Falling interest rates, cheaper materials, and higher savings ignite industry revival
Sri Lanka’s construction industry is showing signs of a strong rebound, buoyed by declining interest rates, falling material costs, and rising household savings and incomes. According to a report by Capital Alliance Limited (CAL), the sector is positioned to play a key role in the country’s economic recovery.
Borrowing costs have significantly decreased over the past two years, nearly returning to pre-pandemic levels. This easing in financing has made home loans and project financing more accessible for both individuals and businesses.
At the same time, material costs have seen a sharp decline from crisis-era highs. Cement prices have dropped from a peak of Rs. 2,800 per 50kg bag to Rs. 1,960, while sand prices are also softening from their peak of Rs. 26,800 per cubic meter. Aluminium imports have surged by 11% year-on-year during the first four months of 2025, signaling a revival in construction activity and related manufacturing.
Improved household financial health is also contributing to the sector’s upward momentum. With rising wages in both the public and private sectors and a reduction in routine expenses, the national savings ratio has risen to 19% in 2025—up from a crisis low of -6%. Average monthly household income has also climbed to Rs. 254,000 from Rs. 198,000 during the height of the crisis.
Adding to the optimism is the government’s increased capital expenditure, now budgeted at 4% of GDP—higher than the 3.4% average over the past five years—reflecting a stronger commitment to infrastructure development.
All indicators suggest that the construction sector is not just recovering, but gearing up for sustained growth in the coming years.