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Sri Lanka budget exposes tile firms to more competition, boosts property sector

ECONOMYNEXT |7.03.2019

Tile companies will face more competition with some tariffs lowered or removed in the government budget for 2019 but construction firms will gain from measures to boost property development and infrastructure, an analysis by First Capital Holdings said.

It said the government’s 2019 budget presented to parliament Tuesday continues with its plans to remove para-tariffs in its process of liberalisation but has laid down a strategy for its implement at a slower pace of 3-5 years.

“Reviving local industries especially construction has been targeted with measures to promote local construction and lower construction costs,” the report said.

To support the middle-income, first-time home buyers, the government will launch a concessionary loan up to 10 million rupees at a six percent interest rate with a repayment period of 25 years called “Home Sweet Home” loans.

This budget proposal will benefit listed construction, building material companies, and banks, with increase revenue for construction and related companies and lower default risk for banks, First Capital Holdings said.

The proposal to compel foreign construction companies to form a joint venture with a local firm to be allowed to tender for government projects, unless it is fully foreign financed, should benefit Access Engineering and MTD Walkers, it said.

First Capital Holdings also said the cost of construction will reduce with the proposed para-tariff revisions and the removal of Nation Building Tax on the main construction contractor and the 30 percent reduction in cess on imported construction material.

These proposals should benefit Access Engineering, ACL Cables, Kelani Cables, Sierra Cables, Alumex, Unisyst Engineering, Swisstek (Ceylon), Lanka Walltile, and Lanka Tiles.

“The cost of the infrastructure projects will be reduced by the removal of NBT on the main construction contractor,” the report said. “Reduced cost provides capacity to handle a higher number of projects.”

“Aluminium and cable companies are likely to benefit on the back of lower raw material costs,” First Capital Holdings said. “Tile companies are likely witness increased competition from importers.”

Construction and firms involved in real estate like Overseas Realty and John Keells Holdings will also gain from proposals that will increase demand for apartments by foreigners and those booting infrastructure and property.