Hardy Jamaldeen - real estate during contemporary times
Understanding the dynamics of the complex real estate market in Sri Lanka with Hardy Jamaldeen, founder of Steradian Capital Investments.
In this detailed interview, Mr Jamaldeen sheds lights on the functions of his firm, the effects of COVID-19 on the real estate market and his take on whether the real estate boom is a bubble awaiting for its end.
“Steradian Capital Investments Ltd is a multi-faceted consultancy and advisory business providing services and solutions to both foreign investors investing into Sri Lanka and local entities exposed to Sri Lankan Real Estate” – please elaborate on how this statement reflects your business operations.
We are very focused in what we do. Given our vast experience in real estate in both London (UK) and Sri Lanka, merging these two experiences enabled us to build a reliable and firm platform in Sri Lanka. We have put in place an ultra-efficient, seamless process to facilitate foreign investments into Sri Lanka, which we have effectively utilised to bring in significant foreign investments into the country.
Our rigorous process in acquiring property commences at the initial identification stage. Thereon we follow stringent practices for key stages such as due diligence, financial feasibility, bid offer, acquisition and post – acquisition.
Our in-house planning and development teams have been involved in several engagements and have successfully executed many transactions. We have on the ground knowledge and expertise to navigate the regulatory waters in order to achieve our objectives with an extremely quick turnaround time.
Our expansive network ensures that we have access to the most exciting deal flows in the market with potential first mover access.
Given our success over the years, we have now moved into advising Ultra High Net-worth Individuals (UHNI’s) and corporate institutions on maximizing their real estate investments.
Sri Lanka still stands as an emerging market in terms of real estate, why is it advisable for individuals to diversify their investment portfolio by looking at opportunities here?
When anyone decides to invest in Real Estate in Sri Lanka, you are indirectly investing in Sri Lanka’s growth story. I am positive about Sri Lanka and the potential it has to offer. We are yet to reap the full dividends of the end of the 3-decade old insurgency. Our economy is yet to open fully and reach its potential. We are confident in the existing administration and their efforts in providing a platform for future growth despite the setbacks. The demand for real estate in Sri Lanka is continuously trending upwards with more and more people looking at moving to the urban areas from the suburbs. Further, the developing road infrastructure has caused the prices of properties adjacent and close to the expressway interchanges to significantly move up in price. With the development of advanced infrastructure that we envisage, the connectivity between areas will improve vastly. Land prices in these areas will certainly rocket up. There are plenty of opportunities in Sri Lanka to derive highly competitive returns via investments in real estate. Blindly investing in just any real estate property should not be done as all real estate investments will not provide the same level of returns. A careful and well thought out process of identification, analysis and acquisition needs to be adhered to.
Tell us about you track record of successful projects in this sector.
We have been acquiring, developing and managing property since 2013. Our first foray into Sri Lanka was the acquisition of a large land parcel in the North of Sri Lanka. Overtime, we successfully invested in several real estate projects and one listed company on the Colombo Stock Exchange. Our current real estate portfolio comprises land banks, assets under planning, assets under development and operational assets spanning residential, commercial and leisure.
We have provided rupee investment returns exceeding 27% IRR and USD returns exceeding 20% IRR. These returns are not only regionally but globally competitive as well. Our investors and shareholders in the business have provided us with all the support and investments required for us to deliver. We will do just that.
What are some entrepreneurial challenges faced in establishing a real estate business in Sri Lanka? How did your team overcome these challenges?
First and foremost it is about piecing together the correct team and putting all the required systems in place. The team members need to be selected carefully and they need to be equipped with the necessary knowledge to carry out their tasks effectively. Overtime, the exposure will allow them to achieve proficiency. The team needs to be kept close, trained, mentored, their roles systemized, a desirable work ethic inculcated and then allowed to explore within the framework.
Achieving ‘Planning’ is a vital component for any real estate firm that is serious about its business. If you do not have the necessary in-house expertise and the relentless persistence to succeed, you will not survive in this industry. Historically, ‘planning’ has been a cumbersome, time consuming activity that was laced with bureaucratic red tape. Since our critical focus is on delivering above the market IRR’s for our real estate portfolio, it was imperative that certain laws and processes were streamlined and made more investor friendly. We have to critically ensure that we fully understand the current framework and work efficiently within the existing framework to achieve our planning objectives.
We have been in the forefront of lobbying for real estate and investor reforms and have been successful in this regard. The amendment to the Land (Restrictions on Alienation Act) is one such instance.
Working very closely with the local regulatory authorities on several successful transactions has provided us with deep level knowledge on the local mechanisms. We have strived to continuously educate the regulators and the officials on the developing global real estate trends and processes as we are very sincere in our attempt to benchmark and implement globally accepted real estate practices in Sri Lanka. We are leading this initiative from the front and will not rest till this objective is achieved.
Can you comment on how the COVID19 outbreak will alter the market dynamics of real estate investments, both locally and internationally?
COVID-19 has resulted in significant financial implications for most businesses. This has resulted in decreased cashflows, staff salary reductions and layoffs, halting of business expansions etc. Actions such as this will certainly impact the real estate markets locally in a negative manner. People who wished to acquire housing and make investments in other real estate projects may defer such investments given the Cashflow constraints. The rental markets may experience a downward shift in investment yields given the rent reduction requests that are taking place. Overall, from a local perspective, this is the best time for real estate investors who are in cash and able to invest as they will be able to acquire properties at discounted values given the economic climate. For the sellers however, the time is not the best. Internationally, you will see a slowdown in the real estate space with certain projects being stalled or halted. A downward shift in prices are expected to be in-line with global trends but the bounce back is expected to be faster in areas with a higher population density. Given COVID-19, we have noticed that certain clients are not too keen in extremely closed workplaces as they intend on establishing and maintaining a reasonable physical distance between colleagues. The ‘sweatshop’ call center concept may not be the most desirable floor plan for clients going forward. There are other market dynamics that have come into place post COVID-19 which are centered around improved hygiene and health and safety standards.
What strategies have you put in place to ensure that Steradian Capital will remain relevant in a post pandemic era?
The name of the game is survival. We need to ensure that sufficient cash is available to survive. You need to put aside your prior return expectations and sustain yourself till the demand and supply imbalance normalises, which we expect to take place over the short to medium term. During the period of normalisation, the recovery process is expected to take place more aggressively than initially anticipated.
We are firm believers of proactively anticipating change and adapting. It is only then that we can say that we are truly resilient. We have increased the emphasis on embracing technology and was successful in implementing a Work from home (WFH) system which enabled us to get on with business unhindered. We will continue to invest in new systems and look at engaging with our wide and diverse range of clientele by taking advantage of the latest emerging tech.
Our strategies are continuously evolving to keep pace with the changing needs to the end users in the real estate sector. We have had to change our game plan since the health and safety aspects involving residential and commercial real estate has evolved post COVID-19. Luckily for us, we were ahead of this curve well before the COVID-19 pandemic and we were able to transition seamlessly into meeting this need without having to make significant changes to our game plan.
Critics often comment that booms in the real estate markets are bubbles that are awaiting a burst, can you comment on this?
I disagree with this notion entirely. Real estate is a finite resource. Sri Lanka is an island with limited land availability. The entire area of Colombo is only 37 SqKms. The demand for land is growing exponentially and this is clearly evident if you look at the sale price per square foot that is continuously trending upwards despite the occasional downturn that is brought on due to economic slowdowns.
It was Ray Brown who said that “The best time to buy a home is always five years ago” and this statement deeply resonates with me. It should be said however, that there does exist the possibility that certain real estate investments that warrant large cash outlays may experience a more pronounced slowdown than real estate where the price points are more affordable and within the reach of the average consumer. Despite these industry dynamics, the demand for housing will always grow and the demand for affordable housing will certainly outpace the demand for ultra-luxury housing. The long-term demand requirement for say apartments in the Colombo metropolis is essentially four times the supply pipeline that is currently in place. An immediate down turn in the real estate industry due to macro dynamics despite being perceived as a bust is almost always a temporary phenomenon. Real estate for the purpose of investments should not be looked at from a short term perspective although there will be potential mispriced opportunities to take advantage of. Real estate should be looked at from a medium to long term perspective and it is only then that you can ride out a potential temporary downturn and derive returns that are competitive.
During these uncertain times, how can you reassure investors that an investment in this sector is a sound one?
My grandmother use to say that investing in earth and buildings will never go wrong. I am a strong believer of this notion. As I have previously stated, during periods of uncertainty and economic shock, compelling real estate opportunities emerge. Pricing will certainly come under pressure due to this temporary economic down and there will be investment opportunities that emerge. Real estate is an investment that is tangible and serves as a hedge against inflation. It can be considered as an asset class that increases in value overtime given that it is a limited resource on earth. There is no natural generation of land besides volcanic activity and earth quakes that may add sporadic blips to the existing land base. You would have noticed that land filling is a technique used by countries to add key land parcels to the existing geography. Ex. Port City Sri Lanka, Palm Islands in Dubai. The global population is continuously increasing and housing is a basic need of any human. Whilst buildings that are now being built are becoming taller, the land that is required to facilitate such skyscrapers need to be bigger. The demand for land will always be there and no sign of slowdown is predicted even in the long term.
Sri Lanka is further on a drive to facilitate FDI’s into the country, bringing with it the setting up of multinational firms in the country and an international workforce. Hence, the housing requirements will increase as a result. We have received several inquiries from senior expatriates who are looking at moving back to Sri Lanka and they wish to acquire holiday homes in areas outside of Colombo.
The measures taken by the Government of Sri Lanka to combat COVID-19 needs to be lauded and as a result, the bounce back of the real estate sector despite not being immediate will be much faster than initially envisaged. Given all of the above, we are confident to recommend to investors, the great upside that investments in this sector could bring.