Real estate in Sri Lanka

Sri Lanka, with its rich cultural heritage and picturesque landscapes, attracts lovers of unique experiences and adventures. The island's real estate market offers a variety of options, including villas, bungalows and modern condominiums with luxurious sea views.
Land and home ownership is not possible for foreigners, but there are alternatives. For example, it is possible to purchase a property in the name of a company that is 51% owned by a Sri Lankan citizen. A 99-year lease with transfer of rights is also an option, which requires the establishment of a company in order to obtain a residence visa.
Foreigners are permitted to acquire ownership of apartments above the 4th floor. This opens up the possibility of purchasing apartments near the sea with a sea view. The purchase of a condominium from $170,000 entitles you to a long-term visa for 5 to 10 years and offers additional benefits for foreign investors who want to create their own piece of paradise on this magical island.

1. Purchase in own name
If a foreigner buys a property in his own name, he must pay property tax amounting to 100% of the value of the property. This doubles the total value of the property.
To avoid the high tax, a foreigner can buy a condominium on the 4th floor or higher. However, they cannot fully own the house with the land. The only option is a long term lease or purchase through a Sri Lankan registered legal entity.

2. Lease for 99 years
To avoid high property tax, foreigners can lease a property for 99 years. This essentially gives them ownership and allows them to sell or rent the property freely. In this case, the property tax on the purchase is 7 percent.

3. Ownership by legal entities
Limited liability company: A foreigner can be a co-founder of the company with an ownership share of up to 49%. The local partner retains the remaining 51% of the shares but grants all legal powers to the foreigner.
Public Limited Company: Companies listed on the Colombo Stock Exchange with less than or more than 50% foreign ownership can acquire ownership under the Land (Restrictions on Alienation) Act 2018.

• Contacting the seller First contact the seller of the selected property and ask for all possible information - year of construction, current technical condition, need for and extent of repairs, etc.
• Inspect the property Allow sufficient time for a thorough inspection of the property. You need to identify any defects or inconsistencies with the description. It is advisable to hire a surveyor for a professional condition assessment.
• Assess the location Examine the neighborhood in which the property is located. Talk to the residents, read online reviews about the infrastructure and safety of the neighborhood.
• Infrastructural development in the neighborhood Find out about plans for infrastructure and development. These developments can have a long-term impact on the attractiveness of the property.
• Help from a real estate agent. It is advisable to involve an experienced local real estate agent in the selection process. Note, however, that this activity is not licensed in the country and there are no professional associations of real estate agents. Therefore, choose a company carefully and check the reputation and experience of the professionals.

Haggle when buying

Outside of Colombo, there is no established real estate market with fixed prices. The asking price often depends on the wishes of the seller. You should therefore try to negotiate politely and give good reasons for your price offer.

Reservation of the property

If your price offer is accepted, ask the seller to take the property off the market until the purchase contract is signed while the property is viewed. The seller may agree without making an upfront payment. However, for luxury properties, a deposit of 10% of the price is usually required.

Documents of the seller

The seller must provide the following documents

• Title deed
• Survey plans for the property
• Extracts from the land register for 30 years
• Certificate of conformity for the building
• Approved building plan
• Tax clearance certificate
• Title deed
• Building line plans from the local authorities

Based on these documents, your solicitor will carry out the inspection and prepare a risk assessment report.

Once the inspection is complete, your lawyer and the seller's lawyer will draw up a purchase contract. After signing and payment, the notary will register the new title deed at the land registry.

• Lending

Foreigners cannot take out loans or mortgages to buy property in Sri Lanka. All payments must be made with funds from abroad. In some cases, the Central Bank may require the source of funds to be declared before they can be withdrawn from the bank.

• Current account

The purchase sum must be paid into a special Inward Investment Account (IIA) at a local bank. This is an account for foreign investors bringing funds into the country for approved investments.

• Making payments

All investments and proceeds from the sale of real estate must be processed through the IIA. International payment systems can be used for transfers.

Advantages:

• Affordable prices compared to other destinations
• Good climate all year round, lots of sun and warmth
• Picturesque exotic nature, many beaches and seaside resorts
• Rich culture and ancient architecture
• Possibility to obtain a residence permit for investments
• High income from renting accommodation to tourists

Disadvantages:

• Complicated legislation for foreign buyers
• High taxes when buying to a natural person
• Difficulties in obtaining a mortgage
• Underdeveloped infrastructure in some areas
• Language barrier, little information in English
• Unstable political and economic situation

Conclusion: Despite a number of difficulties, buying real estate in Sri Lanka can be a profitable investment at the expense of renting to tourists. However, you need to be careful when choosing a property and study all the subtleties for foreign buyers.