A general guide to buying property in Sri Lanka

The New Sri Lankan House is an estate agency selling prime residential homes, boutique hotels and lands to develop in Sri Lanka.

We are Colombo-based but operate across Sri Lanka. Our primary role is to support owners wanting to sell their property.

As a buyer, we can advise and support you in the process but we are typically paid by the owner and so working to get the best price for them.

The Sri Lankan real estate market is far less regulated than those in, say, the UK or the United States. Real estate agents don’t need a license to offer their services and as such there are many (many!) brokers.

Most agents will act on behalf of the seller, charging a commission of, typically, between 3% and 5% of the sale price. The trend is now to the lower end of that range, with the higher percentage only really justifiable on bare land or low value sales.

Buying agents do operate and, having introduced a property to you, may request a commission in the event of a sale. Alternatively, they may negotiate with the selling agent to split the commission paid by the seller. It’s not uncommon for deals to have multiple agents involved so it’s really important at the outset of any relationship to establish on what basis you’re working together, and what’s expected from any third party in terms of fees and commissions.

The obvious search criteria apply when buying in Sri Lanka and of course you’ll want options initially based on location, size and style of the property. Slightly more subtle considerations, can include:

Climate

A function of the location of course, but bearing mind that monsoons and seasonal weather in Sri Lanka can give a property a very different look and feel. A gorgeous flat lawn in February might be an impassable lake come the May monsoon – equally gorgeous perhaps, but not as practical.

Infrastructure

Ask questions about the water, electricity and even phone/wi-fi signal – the latter fairly easily established.

While most properties in developed parts of the country will be on the municipal water supply, plenty, in other parts, aren’t. And even those that are connected can suffer drawn-out water cuts in some areas.

If not connected to the mains supply, or if water cuts are frequent, then properties often have tube wells installed. In most parts of the country these can provide a consistent supply of clean water.

As elsewhere, Sri Lankan properties can be connected to single- or three-phase electricity. Three-phase is eminently preferable, even for smaller homes, given the peaks and dips in the power supply. Three-phase is more efficient and provides a more consistent power supply.

A lot of properties have stand-alone generators and so, assuming the generator is included in the sale price, try and establish when it was purchased and if it’s in good order. While small generators cost little, the cost for larger ones go up dramatically.

Development

In many parts of the Sri Lanka, particularly on the Southern coast and in some urban areas, there’s rapid development. Try and understand the likelihood of development nearby and how that may impact the property you’re considering.

Don’t always assume that published restrictions on development will be stuck to, and bear in mind that what you might consider a limitation – a poor road in for example – can in fact be a buffer against development that would negatively impact your chosen property.

Services

Again, the obvious considerations apply. Just bear in mind that branded services, hospitals, for example, or even some schools under an umbrella group, can vary hugely in terms of quality from one to the next.

You may have searched for properties marketed within a price range or you may have looked more openly with a view to establishing fair price on something you like.

Reaching that 'fair price' can be difficult. We're often asked the 'market rate' for properties of a certain type but, outside of Colombo, you could argue that a 'market' for developed prime property doesn't yet really exist - not one where price is set by the 'invisible hand' of supply and buyer demand.

Rather, prices are set by owner expectations and buyer willingness in unique situations. The buyer, then, needs to spend more time looking at all their options to understand where they'll find best value.

There’s also a strong culture of negotiating on property prices and so you shouldn’t always consider the listing price final. That said, more and more sellers – notably those we work with – are setting considered prices that they believe to be fair.

Traditionally, land is priced per perch – a perch being 5 square metres with 160 perches in an acre.

Perch prices vary hugely across the country – from a few thousand rupees in more remote parts, to three or four million on the best beach strips and up to five or six times that in parts of central Colombo.

Outside of Colombo, property has traditionally been valued according to a land price, with the value of any buildings markedly discounted.

With the cost of building now rising sharply, and the investment made often considerable, that’s changing. In considering a price, buyers often have a price per square foot in mind.

Again – inevitably! – that varies hugely.

The sharp devaluation of the rupee from early 2022 has of course destabilised any rupee-based pricing method where owners consider their property a USD asset.

Amongst many non-Sri Lankan villa owners, for example, there is an expectation of a transaction in USD. So, unfortunately for buyers, using an historic Rupee-based pricing model to establish an offer, might not get you very far.

Some sellers, of course, do have expectations in Rupee terms and, from what we've seen at time of writing, haven't yet dramatically shifted vastly shifted pricing in response to the Rupee's decline. In those cases, then, dollar buyers can find very good value.

If the offer you make is accepted you can request that the seller takes the property ‘off the market’ – effectively giving you a clear run to do the necessary checks without the risk of another buyer trumping your offer.

Whether they agree or not is up to them! Some are happy to do so, others, often depending on the level of the offer, will request a deposit payment – typically 10% - be paid for them to ‘de-list’ the property.

Either way, you should move as fast as possible to check that the property meets the necessary legal requirements.

You should ask for a set of documents showing the seller has legal title as well as showing compliance with property regulations in Sri Lanka. Exactly what’s relevant will vary but will include:

Title deed

Land Registry extracts going back 30 years – copies of the entries which show transfers of the property as maintained by the Land Registry

Survey plans – referenced in the Title Deed

Certificate of Conformity – showing buildings are in accordance with approved building permissions

Approved building plan

For your part, most fundamentally you’ll engage a lawyer, or a notary, to do a ‘search’ – going to the relevant Land Registry and checking that the deeds held by the seller match the certified extracts there, proving that they are in fact the rightful owner.

Your lawyer should check the extracts at the Land Registry going back at least 30 years to show that the property has been rightly transferred to the current owner.

Based on this study your lawyer will provide a Title Report, clearing the property or highlighting any risks or deficiencies in title.

Fees paid to lawyers for the conveyancing process are traditionally 1-2% of the sale value but may vary from one deal to the next depending on the work required.

Again, in part as sale values go up, that structure is being replaced with separate fixed fee arrangements, or agreed hourly fees. You may also choose to engage a licensed surveyor to re-survey the land and establish that the site plans – referenced in the title deed – are accurate. Existing plans are often sufficient.

Once you’re comfortable with the diligence process, your lawyer and the seller’s lawyer can draft the Deed of Transfer to effect the sale of the property.

Once signed, and the sale completed with the payment made, your lawyer – the notary attesting the deed - will need to register the new Deed at the Land Registry. The stamping of that document incurs the Stamp Duty – a payment, payable by you, of 4% of the property value*.

* Note that the Stamp Duty is payable on market value regardless of transaction price.