Buying Property in Sri Lanka as a Foreigner
A Not So Transparent Market
Can foreigners buy real estate in Sri Lanka? This is a question that come across many foreigners who want to invest in Sri Lanka or who simple want to buy a second home in Sri Lanka. And in this not so transparent market it can be difficult to find the correct answer.
As in most developing countries there are restrictions on foreign ownership of immovable assets such as land and property. In the recent past there was a 100% tax imposed on foreigners. This even applied to local companies with over 25% foreign ownership buying freehold properties. However under the present government, this tax has been removed. But its not easy to get hold of this information.
Even the relative little information available is largely out of date. For example this guide by the Sri Lankan embassy in Rome just mention investing as a BOI project or buying through a local partner. It doesn't mention anything about the various options available to foreign investors.
A very detailed and thorough look into foreigners buying real estate in Sri Lanka can be found in this Forbes article. The focus is on Lanka Real Estate, a company specializing in buying real estate for foreigners. But you can get some insight into the legal proceeding and the system built around the real estate deals.
What Are the Actual Laws that Apply to Foreigners
As I mentioned before one of the biggest problems faced by foreigners is finding reliable information about the laws. Unless you know a Sri Lanka lawyer you can trust or know your way around Sri Lanka gazette documents you'll be hard presses to find these information.
As of 15th August 2014 a new bill has been presented to parliament under a Gazette Notification issued on 8th August 2014.
* Please note this has not yet been passed in Parliament so contact a local agent like Lankarealestate.com mentioned above or a good lawyer for the latest updates.
Summary of Gazette Notification pertaining to foreign ownership:
Any foreign national wishing to buy a freehold title can purchase shares up to a maximum of 49% in a local company that subsequently buys a property. Thereafter further transfer of shares within said company to a foreigner above 49% in total can only be made after a period of 20 years. In this instance a foreigner may use a local nominee for the purpose of holding the balance shares in the company.
A stamp duty of 4% is due on any purchase of property, however if the property is already the sole asset of a locally owned company and the company is transferred to the buyer then only a share transfer tax of 0.5% is payable.
A foreigner, or a local company where any foreign shareholding is 50% or more, may purchase a lease of up to 99 years. However this is subject to a 15% Land Lease Tax in addition to the 4% stamp duty.
An exception to this rule is if the purchaser is a local company with 50% or more foreign shareholding and has been in operation for 10 consecutive years or more. In such instance the Lease Land Tax is reduced to 7.5%.
A foreigner, or a local company where any foreign shareholding is 50% or more, may purchase a condominium apartment on the 4th floor or above without any restrictions, as specified in the Apartment Ownership Law.
Looking for a Holiday Home/Second Home ?
Most of my friends from Sweden, UK and Australia are looking for holiday homes and in my opinion this is what most foreigners are interested in as well. Since its an island Sri Lanka has hundreds of beach villas and beach houses for sale at a very affordable prices.
But even if you trust your friends 100% its not a good idea to buy through them. Because if something happens to him/her the ownership goes to the relatives and you'll find yourself with a legal battle instead of holiday home.
Real estate doesn't come cheap so do the proper research and ask for references. Otherwise your investment can turn into a nightmare.
After going through the Forbes article I recommend LankaRealEstate to my friends as well. They've been doing it since 2002 and going by the customer testimonials have a very good track record. And they have some mouth watering properties too :-) .