Condominium price dynamics in Sri Lanka: correlation with inflation and periods of concern

Abstract

This study conducted in Sri Lanka’s commercial capital – Colombo, investigated temporal variation of condominium prices from 1998 to 2018, to identify price – inflation relationships and periods of concern. The price increased non-linearly with time without abnormal trends. Unit root, cointegration and vector error correction method tests showed inflation can explain temporal variation of semi-luxury condominium’s price appreciation, and it showed a statistically significant (P < 0.01) positive impact in the long run. Price appreciation and inflation showed a weak negative, yet statistically significant impact for luxury condominiums. The impact of inflation on price appreciation in the short run was mostly a negative correlation and as per explanatory powers the impact was minor. It seemed that Sri Lankan condominium market would mostly be without any periods of concern considering the increasing presales and the decreasing price to rental ratios. However, there is a continuous increment of the ratio between the price and household annual income, and it was about 5.25 as at 2018 (price bubbles occurred when this ratio is over six). More studies are recommended specially on future periods of concern and studies that incorporate ultra-luxury apartments being developed by international developers.