WHAT WILL 2016 BRING FOR REAL ESTATE IN THE EMERGING MARKETS?

As the New Year begins, the big question on all real estate professionals’ lips is: what will 2016 hold? Migration away from capital cities, infrastructure improvements and increased international interest from investors are just some of the expected developments for real estate markets within emerging nations, including Sri Lanka.

1. App focus
Mobile is driving innovation in developing countries. Internet users in these countries are skipping the traditional desktop usage, and moving straight to mobile. While 2015 saw more emerging markets-focused companies developing their Internet presence, 2016 will see real estate professionals turning their attention to apps.

As a result of high costs of Internet services in many developing countries, apps are increasingly popular when it comes to interacting with online companies. As Internet penetration strengthens in second-tier and suburban areas, reduced mobile connectivity costs, more affordable SIM cards and the evolution of mobile technology are driving app usage.

2. Second-tier growth
Industry professionals have already noted the increased attraction of second and third tier cities in emerging urban areas. Rapid population growth has led to physical growth of urban areas in cities including Colombo, Jakarta, and Manila. As larger cities become slowly saturated, real estate developers and investors alike are turning their attention to cities such as Kandy and Galle. In second and third tier cities, property is significantly cheaper as a result of higher land availability and lower building costs.

According to Hugh van der Kolff, managing director of online real estate platform Lamudi Sri Lanka, “2016 will see the development of Sri Lanka’s smaller cities. The government must invest in these cities to improve transport services, water and electricity supplies, and develop their infrastructure so that they can compete both with Colombo, and on an international scale.

“In these cities, developers are faced with lower land, resource and building costs; as a result, investors get more for their money. This makes these second tier cities a very attractive option for real estate professionals,” he concluded.

3. Commercial property growth
As countries such as Sri Lanka experience rapid population growth, urbanization, and economic development, demand is increasing for commercial property. This includes mixed-use developments, shopping malls, retail space and office units.

The next 12 months will likely see an increase in commercial property developments across Sri Lanka, and neighboring countries, as the sector must accommodate population and tourist growth, as well as increased interest from international corporations. These projects are not only driving economic growth, they provide employment opportunities, and boost the value of surrounding properties.

4. REIT availability
Will 2016 be the year of the real estate investment trust (REIT)? The last 12 months have seen a number of real estate investment trusts opening in the emerging markets, encouraging investment into the sector. In October of 2015, the Capital Markets Authority approved Kenya’s first income real estate investment trust, also known as I-REIT, to be issued by investment manager Stanlib Kenya. This marks the first ever license to an asset management firm, to list on the Nairobi Securities Exchange (NSE). In June, Pakistan’s first ever REIT was launched, paving the way for expected growth in the country’s commercial property sector.

More emerging nations are expected to follow this lead over the next 12 months. Following the announcement of Sri Lanka’s 2016 budget, industry experts forecast the creation of the country’s first REIT, to encourage local and international real estate investment.

5. Increase in foreign investment
Laws are changing in many of the emerging markets. While it is still not legal to own property in all countries, new legislation is being drawn up to encourage real estate investment.

Sri Lanka’s Finance Minister announced plans to remove the 15 percent land leasing tax for foreign investors, which is expected to have great impact on the local real estate market. The removal of land lease tax for foreigners is expected to increase the number of international investment into the sector.