Thoughts on Sri Lanka’s luxury villa market

Dec 7th 2022

Jungle Hill House, near Galle - USD 625,000

It’s some time since we’ve written on it, so overdue to give thoughts on the luxury villa market here in Sri Lanka.

These remain unique times for Sri Lankan luxury property outside of Colombo, where we’re focused (for now). Where previously there was a strong flow of inbound, international interest, the last 18 months have, for obvious reasons, seen sellers shift attention almost exclusively to local buyers.

The strength of that segment has been encouraging. Again, a function most likely of this exceptional period, we’re seeing local Sri Lankan would-be buyers reconsider the value of luxury real estate on the island. Historically, many Sri Lankans in the market for developed villa (second-home) property would be looking overseas. Now, not able to do so, they’re looking at options close by, and, what’s more, realising there’s great stuff to be had.

This local-buyer driven market, though, comes from a different angle. There’s a belief, rightly or wrongly (more on this below), that we’re in a buyers’ market, and those local buyers are looking to drive very hard deals on pricing. They’re also, understandably, keen to question the logic of valuations on what for many will be a new asset class, but one on which they know and understand the fundamentals.

We’ve lost count of the number of conversations that jump quickly into calculations of perch price and build cost per square foot. Everybody has an architect/builder/designer who could “do this for half the price”. Great if so! We’re conscious to remind buyers that luxury villas differ from, say, city apartments, and shouldn’t be considered a commodity to value on plot size and square footage alone. What’s reasonable is, of course, their call. But rare indeed is a project that comes in exactly on quoted budget.

In our particular segment, typically focused on completed luxury villas and homes in excess of LKR 140m (USD 700,000), we’re also seeing stickiness on the sell-side. I should caveat this with the clause that we work with a small pool of sellers and so trends may differ but owners are not seeming in a hurry to slash pricing and sell fast. The understanding, mentioned above, that this is a buyers’ market doesn’t ring true in this sense. Indeed, we’re more in line with many markets across the world where, in the context of a global pandemic, real estate pricing has demonstrated an almost perverse upward climb.  

The very honest conclusion would be that, rather than being in a buyers’ or a sellers’ market, we’re not, as far as Sri Lankan luxury villas and homes are concerned, in a market at all; not one where supply, demand and subsequent regular exchange set pricing. Instead, we have buyers and we have sellers, and occasionally the two do come together and we see deals but it is not, right now, an easy path to that end.

We’re hopeful, of course, that we’ll soon see more of a traditional market. There are exciting villa developments in full swing fuelling supply (we’re planning to write on some of those very soon) and as travel restrictions start to ease it’s likely that international and returning Sri Lankan buyers will boost demand significantly. For now, we’re still sitting tight, working to match those keen sellers with genuinely serious buyers.