Pioneer developer says middle class salary earners can’t afford city apartments
Escalating construction cost over time has become a major challenge to the property development industry, Mr. D C R Gunawardena, Chairman of Equity One Plc., with which the Carson Cumberbatch group entered the real estate business by developing a commercial building on Dharmapala Mw., Colombo 7, over three decades ago.
Given current construction costs, he has said in the company’s annual report, their focus currently lies in maintaining the existing properties of the group to be in line with industry benchmarks while providing a superior quality service to their tenants.
"Considering our modest cash flow from current operations, coupled with the existing commitments pertaining to debt servicing and capital expenditure, we are reluctant in taking on additional borrowings for large scale development activities due to our limited ability to service such debts," he explained.
"As we have mentioned in the past we will continue patiently to maintain our position until a feasible opportunity arises to realize potential value."
In a business review, Carson’s Management Services (Pvt.) Ltd., the managers of Equity One, said that the impact of rising construction cost is a significant challenge faced by the overall property industry, given its impact on return on property development projects and on recurrent expenditure on property renovation and maintenance.
They further commented on the disproportionate growth in property prices and average income levels of people that has made it difficult for mainly salaried middle class income earners to afford residential property in the vicinity of Colombo and within the city limits.
"This is clearly visible in the residential apartment segment where based on the trend in valuations, the number of years of salary it takes to acquire an apartment from the city has increased significantly over time," they said.
The year ended March 31, 2015 saw Equity One, which owns a 0.524 ha. property at Vauxhall Lane, Colombo 2, with three buildings, in addition to the Dharmapala Mw. property, posting a group profit of Rs. 403.9 million, up from Rs. 192.7 mn. a year earlier. At company level there was a profit after tax of Rs. 244.5 mn., up from Rs. 127.4 mn. the previous year.
Much of this profit arose from the overall appreciation of investment property under the Equity One group resulting in a net unrealized gain of Rs. 300 mn. At company level, an operating profit of Rs. 58.7 mn., excluding the impact of change in fair value of investment property and gains booked on divestment of investment property.
"Compared to the same for the previous year, this was an increase of 12.8%, mainly stemming from rental revisions and letting of the Dharmapala Mw. building penthouse on a long term basis during the year under review.
Equity Two Plc., a group company, owns two buildings at Janadhipathi Mw., Colombo 1 standing on 0.072 ha. and 0.146 ha.respectively. These buildings had a market value of Rs. 363.7 mn. and Rs. 561.18 mn. while the Dharmapala Mw., property was valued at Rs. 763.4 mn. and the Vauxhall Lane property Rs. 652.3 mn.
A third group company, Equity Three (Pvt.) Ltd. owns two buildings standing on 0.208 ha. of land valued at Rs. 279.3 mn.
Gunawardena said that the much awaited re-opening of the entrance to Janadhipathi Mw. was commendable. However, access to their two properties via Janadhipathi Mw. is still restricted due to the guard fence erected between the roadway and the buildings.
"Whilst we strongly commend the initiative to open Janadhipathi Mw. – even as a thoroughfare – we would also like to make a humble plea to the authorities to remove the guard fence and permit full access to the buildings via our main entrance to the property," he said.
Gunawardena made the further point that the opening up of the roadway itself will be a likely catalyst enhancing valuations of the Equity Two buildings located in the area.
Equity One has a stated capital of Rs. 1.085 bn., a group capital reserve of Rs. 13.2 mn. and group revenue reserves of Rs. 1.14 bn. At company level, the capital reserves stood at Rs. 13.2 mn. and revenue reserves at Rs. 705.1 mn.
Total assets of Equity One stood at Rs. 2.06 bn. and total liabilities at Rs. 253.6 mn. At group level, total assets were Rs. 2.78 bn. and total liabilities Rs. 448.3 mn.
Carson Cumberbatch with 96.27% of the company is the dominant shareholder with all other shareholders owning less than one per cent individually.
The Equity One share closed at Rs. 42 on March 31st, 2015 trading between a high Rs. 56.90 and Rs. 27 during the year. This compared to a closing price of Rs. 27.60 a year earlier and a trading range of Rs. 35.70 – Rs. 25.40.
The directors of the company are Messrs. D C R Gunawardena ( Chairman), S Nagendra, K C N Fernando, E H Wijenaike, A P Weeratunge, S Mahendrarajah, and P D D Fernando.
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