Central Bank warns rising real estate prices need close monitoring

Continued increases in real estate prices and the banking sector's growing exposure to property need to be kept under close watch, the Central Bank of Sri Lanka has said. A sudden drop in property prices could spread stress across the financial system, it warned.

In its recently released Financial Stability Review 2026, the bank said asking price indices for land, houses and condominiums in the Colombo district rose through most of the review period and reached their highest level since 2019.

Improved economic activity, higher construction costs and cheaper credit facilities drove the increase, the report notes. It adds, however, that the risk of market ups and downs means the trend calls for sustained attention.

The banking sector's exposure to real estate rose to 13.7 percent of total lending by the end of June 2026, approaching Rs 2 trillion. More than 80 percent of that exposure is in housing-related loans.