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Against the consensus view

The Prince of Kandy

Given the recent passing of Mangala Samaraweera, it is important to set out at least a few things so as to show disagreement with the consensus view. Samaraweera was a polarizing figure with his stance on ethnic reconciliation drawing adoration from some and hatred from others. Here I will contend that those adoring him and those hating are both misconceived in their views of Samaraweera.

Samaraweera in his own words was defending the armed forces from a more thorough investigation of their actions in the conflict. His establishment of the Office of Missing Persons, various nuances in the co-sponsored resolution, and backroom dealings all helped Sri Lanka buy for time. Though much of the foreign policy victory should be given to Wickremesinghe there is no doubt that Samaraweera though a horrible finance minister was a very adept diplomat.

People with actual power in positions of public interest are rarely put under much public scrutiny in our country. A recent piece I wrote on recently deceased Rajendran Rajamahendran was very difficult to get published but was done so here[i]. The sickening deification of people recently passed is not out of our forgiving and understanding nature but rather our sycophancy and the hope that we too receive such treatment in our own passing. I am far from a saint but at least I am not a moron.

Personal View

The United National Party has by far the worst record on ethnic harmony. The UNP though antecedent of the Ceylon National Congress was behind much of the racial tension in Sri Lankan history. Through extremely divisive policies the UNP created both the JVP and LTTE.

Beginning from the 1980s the UNP used state-backed violence to create communal disharmony in such a manner as to retain power. The UNP of the time embodied, contrary to the principles of the Ceylon National Congress and the notion of a United Nation within its name, the very ethnocentric elements of the SLFP.

This worked wonders as any intelligent criticism of the government would also probably be by someone who would be easily castigated as being against the majoritarianism of the government. In other words, people like Cyril Mathew could be used to reign in any elements averse to the brazen corruption of the executive presidency. This trend continues today with the likes of the Jathika Hela Urumaya and Bodu Bala Sena being propped up by the major two parties (which represent broadly one set of policies). The SLFP could and should have thrown the UNP under the bus when facing international pressures on the outcomes of the war. This alongside the brazen Western alignment of the government in the 1980s would have gone a long way to allay pressure on the country.

Though I have great respect for Ranil Wickremesinghe I do not think by any metric he or even Mangala Samaraweera made a tangible difference to ethnic reconciliation. The UNP making bigger admission of its role in state-backed violence against minority communities would go a long way in coming to a long-term solution.

Wickremesinghe being a member of the government in the 1980s is unlikely to admit at best his government’s blatant cowardice and at worst obvious complicity in the incidents that took place. In politics, you have to be pragmatic. The Tamil polity should build ties not with the policies but with the people of the JVP and form a united movement against the Executive Presidency.

Back to Mangala

Samaraweera’s political journey has been quite different. He was a human rights campaigner in the 1980s during the Ranasinghe Premadasa presidency. But as a member of President Chandrika Kumaratunga’s inner circle, Samaraweera was known for his cut-throat political style and his markedly illiberal approach to governance. In 2005, when he served as manager for Mahinda Rajapaksa’s presidential campaign, Samaraweera ran a nationalist electoral battle that alienated moderates and ethnic minorities.[ii]– Mangala’s moment?

The above quote was from a piece published this July. In contrast to the sentiment expressed in recent opinion pieces Mangala’s politics rarely if ever seem to show a large principled stand on political issues. Think about how ridiculous it is to deify Mangala Samaraweera as a champion of ethnic harmony.

Samaraweera owes his beginning in politics largely to the Bandaranaike family who he actively supported even while within the UNP. He and his personal staff sing the praises of Sirimavo Bandaranaike. Need I tell you that the Bandaranaike’s were behind the Sinhala only policy.

Though his budgets gave large reference to the Northern regions, the elements that were implemented largely took the form of huge tax breaks to those that have historically backed the UNP and are currently bank-rolling the SJB. Nowhere did he create expenditure (the most effective way) that brought about investment in the Northern regions.

How can people without any concern for plausibility suggest that Samaraweera or for that matter any politician believes in their own rhetoric? Do these same idiots believe Mrs Perera who recommends[iii] that we drink Rathi milk powder? The latter being an Indian female actress pushing a brand owned by a New Zealand based multinational. Given the advertising revenue model, the television waves only broadcast what the powerful want you to hear.

Samaraweera championed what suited him at the time. The Premadasa’s tendency for brutality (Sajith has come out fervently in support of capital punishment[iv]) has both been ignored and wildly confronted by this one man.

The War

Though there is a lot of advertising and political interest in painting a certain historic view of the war think about how deluded it is? UNP leaning individuals fervently believe that it was Wickremesinghe’s splitting of the Karuna faction and international diplomacy that isolated the LTTE and lead to the war victory. Rajapaksa loyalists believe that it was the bravery and resolve of the leadership that brought about the victory.

No one stops to think that the tsunami of 2004 had a major impact in weakening the LTTE. No one within this shameless vote grabbing rhetoric further stops to acknowledge the massive costs paid by our armed forces in delivering that victory.

Chief amongst those ignored is one Dr Amith Munindradasa without whom Sri Lanka would not have had the long-range weaponry that gave the country the edge required to continue advancing. The entire notion of ‘No-Fire Zone’ is a testament to how effective Sri Lanka’s long-range equipment was in defeating the guerilla tactics of the LTTE. Interested parties can read War Games by Leo Murray which details how suppressive fire causes enemy soldiers to either fuss, flee, or freeze.

Dr Munindradasa though a national hero does not have proportionate appreciation by the general public. Many don’t know that he died in Israel, one of the leading centres for arms dealers, under very suspicious circumstances.

USAID

Head of USAID Samantha Power with Mangala Samaraweera.

Mangala’s death was more concerning to the establishment than it was to the general public. The elite liked him as they knew he would not go against their interests. Amongst the most powerful messages of condolence was from one Samantha Power who currently heads USAID. To quote the tweet[v] released on an official USAID social media account.

Mangala fought for justice & for reconciliation. As Foreign Minister, he pushed to create the Office on Missing Persons, & for reparations to war victims and survivors. As Finance Minister, he orchestrated the forgiveness of loans taken out by desperate families after the war.

As alluded to before the Office of Missing Persons is a dud institution. Further under the Yahapalanaya government microfinance ballooned and most people are aware of its nefarious impacts on society. Those with an anti-Western bent will go so far as to point that it was the IFC that helped create many of these highly predatory instruments and that they also back the large corporations that administer them.

USAID is an organization that has nefarious impacts and funds a lot of the so-called ‘Think Tanks’ in our country. They have targeted spending to influence key people in the media, judiciary, and policymaking of the country. Contrary to the name they aren’t allocating a serious amount of money to the building of wells in rural schools.

To quote research: Human Rights Practices and the Distribution of U.S. Foreign Aid to Latin American Countries[vi]

“The distribution of U.S. foreign aid among Latin Ameri- can countries has tended to reward human rights violators and punish human rights champion.”

Samantha Power addressing an event in Sri Lanka celebrating Samaraweera’s 30 years in politics.

Norway

Former Minister of International Development of Norway Erik Solheim came out with a message of condolence for Samaraweera. Solheim was a key player in Wickremesinghe’s ploy to pivot the Western agenda against the LTTE.

Wickremesinghe picked Norway as it is notably both a member of NATO and also a country that is insignificant. Norwegians in the bid to seem important were invited to play a role in the Sri Lankan conflict.

Norway also interestingly is a country with a horrible track record against minorities. Norway’s long history of actions against the Sámi people is atrocious. They were very unlikely to bring about definitions and mechanisms that would in any way be used against themselves.

If the war had escalated before the tsunami it is unlikely that Sri Lanka would have won. Given that it isn’t even alleged that Wickremesinghe as opposition leader called on Rajapaksa to stop the advancing forces we must assume that he too was in support of the actions of the armed forces.

Given that Rajapaksa and Wickremesinghe get on so well it should be assumed that they don’t expect to tarnish each other’s reputation. As mentioned before it is unlikely that the SLPP will push the UNP under the bus in terms of its record on ethnic reconciliation and it is unlikely that Wickremesinghe would question in any serious manner the actions of the armed forces.

True Patriots

Samaraweera’s last venture in politics was the True Patriots organization. A self-proclaimed non-partisan front with no transparency on funding that existed with no clear purpose (largely rhetoric) and no desire to contest elections. The organization was largely a joke which without Samaraweera will become obsolete. The headline however stands as it contends that Samaraweera as Foreign Minister stood by the armed forces.

In the long run, it would be beneficial for Sri Lanka to acknowledge and come to terms with its very violent and deep-rooted system of state violence. However, for the sake of national interest, the ending of the civil conflict can only really be questioned by the citizens of that country. Any system of punishment or inquiry will invariably have to cut both ways (inclusive of released LTTE cadres) creating deeper fractions within society.

To paraphrase what Wickremesinghe said once when abroad when questioned on the fact that Sri Lanka had done little to live up to its commitments at the UN. He noted that at the end of the day it was up to the Americans to come to terms with what they had done to the Japanese American population during the second world war.

On this issue, one can not deny that Samaraweera was deeply a patriot. Those arguing otherwise should point to where he actually failed the Sri Lankan armed forces on their track record during combat. Broader society would probably feel that Samaraweera committed a necessary evil in his actions.

Is convincing the Tamil polity to engage with the fruitless venture of the Office of Missing Persons, morally right? Is promising economic prosperity to war-torn regions and then creating tax incentives for the Colombo elite who control sentiment expressed by human rights institutions morally justified? The issue of whether Patriotism is virtuous is something that you will have to decide for yourself. You would however have to be stark raving mad to assume that Samaraweera is not burning somewhere in hell or has in any way attained enlightenment.


[i] https://www.colombotelegraph.com/index.php/shall-we-decide/

[ii] https://www.ft.lk/ft_view__editorial/Mangala-s-moment-/58-720875

[iii] https://www.youtube.com/watch?v=4aZYDwso7R4

[iv] https://economynext.com/sri-lanka-opp-leader-wants-death-penalty-for-terrorists-drug-traffickers-84353/

[v] https://twitter.com/PowerUSAID/status/1430184078456852481?s=20

[vi] https://www.jstor.org/stable/2111142

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Shall we decide?

The Prince of Kandy

Also published at https://www.colombotelegraph.com/index.php/shall-we-decide/

This is being written in two veins. One to point out the massive corporate hypocrisy of our media landscape. Secondly and most importantly to at least maintain the adversarial façade of our political landscape.

Rajandram Rajamahendran was not a nice man. His achievements in cricket are mainly due to his privileged position in society and not due to his leadership talent. His media empire though seemingly brave in their reporting only really does so for the subsequent benefit of political clout. Given the massive failings in our society in any real democracy, the coverage should be far worse.

As Sri Lankan politics have nothing to do with policy Rajamahendran’s death will open new dynamics in our highly interpersonal networks of political clout. As with new people, there can be new beginnings, the Capital Maharaja media empire can and probably will broker some form of peace with the UNP and SLPP.

Rift with Ranil

At the last General election, Kili Raja Mahendran of the Maharaja Organization requested two slots in the National list of MPs at the general elections to which I did not agree. Therefore, his Sirasa media has turned hostile to me and my party, and have started a campaign to attack us

Opposition leader Ranil Wickremesinghe[i]

Though not acknowledged Ranil has an admirable track record of standing against media conglomerates. In backroom dealings, he seems to have made few friends and many enemies. Notable among his enemies are the likes of Hiru, Ceylon Today, Derana, and Sirasa.

In all these feuds there are great moral underpinnings. It was his government that jailed the brother of the Hiru group owner whose release according to sentiments expressed online is considered a miscarriage of justice. It is not for newspaper owners to play an active role in the suppression of voter rights[ii]. With Derana though the relationship has turned somewhat more convivial lately the UNP under Ranil has stood firm on a pluralistic Sri Lanka. Derana is highly intertwined with the Rajapaksa family and it is under Wickremesinghe’s government that considerable corruption scandals came to public attention.

Actual bravery

All major media institutions in Sri Lanka operate on an advertising model. There are large groups of people that have already made up their minds on who to vote for. These people are served by media platforms that reconfirm their biases and help them decide on which brand of soap, piping, and or flavoured beverage they should consume.

Partisan viewpoints, therefore, are good for business. On top of this, it is highly likely that under a Premadasa government there will be considerable benefits to the privately held Capital Maharaja organization.

Why not have a proportionate celebration of journalists who have been killed by the government? A man so thickly a part of the establishment that national leaders have to issue statements on their deaths in a country as corrupt as Sri Lanka is probably not a good human being.

Attacks and coverage of non-entities

As most statements are public the general populace can make up their own minds on who is a sickening sycophant to a media organization. However, amongst yesterday’s coverage, it was interesting to note that the Sinhala Ravaya came out in praise of the late Rajamahendran. This is an institution that short of the coverage given by the corporate media does not have any traction in other platforms. Their social media reach and any other metric of public engagement are poor.

Individuals with some knowledge of how the Central Bank has arranged the payments system would also see that the Sirasa based attack on Muhunthan Canagey was highly misleading. Pricing of payments products in Sri Lanka as set by the National Payments Commission are very much against the digitization of the payments ecosystem. Competition in the payments space through ICTA would have been beneficial to all of us.

With apologies to Canagey, it is odd to see why people of such little interest to the general public are given such prominent coverage by Sirasa.

Conclusion

The UNP was probably under duress in issuing yesterday’s statement. Aligning with Capital Maharaja organization regardless of their new political alignment is not in the public interest. Recent polling still shows that Premadasa can not win a general or presidential election. However, many will defend this action as favourable coverage is a necessity for political survival.

To solve this, following an electoral victory, the UNP can then look to vest one of the state media broadcasting channels (either ITN or Rupavahini) with the leader of the opposition. Given the way newspapers work, the deputy editor at the state paper can be appointed by the leader of the opposition. Laws can also be enacted forcing independent media outlets to have balanced coverage. At the end of the day, it is us the general public who should decide on who gets elected.


[i] https://sunandadeshapriya.wordpress.com/2011/08/17/unp-leader-accuses-telivision-network/

[ii] https://www.colombotelegraph.com/index.php/lightning-should-strike-tiran-alles-for-giving-blood-money-to-the-ltte-unp/

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Sounding poor

The Prince of Kandy

Also available at https://www.colombotelegraph.com/index.php/sounding-poor/

We live in a nation where actual political choice, which lies between the SJB and SLPP, have at least from a media image perspective pivoted themselves to the lower ranks along our socio-economic spectrum. The two major parties in rhetoric pander to the poor.

This takes the form of large public gatherings, rhetoric lacking economic feasibility, and a lack of discourse on public policy. There is such a lack of differentiation in the rhetoric that people have started calling the SJB, SLPP Lite. I, and I assume the people willing to read my pieces, am not a champion of poor people’s rights over that of the majority.

My take is that pro-poor policies like changing the curriculum towards the vernacular, the take‐over of private estates under land reform, and the vast spread nationalization of major industries is actually bad for the broader society. The impact though perceived as being favourable to the poorest may only be slightly beneficial or in most instances actively against their own long-term interests.

Context

This piece is being written partly in response to the very well written piece in Economy Next titled ‘Classist, (an) aristocratic cabal in Sri Lanka conspiring to prevent Premadasa presidency: MP[i]’ by Imesh Ranasinghe. This is the sort of rhetoric that helped bring about the first Premadasa presidency and I am concerned given Sri Lanka’s cultural biases it will lead to a second Premadasa presidency.

Historically I come from a mix of people but there is a notable few that I would consider in the elite. On both sides of my family, there were members of the Senate and also other notable subsequent descendants. As people tended to marry within wealthy circles it is very likely that a large proportion of my ancestry including all my grandparents spoke English and had land.

Wealth is not a strong predictor of policy acumen. A lot of my relatives are idiots. My grandparents land holdings of which I have none should not disqualify me from the capacity to impact public policy.

Here I feel I must also tell female readers that I currently am more towards the poorer end of the spectrum and have done things that I deeply regret.

The Pro-Poor policy

SWRD Bandaranaike’s children famously were not educated in the vernacular for their tertiary education. Changing the medium of instruction in most major schools to the vernacular in effect reduced the cost of education (and thereby subsidy to the poor) on the treasury. The students in vernacular education are less gainfully employable by their peers in private institutions.

Large tracts of estate land now lie with no clear ownership and have not been tended to properly. The banking sector is in effect the real owner of most major plantation companies who are now so riddled with debt that they can barely make operational payments.

Large nationalized industries like the CEB, CPC, and SriLankan Airlines are marred by corruption and do not offer low-cost services to the general public.

Historic wealth (land) not a predictor of current wealth

As land has become less important as a factor of production in the modern economy and credit creation has become more meritocratic there is far less of a feudal structure in Sri Lanka. After all many of the estate companies listed on the stock exchange run at a loss.

Think of the concurrent downfall of the Kotelawala empire and the rise of Dhammika Perera. Though there are some families that have notably remained wealthy throughout our independent history they do not make up the current majority of political spending.

The land reform policies of Sirimavo Bandaranaike combined with the subsequent state-sponsored unrest caused by JR Jayawardane caused a huge outflow of talented minds. People who have the capacity to make something out of nothing for many decades now have chosen to emigrate.

Our country is now in such a position of poverty that even marriage proposals advertised in the paper now tend to weigh more heavily on foreign employment opportunities than on the gift of land.

Political Spending

Historically landed people were able to influence electoral outcomes as land was the major asset class and they were able to outspend their opponents. Money is a necessary but not sufficient factor for electoral victory. The SJB outspent both the SLPP and UNP in the last two elections and did surprisingly poorly.

The SJB is backed mainly by the Apparel sector whose major players owe their fortunes to UNP policy in the 1980s that transferred huge amounts of wealth and opportunity to a very small group of people. The notable names within this mix are notably from historically poor and uneducated backgrounds. People of the time would have thought of those people as being Indian (in a derogatory minority sense) and being the sorts that would have to marry within their own very small and highly interrelated communities. This however has not impeded their meteoric rise to power.

The SLPP is backed mainly by the construction and protectionist industries. They owe their wealth to state contracts and large choice and cost taxes they put on the general public through protectionism. The people from this group even in spite of considerable wealth position themselves with the masses. Many go so far as to conflate being Sinhalese to being Sri Lankan. They remain an active threat to an indivisible and pluralistic Sri Lanka.

Aristocratic spending on elections

Assuming the aristocratic cabal in the Economy Next piece refers to Ranil Wickremesinghe supporters one must question whether the UNP will be the major spender in the next general election. Though the sale of the leader’s residence might help it is not like the UNP is going to be able to outspend either the SLPP or the SJB.

Large corporations rely heavily on credit to function. The SLPP will be in a handsome position to allocate credit through the large state-owned banking system to their supporters who will, in turn, spend lavishly on the election. Our own money will be used against us electorally.

The SJB will lean on the vast export wealth whose interests it seeks to protect if elected to power. They will benefit in the long run through a lower than the optimal rate of taxation on export sector profits again in effect robbing from the treasury.

Foreign control of policy

A large portion of the political goodwill of the Yahapalanaya government was wasted on inquiries into the armed forces. Though from a moral perspective there can be no doubt that there should be an inquiry it would be politically prudent to begin from the establishment of the Executive Presidency. It is a political reality that you will have to put Sinhalese victims before Tamil ones.

This loss of political goodwill was not out of some moral obligation as UNP crimes in the South are probably worse than those committed recently but rather for the reestablishment of GSP Plus. More ethnic reconciliation could be achieved if Wickremesinghe makes further acknowledgements of state support for the anti-Tamil riots in 1983. The Tamil diaspora was able to effectively lobby the EU to cripple our export sector.

In spite of any tangible achievement (RW fooled the West and the TNA) of the Sri Lankan government towards reconciliation, the prospect of GSP Plus remains and is stronger than ever as both major parties the SJB and SLPP are willing to act in foreign interests. This is most apparent in the passing of the Port City Law wherein Western and Chinese financiers see themselves setting up shop with the intention of controlling the growth of the broader South Asian region.

The Chinese now have a huge vested interest in our next Presidential election as it would impact appointments to the Port City commission. It was truly shameless that during the recent economic downturn the government prioritized the payment for construction work which is largely Chinese owned rather than looking to provide economic stimulus to the real economy.

Beating up the poor

It is only a partial truth that the geo-location of global services to Sri Lanka will benefit us. Take how oil spills will be treated. Will the cost of cleaning up the spill and the damage caused by the recent incident be recovered from the shipowner or borne by the state and people?

As with all things it is a balance of representing the interests of Sri Lankans while keeping the industry competitive in terms of export pricing. We can go the Chinese route of development wherein to quote the book Trade Wars are Class Wars; Chinese workers are underpaid relative to the value of what they produce. We could also go the route of the Netherlands or Switzerland wherein our value comes by acting as a haven (the word tax implied) for investors looking to capture value from the broader region.

Going down China’s route will mean that we beat up the poor while the poor in the Netherlands or Switzerland do quite well.

War on poor

From the war on drugs to the policing of prostitution, to the banning of abortion we see that the state is quite focused on actually hurting the poor. The war on drugs rarely captures the highest rungs of the ladder in the industry. The arrests are trivial and used as a media distraction when the government is unpopular.

If it is that you want to reduce the scourge of drug usage on society why don’t you treat it as a health problem which is what it is. Methadone clinics and the treatment of drug addicts would go a long way to reducing the harm caused to society. Portugal has had amazing policy outcomes through a non-criminalizing approach.

On prostitution to paraphrase the sentiment in the popular song ‘I Don’t Know Why’ it is difficult to see why the legal structure which thereby necessitates a system of pimping who bribe the police is allowed to continue. Selling sex isn’t the worst thing in the world.

On abortion young girls who have the misfortune of getting pregnant would be far better off if they were allowed to safely abort the unwanted fetus but are unallowed to do so by a state who would much rather see them become destitute.

College graduation

The above section contains values that are held by most college graduates. This is because they are exposed both to international thinking and modern thought on public policy. If Ranil Wickremesinghe the aristocrat was given absolute power some of these things might get implemented.

Wickremesinghe unlike his challengers in both Sajith Premadasa and Mahinda Rajapaksa is a college graduate. Being a college graduate helps Wickremesinghe be better at making decisions on public policy. Going to university which was within the financial means of both Sajith Premadasa and Namal Rajapaksa is an important part of one’s mental and intellectual development.

What Imesh Ranasinghe in his piece is trying to do is to bring about the politics of affinity. He is appealing to the majority of Sri Lankans who don’t have university degrees to cast aside, given the incredibly weak state of our current education system, is the last truly educated (locally) leader of a major political party.

Policy under the Aristocrat Ranil Wickremesinghe

Ranil Wickremesinghe doesn’t pretend to be poor. He is power-hungry. He doesn’t pretend to like people. These are by my count attractive qualities for a policymaker. He is also incredibly adept at foreign relations and outperforming expectations electorally. He will be the next Prime Minister.

If we take the recent discourse on both the Port City and Port terminals in the Colombo harbour we find that the major achievements touted by the government are attributable to Wickremesinghe.

The fact that the land under Port City is owned by the state[ii] is attributable to Wickremesinghe. If it wasn’t for his intervention the agreement would have reflected the Shang Ri La investment with freehold status to a foreign entity.

The fact that we even have a deepwater terminal that we can get foreign investors as opposed to our own to develop is due to the fact that Wickremesinghe had the foresight to obtain concessionary financing from the ADB.

Under Wickremesinghe, the Port City commission will be comprised of people who can actively attract investment into the country while keeping our foreign relations in balance.

Policy under Sajith Premadasa

It is a real treat to visit Sajith Premadasa’s YouTube page. His political clinics are emblematic of everything that is wrong with the Sri Lankan provision of public services. The need for a politician to make phone calls to influence the provision of public services as with the need for a politician to make decisions on the hiring of workers may be highly politically effective but it is not good public policy. It is unlikely that Premadasa as a leader will have time to deal with all our problems personally. In this Premadasa goes beyond poor (read small-minded) in his approach to politics and enters the realm of being cheap (of little worth because achieved in a discreditable way requiring little effort).


[i] https://economynext.com/classist-aristocratic-cabal-in-sri-lanka-conspiring-to-prevent-premadasa-presidency-mp-82821/

[ii] http://www.colombopage.com/archive_21A/Apr18_1618763647CH.php

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Colombo’s property woes

The Prince of Kandy

Also available at https://www.ft.lk/opinion/Colombo-s-property-woes/14-718614

Though the media and financial players in Sri Lanka will not openly admit it, we are in the middle of a property crisis. The benchmark of Commercial Property in Sri Lanka the World Trade Centre (Overseas Realty PLC) has dropped to about 80% occupancy levels from levels nearing 90% in 2019 and at about 97% in 2015.

To quote the Overseas Realty annual report; The revenue from leasing spaces at WTC decreased by 6% to Rs 2,292 Mn (2019 – Rs 2,409 Mn), due mainly to concession given to tenants and lower occupancy levels during the year.

Now, this given COVID-19 is expected and Overseas Realty remains the furthest thing from financially distressed. The crisis that this article speaks of exists in the highly leveraged inner-city developments where due to the leverage even stagnant prices should lead to insolvency and bankruptcy of many prominent developments.

Context

Over the recent period, the state has taken over the likes of Altair and Destiny. These are two prominent developments in proximity to other developments that are also facing difficulties selling. The state through captive funds has long been in the possession of the failed Ceylinco investments in the Hyatt Regency (Ceylinco Celestial Towers).

The state has also directed the banking institutions to take a lax approach to collection from major property developments. This is further compounded by the ridiculous system of valuation that the accounting standard and state have both endorsed.

Though returns from property (rent) are low yielding this should not be conflated for them being safe assets. State backing only works as a reinforcement mechanism if the state is financially strong and this is far from the case.

Not safe assets?

Property in Sri Lanka may not have yet witnessed depreciation but as seen in more advanced economies like Japan and the United States this is a possibility. Regardless there are many asset classes like fixed income that possess this property of not going down in nominal value.

Property also can not be liquidated quickly and/or does it ensure a steady stream of payments. Tenants are in short supply and the renting market is fraught with concerns like non-payment and squatting with no solutions in sight.

As this article focuses on ‘Colombo proper’ this issue is further compounded by the large disparity in property prices over a few kilometres in radius.

Difficulty in ranking the best parts

The centre of Colombo is Colombo 01. The simplicity and genius of our naming system should be appreciated. It is the heart of the city and goes for about Rs 18 Mn per perch. This in relation to the rest of the city outside Port City will not change.

The problem comes about when valuing adjacent plots of land. Colombo 03, 02, 10, and 11 go for Rs 16 Mn, Rs 12 Mn, Rs 4 Mn, and Rs 10 Mn respectively. Port City is expected[i] to be above Rs 13 Mn per perch.

There is a large buildable area in the hands of the state around the Lotus Tower (Colombo 10). The Chalmers Granaries land (Colombo 11) has been on sale for a long period of time and the Manning market was just demolished. There are still defence establishments that occupy land in Colombo 03.

All of these areas have underserved housing and underserved commercial space. Colombo’s population would have to increase by 32.8% to even touch a million residents. The majority of people in Colombo are poor.

The rich live in houses

Yes, the only real density of rich people in Sri Lanka is in Colombo proper. Sadly for real estate agents though is that they tend to already have homes. A large portion of their wealth also stems from the fact that they have land in the city.

Townhouses with proximity to leading schools and gardens will always be more sought after than high rise apartments. In London, New York, Singapore, and even the upcoming Colombo Port City, townhouses will be the most sought after real estate.

We are not in short supply of townhouses. Most townhouses are either on rent to some embassy or are being used as makeshift office space. There are many that are dilapidated with very rude signage to deter property brokers.

Property woes

To be reductive ‘Colombo proper’ apartments are overvalued. There isn’t a shortage of buildable space, yes much of it is brownfield but it is easily demolished. There isn’t a large growth in population. Most apartments are sold to people that don’t need them who either intend to rent them out or occupy them on their short visits from overseas.

Though Colombo is the largest urban centre the majority of people in the Western Province live outside Colombo. Housing, land, and apartments in those regions offer a much better return on investment.

There isn’t a shortage of apartments either. Many completed projects remain unsold and are incredibly small. Given the rental yield, people actually looking to live in the city would be better off renting and buying in the suburbs.

Property owners in Battaramulla, Rajagiriya, Moratuwa, Negombo and Wattala have done very well for themselves. 

To put it concisely; the housing stock that the private sector decided to construct was at odds with the demographic trends in the city.

Manning Market Demolished

Demographic trends

There is no Sri Lankan person willing to spend Rs 24+ million and Rs 20,000 on maintenance fees for a 650 square foot apartment in Colombo 02. That wealth bracket would buy a home/apartment in the suburbs with space for children. The foreigner looking to rent that apartment is currently spoilt for choice.

The wealth distribution increases exponentially in the upper-income brackets. There is a large gap even between the highest-paid CEOs to the people who own the enterprises.

To quote Head of John Keells Properties Nayana Mawilmada in a recent interview[ii] “affordability though is a problem. A lot of what is being built in and around the city is quite expensive. The reason for that is construction costs in the region are higher than those for the region. A lot of construction materials are taxed. Regulations tend to be difficult. Our cost of delivering something is higher than Malaysia.”

Luxury apartments in inner-city areas

This is where the crisis is concentrated. When Liberty Plaza was built it was thought to be highly sought after. It was very well located. Over time it became a bit of a dump. Residents now have to deal with a noisy environment while being in very close proximity to the vice industries.

Marina Square by Access Residencies is not in a sought after area. It is being sold on the basis that it will become a sought after area. The timeline over which it can be completed would be similar to the time it would take to build an LRT to Malabe.

The development will likely end up in the same state as Liberty Plaza is today with the sad exception that it even for a brief period of time was not a sought after area.

Last I checked though there is disagreement on the value of an LRT system there is bipartisan agreement that the broader Western Province shall have elevated highways. Regions like Wattala are well placed to both access the Port City and decent places to raise a family.

World of haves and have nots

Statistically, you are probably either in the very small class of people that can own multiple luxury properties or the very large group of people that can’t even own one. Anyone with experience in the lobbies of Colombo high rise buildings would realise that there are a lot of foreign tenants and many of them do not own cars.

Proportionate to the purchase price of these apartments the rental yield is very low. If you are just looking to profit from these purchases would you not be better off buying multiple smaller properties in the suburbs?

Inner-city areas world over offer poor capital returns to property holders. Given Port City and the existing developments in Colombo 01 won’t Colombo 03, 02, 10, and 11 quickly become more inner-city than they already are?

Inner-city amenities

Globally in certain very wealthy regions of the world, there has been urban regeneration and gentrification of inner-city areas. As mentioned before Colombo because of the lack of population growth and the availability of fiscal space that is not going to happen.

Colombo 03, 02, 10, and 11 do not have many parks or communal space. The schools where the wealthy send their kids, the three set up by Elizabeth Moir and the Overseas School of Colombo are located in proximity to where the wealthy live which is well South of the inner city.

Trying to tell a bunch of people who as previously mentioned already have accommodation that they need to buy space in the inner city is a tall order. Developments in the suburbs of Colombo and all over Sri Lanka sell out within weeks while these high-end developments remain on the market till even after completion. In the suburbs, there are multiple generic developers and a deep need for accommodation at affordable prices.

Why they developed the inner city?

The inner city was historically used for industrial production. Think of the warehouses of the John Keells Tea Broking arm in Colombo 02 to the Old Train Service Yards in Maradana. With the BOI zones and the outer circular road industrial production moved outside of the Western Province and even those within the Western Province to outside Colombo.

The land also was buildable, unlike suburban greenfield land. The companies owning the land were well connected and have access to cheap finance. They will be the major beneficiaries of the gentrification of the inner city.

Cost factor

The inability to sell and thereby obtain financing for construction makes these mega-development projects more expensive than they need be. It’s not like a building begins when all apartments have been presold. For new developers, without historical title to the land, there are also considerable costs in obtaining land and getting approvals.

As previously mentioned the quantum and cost of construction in Sri Lanka is too high for our small economy. In no other industry do we see foreign blue-collar workers in such quantity? Almost one in two workers is a foreigner.

Developments in the inner city will have to compete with developments in Port City while the developer will have to pay high import taxes and taxes on profits. This is on top of being just outside the financial centre and sought after outskirts of the city. Why buy into something that won’t be price competitive in the long run?

Port City will be amazing

The Port City legal framework is amazing. After all the government had to pull out we won the war card to get it through. It will be meticulously planned and everything will be within walking distance.

The building regulation will make sense and every new construction will complement the existing space. All the people will be slim. By virtue of the need to purchase the property need to have disposable income. This will come in stark contrast to some of the layabouts who have inherited property in Colombo 07 who can barely afford to paint the place.

Status quo

Now, most of this piece represents the status quo as understood by society. Interest rates, especially when compounded with the withdrawal of WHT and imposition of income tax on fixed deposits, offer very poor returns.

Even with this these apartments in the inner city remain unsold. Apartments that have been constructed remain empty and those nearing completion are almost immediately put on the market. Even old apartment complexes in amazing locations are on the market trying to cash in on the inflated prices.

Reporting

The accounts of the Colombo City Centre and Cinnamon Life are not available publicly. Though a part of publicly listed company and being majority-owned by the listed entity they appear in the accounts as an equity investment.

The recent Prime Residencies IPO was fraught with questionable accounting[iii]. Acuity Partners, the entity promoting the IPO, is a subsidiary of HNB and DFCC. Prime Residencies has a stake in HNB Finance and I am guessing considerable debts to HNB. These are two companies with an obvious connection to Prime Residencies.

The SEC and CSE who are going to place a bunch of dim-witted regulations on corporate governance see no problem in the Prime Residencies IPO being managed by Acuity Partners. You couldn’t even get a complete set of accounts going back over 10 years on the Prime Residencies.

Central Bank

In the interests of the financial system, the Central Bank should step in and create a mechanism for valuation. Firms are taking advantage of the current weak mechanism and creating perverse allocations of credit as can be seen from the empty apartments.

The Central Bank is further delaying the inevitable by offering guaranteed low credit to the sector through various interest rate-capping schemes. As can be seen by their public statements though the Central Bank is pro-Sirimaesque-austerity it does not feel that property developers should feel any pain.

The Central Bank could also help the municipalities set countervailing taxation to create stable property prices. Excess taxation could be used to create a property fund that invests in housing stock for rental purposes.

In theory not practice

The Central Bank could do all of this in theory but in practice, we have seen that they would be unable to do the most simple of tasks. Take for instance the payments to ETI depositors where they have failed so greatly. It is truly comical how they try to paint this as a triumph.

After having taken forever to disburse funds from the deposit guarantee mechanism they choose physical means of disbursement during a pandemic.

ETI and Swarnamahal had accepted deposits in an ad-hoc manner creating considerable administrative difficulties in selecting genuine claims. Even with this the Central Bank has in no way considered placing industry-wide standards for the issuance and maintenance of deposit certification and databases.

Conclusion

We all know that our capital markets are infiltrated by crooks. As people may accuse this article of fear-mongering let us take a historical case to illustrate the point.

Ceylon Foreign Trades PLC and related companies purchased warehouse land. They almost immediately then revalued the land and took in the surplus into their set of accounts. The banks turned a blind eye and that company went on a massive CSE investment spree on margin.

The people conducting the valuation, the accountants who signed off on the books, and the directors all remain from a legal standpoint capable of moving into property development in the inner city. It doesn’t have to be the same people as that type of person is widespread around Colombo.


[i] https://www.portcitycolombo.lk/press/2020/02/24/port-city-land-likely-to-be-priced-above-rs-13mn-per-perch-pwc-report.html

[ii] Some well thought out advice from Nayana Mawilmada during an interview on Channel Eye. – YouTube

[iii] https://www.ft.lk/financial-services/Prime-Residencies-revenue-recognition-policy-overly-conservative/42-717603