The Property Banks Buyers Guide to Sri Lanka
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.
This makes the property buying process in Sri Lanka particularly
unpleasant for an international investor; but those who are
committed to buying real estate in Sri Lanka for investment purposes
can achieve their goals but need to be prepared for hurdles and
hiccups.
Because of the reintroduction of the 100% property tax that’s levied
against foreign buyers who 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rescinded.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.