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How to purchase property in Sri Lanka
Want to purchase property in Sri Lanka? Don't know where to start? Our comprehensive guide is here to help.
July 9, 2021 — 12 min read
If you're planning on moving to Sri Lanka, you’d like to own a property there, or you have family that you want to support in Sri Lanka one thing is certain: you’ll want to know all about what the process of purchasing property is like, especially if you are not a Sri Lankan citizen.
Caught yourself nodding in agreement with our suggestion? Luckily for you, our comprehensive guide to purchasing property in Sri Lanka has got you sorted.
Can you buy property in Sri Lanka as an expat?
You have multiple options to buy a property in Sri Lanka.
Under your name: If you intend to buy an apartment under your name, you'd have to pay the Land Tax for foreigners at 100% of the property's value. That means you'd have to fork out double the cost of the property, with half of your payment going to the government.
Leasing the property for 99 years: Think the Land Tax is too much? Then you might want to lease the property you're eyeing for 99 years. Doing this will bring the Land Tax down to 7%. You could still sell/rent the property during this period with no complications.
Via a private limited company: Create a private limited company with you, as a foreigner, owning its minority share (up to 49%). A local partner would own the remaining shares but would grant all legal powers and custody of the 51% shares to you.
Via a public limited company: Companies on the Colombo Stock Exchange with under or over 50% foreign ownership are now allowed to purchase immovable property, thanks to The Land (Restrictions on Alienation) Act 2018.
What's the Sri Lankan property market like?
Sri Lanka's property market can easily be termed as a buyer's market. Lower-than-expected demand from foreign buyers, slowing economic growth, and the exodus of foreign investors and developers have all brought down the property prices in the country.
Take the example of Colombo to understand this point.
The average listing price of a home in the Sri Lankan capital fell 4 percent between 2017 and 2019 – following an increase of 52 percent over the past three years. Experts suggest that the actual drop is likely to be much worse, given that high-priced homes have inflated the average asking price.
That was before COVID-19 aggravated an already concerning situation.
KPMG, one of the world's leading advisory firms, claims that both the leisure-related and the residential real estate markets have suffered due to the virus. It also warns that property prices in Sri Lanka may not revert to their pre-pandemic levels well into 2021, assuming there isn't another wave of COVID-19.
All of this means good news for foreign buyers.
With the value of the Sri Lankan Rupee still depreciating and the government deliberately keeping the interest rates low to jump-start the moribund economy, those earning in the Pound Sterling or the US Dollar can get the best bang for their buck by investing in Sri Lanka's property market.
What are the average property prices in Sri Lanka?
The average sale price of a 4-bedroom house in Sri Lanka in March 2021 was LKR 45.17 million ($230,000, USD), per Lanka Property Web, one of the country's leading online property portals. The average price of a 3-bedroom apartment at the same time was LKR 41.46 million ($210,000, USD).
Here are the average house sale prices in some regions of Sri Lanka in LKR, with approximate US Dollar conversions:
Southern province: LKR 23.78 million (USD $119,386)
Central province: LKR 31.41 million (USD $157,629)
North West province: LKR 15.73 million (USD $78,971)
Uva province: LKR 20.45 million (USD $102,688)
Sabaragamuwa province: LKR 23.48 million (USD $117,880)
Eastern province: LKR 25.03 (USD $125,661)
What type of properties are available there?
Residential properties in Sri Lanka come in all shapes and sizes, just as they do in the rest of the world. Keep your needs, the location you want to live, and the lifestyle you intend to build in mind to choose the type of property that is right for you.
Some types of properties most people want to consider are:
Houses
Apartments
Bungalows
Villas
You might want to get a bungalow or villa in the Sri Lankan countryside if you wish to wake up to lush green plantations or scenic valleys.
Conversely, if you plan to live in an area where all of life's amenities are easily accessible, getting an apartment in the city center might be more suited to your taste.
How can I find a property in Sri Lanka as an expat?
Here are some resources you can use to find a property in Sri Lanka:
Property websites
Sri Lankans visit several websites to buy, sell and rent their properties. Some of the most popular property websites in the country include:
Lankapropertyweb.com
Lanka Property Web is presently Sri Lanka's number one property and apartment listing website. It currently features over 16,000 active property ads and lets you sell, rent, and invest in the Sri Lankan property market.
Lanka Property Web gives you five options to search for properties. You can type a city name, ask the website to show properties near you (if you're in the country), search properties that are closest to a specific school or identify properties closest to a particular hospital.
It lets you search by property type (house, apartments, commercial buildings, bungalows, villas, studios). You can also search the property based on the price range, number of bedrooms, and distance from the city center.
House.lk
House.lk is a well-known property website that operates out of Colombo city. It lists various properties for sale, including houses, apartments, commercial, bungalows and villas, and studio bedsit. You can also find various types of land (bare, beachfront, cultivated, etc.) on the website.
Searching for your favorite property on House.lk is a child's play, mainly because its filters help narrow down the search results for you. It also lists the top cities for property sales in Sri Lanka and provides you with the country's latest property news.
Ceylonproperty.lk
Ceylonproperty.lk is the third-largest property website in Sri Lanka. It currently has over 3,500 listed ads and gives you the option to create an account. You can then save your recent searches and allow the website to send you alerts when a new property listing is posted.
The best thing about Ceylon Property is that it gives you the services of a real estate agent. You can hire its expert realtors to sell, buy and rent your property for you. The website also maintains an updated agent directory and has an in-depth guide on property law in the country.
Lankarealestate.com
What truly sets apart Lanka Real Estate from its competitors is the sheer number of properties listed on the website. Everything from beachfront villas to lakeside bungalows and 2-bedroom apartments to hill country properties' ads can be found on sale on the website.
It lets you create a wish list of properties you want to save for future reference. You can also permit it to send you updates about relevant property ads. And it also contains testimonials from previous clients to build trust with upcoming prospects.
Ceylonestateagents.com
Ceylon Estate Agents let you search properties based on SKU, property type, contract type, property location, number of bedrooms and bathrooms, and price range. It also offers other services such as property management, surveying, home construction, and BOI approvals.
The website has a handy guide for foreign investors looking to enter the Sri Lankan property market. One entire page is dedicated to answering your common questions about the country's property law. You can even hire Ceylon State Agents to arrange your trip to Sri Lanka.
Real estate agents
You can also enlist the services of a realtor to buy property in Sri Lanka. Having a real estate agent on your side, especially when you aren't in the country, can make the property buying process convenient and straightforward.
Keep in mind that Sri Lanka doesn't have a database of realtors operating in the country. Neither does it have any regulations to govern their registration and qualification. You'd be on your own when determining whether the real estate agent has what it takes to close the deal.
Make sure the agent you're going to hire knows the area and has experience with your type of transaction. Ask them about the number of transactions they have completed over the past six months. Tell them to give you proof of the same.
How do I select the right property?
Make sure to carry out due diligence checks on the property you're going to buy in Sri Lanka. Here is what you need to do to select the right property in Sri Lanka:
After identifying the property you want to buy, get in touch with the seller. Ask them questions about the house's current condition, the renovation it needs, the year it was built, among other things.
Visit the property. You must have enough free time to inspect the property from every possible angle to determine any potential abnormalities. You may also hire a property inspector to assist you in this step.
Investigate the neighborhood once you feel that the house seems perfect. Ask the local people about the availability of basic amenities such as water, electricity, and gas in the area. Also inquire about the area's security situation.
How do I buy property in Sri Lanka?
Start with hiring a lawyer. Ask them to check the plan and the deed of the property at the Land Registry. This will let you know whether the property is clear without any irregularities. The lawyer will also prepare a sale contract for you.
Do your research about the price of the house based on its size, location, level of amenities available, and prices of other properties in the neighborhood. Keep your budget in mind while deciding the maximum amount you can pay for the property
Arrange a meeting with the seller. Make your most competitive offer and if they agree to it, pay 10% of the purchase price to the seller. This will bound them not to entertain buyers that come after you, even if they offer more money than you're offering.
Inspect the property for one last time, pay the remaining purchase price to the seller, and sign the contract to make things official. All parties – the owners, the buyers, the legal representatives of both parties – should be present at this stage.
Get your lawyer to register the new deed at the Land Registry and the respective municipality. The transfer is now closed and you're the new official owner of the property.
What fees and taxes do you need to pay?
Land Tax: 100% of the property's value (if you're buying the apartment under your name) or 7% of the property's value
Stamp Duty: 3% to 4% of the property's value
Property Survey Fee: 0.10% of the property's value
Legal Cost: 1% to 3% of the property's value
Realtor's fee: 3% to 5% of the property's value (sometimes split evenly between the buyer and the seller)
Can you legally avoid paying the 100% Land Tax?
Most of the legal ways to avoid paying the 100% Land Tax involve paying a lot of money. Some, however, might be cheaper and more affordable for you. They include:
Purchasing an apartment on the 4th floor (or above) of a condominium project
Purchasing the property on a 99-year leasehold basis from a Sri Lankan citizen
How do I finance the payment for the property?
Foreigners cannot obtain a loan or a mortgage to purchase a property or invest in Sri Lanka. All the money has to come from outside Sri Lanka, and, in some instances, the Central Bank might require you to provide a source of the funding before clearing your funds from the bank.
The money to purchase the property must also be deposited into an Inward Investment Account (IIA) at a local bank. IIA is a special account for foreign investors residing in or out of Sri Lanka to channel funds into the country for permitted investments.
All your investments, as well as return from property sales, must be routed through IIA. You can use an online international money transfer provider like Xe to send money from your country of residence to Sri Lanka, and back.
What other money-related difficulties could you face while buying property in Sri Lanka?
Having no credit
Since Sri Lanka doesn't allow foreigners to obtain a loan or a mortgage from its banks, you'd have to have all the credit on you at all times. However, if you can't arrange all the credit straight away, deposit 10% to 20% of the payment upfront and ask the seller to give you some time to arrange the remainder.
Sending money overseas
Foreigners in Sri Lanka have to route their transactions through an IIA. In rare cases, especially when you're sending money out of the country, the bank where you have your IIA might ask you to give the source of the funds, forcing you to produce receipts and other documentation.
How to send money to Sri Lanka for property purchase
Many would recommend that you use an online money transfer to send money to Sri Lanka. That's because international money transfers typically cost less, are relatively hassle-free and often take less time to complete than bank-to-bank transfers or international credit card transactions.
Online money transfer providers like Xe save you from paying excessive foreign transaction fees and several extra bank fees. Instead, you can initiate and complete the transaction 24/7, at a competitive exchange rate. As an added bonus, Xe money transfers to Sri Lanka arrive within 24 hours of confirming the transfer.
Here's how you can send money to Sri Lanka with Xe:
Sign up via email or over the phone, or sign into your Xe account.
Enter your currencies and amount to see your competitive quote.
Provide your recipient’s banking details.
Select your payment method and provide your payment information.
Confirm and send—your money will be in Sri Lanka within 24 hours.