange regularly. It has created many jobs and businesses as a result.

The government should assist developers to have access to foreign funds with more reasonable interest rates to keep the industry moving.

There are many ways the government, condominium and the Tourist Industry can work together for the greater benefit of the country and these industries.

The writer is a graduate of the University of Ceylon, Peradeniya. Award winning Realtor in Canada, with wide experience in all aspects of Real Estate including the Condominium Concept. Held Membership in Canadian Real Estate Association, Ontario Real Estate Association & London-St.Thomas Real Estate Board, Ontario. He could be reached via email kirtih@sltnet.lk