Sri Lanka The Property Market

The investment potential from real estate in Sri Lanka is significant but the property market is immature and suffers from having a government that cannot commit to attracting foreign direct investment.

Purchase freehold real estate in Sri Lanka, it’s necessary for an investor to firstly decide how they are going to tackle this issue – naturally enough when a government introduces a ridiculously high tax there are people who find ways around it! Sri Lanka is not an exception; there are ways around the 100% taxation rule.

Either a non-resident property investor can purchase a leasehold property with a 99 year lease and acquire the right to buy the freehold title to the property if the 100% taxation rule is ever rescinded. During the 99 year lease period an investor can effectively do what they like with the real estate subject to local council rules and regulations. Alternatively another way around the 100% taxation issue is purchasing investment property in Sri Lanka through a legal entity such as a company or trust structure.

Those who buy property in Sri Lanka through a local company structure should ensure that they are the 99% shareholder of the corporation. An investor can expect to pay around USD 2,000 to establish such a structure and pay annual fees of around USD 1,500. If an investor is considering buying significant property assets in Sri Lanka it is well worth considering this option.

By taking any of these described routes to making a property investment in Sri Lanka an investor will reduce their taxation liability from 100% to 7%. In addition to this purchase tax an investor also has to pay a further 3% in fees and charges.

In terms of the basic property buying process in Sri Lanka - an investor identifies real estate suitable for their investment objectives with the assistance of an estate agent. Estate agents in a country like Sri Lanka are not regulated or controlled so an investor should apply caution when seeking their services; however the use of an agent is pretty much essential if an investor is to find out about property for sale. This is because few people advertise their property or land as being for sale because they don’t wish to attract attention to the amount of money they are about to earn from the sale. Good local agency representation will ensure an investor finds out about real estate applicable to their requirements.

Price and sale condition negotiations are usually conducted between an estate agent and the vendor before a preliminary contract to purchase is signed in front of a lawyer. An investor should not sign anything however until his lawyer has had a chance to check the contract and the conditions applied to it.

Once the preliminary agreement has been signed and a deposit paid the investor’s solicitor must conduct a certain amount of due diligence on the property, its title and also on the vendor’s right to sell. If all is in order with the sale it should proceed to completion as soon as possible so that the vendor cannot change their mind about the sale or add further complications or conditions to the process.

For all private transactions a non-resident investor must be prepared to pay in cash for his real estate acquisition and be in the country on the day of completion – this is because many private vendors in Sri Lanka wish to keep the amount of money they acquire a secret from friends, family, neighbours and the authorities and do not trust banks or third party agents to hand over the money to them! This makes buying private property a slightly tricky affair, although those who buy parcels of land, commercial or brand new property are not faced with this issue as they can make use of escrow account type structures.