The latest budget has allocated Rs. 37 billion on capital expenditure for houses, of which the lion’s share has been reserved for the Colombo Urban Regeneration Project (URP). Rs. 18 billion is a marked increase from what the project was allocated in previous years and reflects the Government’s unwillingness to conceive of affordable houses beyond this existing model, as well as its inability to learn lessons from over a decade of failure.
The URP was initiated by the Urban Development Authority in 2010, seeking to relocate 50% of Colombo’s population, low-income households residing on 9% of land. The project aimed to free up 900 acres of land of which 450 acres would be leased to investors.
The logic of the URP was that by moving communities from their central Colombo homes to high-rises, the vacant land could be released for private investment, which would in turn pay for the URP. While the arbitrary and militarised nature of evictions of the urban poor under the project have been widely documented, its economic cost and model have failed to attract attention.
This is despite the fact that from 2010-2018, the Government had spent over USD 700 million on the project, which is twice as much as the Mattala International Airport and four times the cost of the Lotus Tower.
The first two phases of the URP were financed by Rs. 10 billion raised through debentures issued by the UDA in October 2010. As per Cabinet Memorandum number M/D/UDA/CP/2010 (1) dated 5th August 2010, debentures amounting to Rs. 10 billion redeemable in 5 years were issued. The Treasury guaranteed their redemption and payment of interest for 3 years. According to the Cabinet Memorandum, the UDA was to initiate activities to generate Rs. 25 billion by leasing out 78 acres (out of a total 142 acres of land) at 2 million per perch.
This would generate Rs. 14 billion which could be used to finance the remaining phases of the project. Despite the initial ambitious goal of relocating all 68,000 households by 2020, as of 2024 it is estimated that roughly 16,000 households were moved.
No revenue collection
Around 20,500 housing units were supposed to be constructed at the end of 2013 under the first phase, which would free 150 acres of land and earn Rs. 25 billion by leasing half the land on a long-term basis. At the end of 2013, only 500 houses were handed over with only nine acres freed up and no revenue collection even after several years since the project’s inception.
The Auditor General of Sri Lanka noted in 2013 that “although the Authority was scheduled to redeem debentures valued at Rs. 10 billion in 2015, it was observed that the Authority would face a severe financial crisis in redeeming debentures due to failure in accumulating adequate financial assets.”
In March 2015, a reissue of debentures was halted by the Securities and Exchange Commission because the UDA had failed to submit audits for 2012 and 2013. In 2015, the UDA obtained a short term bank loan of Rs. 11 billion from Bank of Ceylon to redeem Rs. 10.26 billion in debentures. In November 2015, the government issued another Rs.10 billion bond issue to repay local and foreign investors who subscribed to the 2010 Treasury-backed debenture.
There is a lack of information on the reissued debentures as well as how much money was obtained from the Treasury to pay interest for debentures, but it was noted that an additional sum of Rs. 8.5 billion was obtained from the Treasury in 2017 related to debentures as well.
As of 2018, Rs. 60 billion had been spent by GoSL and only 37 hectares of land had been freed up, comprising 10% of the initial total.
Since April 2019, Phase III of the URP is being financed by the Beijing-based Multilateral Bank, the Asian Infrastructure Investment Bank (AIIB), through a loan of USD 200 million under the project “Support to Colombo Urban Regeneration Project.” This is AIIB’s first project in Sri Lanka as well as the first urban regeneration project supported by the bank.
This phase sought to bring in much needed safeguards to the project. In early 2022, due to the economic crisis, GoSL requested AIIB to reallocate USD 70 million from the project to purchase essential medicines and other medical supplies. After this reallocation, the number of housing units to be built was changed from 5,500 housing units across nine sites to 4,100 housing units across six sites. The Principal Repayment dates of the loan are to begin on November 15, 2027 with instalment shares of 2.27% to be paid off through November 15, 2048.
Outstanding lease rents exceed Rs. 700m
The UDA has been consistently unable to find investors for released land, citing that the project is based on the demand for land in Colombo and that land is owned by different state agencies which are difficult to acquire. While some have been used for infrastructure and real estate projects, think tank Colombo Urban Lab’s latest report shows that many lands are car parks or garbage dumps, while others are simply vacant and fenced off.
Meanwhile, relocated households are often unable to pay the monthly payment towards eventual ownership leading to massive arrears for consecutive years. As of January 31, 2023, the outstanding lease rents for 11,900 flats was Rs. 798.56 million. Many relocated households have rented out the flats and moved to the suburbs, defeating the purpose and potential of investment in social housing.
Given the lack of transparency and due process around the URP, it is imperative that it is halted and a forensic audit of the project conducted. Despite the economic cost and debt burden incurred, the project has failed to deliver on its own objectives, as no meaningful investment has materialised, and droves of relocated households abandon high-rise apartments they were forced into.
The writer is a Research Associate at Colombo Urban Lab of Centre for a Smart Future (CSF). This article is based on a recently published report titled ‘Built on Sand: A Review of the Urban Regeneration Project’ which is available on the CSF website www.csf-asia.-org.
