Opening Remarks at the launch of the “Housing Development Finance in Sri Lanka”

Mr. B.N. Ganegala, Secretary to Ministry of Housing and Common Amenities

Mr. Sarathchandra

Members of the Head Table

Distinguished Guests

Ladies and gentlemen:

Good Afternoon,

Thank you for the invitation to join you on this happy occasion of the publication of Mr. Sarathchandra’s book “Housing Development Finance in Sri Lanka.” It is heartening to note that he dedicates this book to his wife as the “great source of inspiration.” Warm congratulations to both of you. When a book is written with such support the chances of it becoming a winner are high and it then becomes a very valuable addition to the knowledge store of this country.

Mr. Sarathchandra presents to us a definitive and comprehensive review of the current state of the housing finance market in Sri Lanka. He takes a long hard look at realities, policies, stakeholders, and institutions, within each sub-market related to the field of housing finance; and presents to us an outline of available development options. 

As a banker with long years of experience, he amply demonstrates his mastery of the subject by proposing a new instrument to overcome the long term financing need of the industry.  This is of significant interest and warrants the attention of all involved in housing finance.

Sri Lanka’s housing finance market has demonstrated a positive trend during the past few years. Notably, we have witnessed within the last three to five years a very high growth path with over 30 percent growth in the market. Financial liberalization and private mortgage growth have changed the country’s housing finance landscape, and has bought new challenges such as an increase in housing finance related credit risks which the banking sector must learn to cope with. This observation by Mr. Sarathchandra is very timely and requires careful study.

The effective demand for housing is currently met by the private and state banks with the latter only contributing one-third. The demand originates from the high-income and the top portion of the middle-income population groups of the country. We note that the middle–income group is only marginally served and that housing development finance does not extend to the lower-income groups who could be viable mortgage borrowers under more advanced lending techniques.

Apart from this, he makes the stark point that the housing stock of the country is ageing and 30 percent of the current stock is estimated to be semi-permanent, needing substantial improvements. In order for the mortgage markets to rapidly advance and address these issues, it needs a conducive policy environment with a level playing field and product innovation. One other tested and proven method in improving housing finance is to create an enabling land use policy - India is a good example to cite as a success.

As he also shows, the clear winner in the market is the private sector. There is room for the two state owned housing banks to examine ways of incorporating further improvements so as to be a competitive lender to the middle-income groups. They could also play a more active role in the provision of lower-income housing. Transparent, direct and well-targeted subsidies to the low-income groups are needed and with it a precise estimation of the subsidy cost to the government.

The country’s home mortgage lending is low in comparison to other developed counties and accounts for only around five percent of the GDP. To nurture and develop a home mortgage market, one requires a stable macro economy, low inflation and prudent fiscal policies. As the figures presented in this book shows, the county has enormous growth potential in the area, but is currently constrained by many factors.  Primarily among these is the critical scarcity of long-term funding which is insufficient and competes at a disadvantage with government deficit financing; The other factors that impinge are the lack of credit information on borrowers; the loosely targeted subsidies to vulnerable segments of the society and a workable legal and regulatory system which is central for providing an enabling policy environment for housing finance.

Undoubtedly, the government has a catalytic role to play to improve the policy and regulatory environment.  If this is combined with the active participation of the private sector, Sri Lanka’s Housing Development Finance program will be much strengthened.

I look forward to an interesting and productive dialogues triggered by this book not only here but also within the financial community that will be invaluable for strengthening housing finance in Sri Lanka.

Thank you.