High import taxes on ceramic tiles, sanitaryware and steel are keeping construction costs high, Sri Lankan developers have said in a real estate survey by Research Intelligence Unit (RIU).
Heavy taxation on construction materiel was cited as the third most critical issue facing the construction industry in the survey by the property consultancy.
“Most of the material used in the construction is imported and comes under heavy taxation,” it said in a statement.
“To mention a few, steel bars and rods are taxed at 89.66%, ceramic tiles at 107.6% and sanitaryware at 72.4%,” it said, citing data from Advocata, a think-tank. “These taxes have become prohibitively expensive for developers to offer attractive packages.”
The average cost breakdown of construction showed that construction materials take up about 30% of the total cost, the largest component of the cost.
Second was the cost of subcontractors which amounts to about 25% of the total cost. Construction labor accounted for 20% of the cost while non-labor construction was only 10% of the total cost.
Most of the survey respondents said they felt the situation of the construction industry had not changed compared to previous years with 25% saying the situation has improved and only 13% feeling it has worsened.
Respondents expect the luxury apartment market to further expand and have a strong growth potential compared to other sectors.
Some 35% believe that the hotel sector will have good prospects for the construction sector.
The recent performance of the tourism sector it is likely to impact positively on both luxury apartments market and hotel industry with the latter having a cross-fertilization effect, RIU said.
The third most lucrative sector (31%) for the construction industry is the semi luxury apartments and housing sector, the survey found. “The demand for urban housing is largely under-served and pressing,” it said.
RIU said 56% of the respondents said labor shortage is the number one issue faced by the industry. An
RIU study conducted early this year revealed that the industry is challenged by a shortage in skilled construction workers. RIU also predicted labor shortage can increase wages consequently causing cost of construction to go up by at least 7%.
The second issue faced by the industry is high land prices while the third most critical issue is the heavy taxation on construction material.
One wonders if the continued policy of attracting Chinese investment (witness the huge port development) and therefore the opening of the market to cheaper Chinese exports is going to have a material effect on the industry in the coming 2-3 years. These are challenging times for Sri Lanka’s manufacturers, as they come under pressure to keep prices competitive.
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