In 2015 and early 2016 Sri Lanka’s real estate market expanded rapidly, continuing a medium-term growth trend that has been fuelled by an increased appetite for residential property among the nation’s wealthy and middle-class population, growing demand for grade-A office and commercial space from local and foreign corporates, and rising interest in the country as a tourist destination. Since the end of Sri Lanka’s civil war in 2009, the real estate market has grown exponentially, as developers have raced to meet ballooning demand for structures of all sorts in a market that had seen only anaemic expansion for more than two and a half decades. While the state has focused primarily on carrying out much-needed upgrades to various infrastructures and affordable housing stock, private developers have invested heavily in high-end residential, commercial, hospitality and office space.

Continued Growth

Growth in all of these areas is widely expected to continue in 2016, in part due to a handful of legislative changes recently introduced by the government. Policies aimed at making it easier for foreigners to invest in the country and opening up new sites for property investment and new sources of real estate financing bode well for the market’s trajectory in the coming years.

“When the civil war ended, we knew this market had immense potential and would likely emerge rapidly,” Sunil Subramanian, head of transactions at JLL in Colombo, told OBG in October 2015. “This turned out to be an understatement. Real estate has become a major industry over the past six years, and has not yet stopped growing.”


Nonetheless, developers and other local players face a variety of challenges. Competitive rental rates across a variety of commercial segments – not to mention a high cost of construction as compared to other South Asian markets – have translated into relatively narrow margins and low yields, which has had a negative impact on supply. Conversely, since 2009 developers have launched a substantial number of luxury residential projects in Colombo and elsewhere in the country. With many of these expected to come on-line in 2016-17, some local players have expressed concerns about a potential oversupply in this area in the coming years.

Additionally, the process of acquiring land and building property in Sri Lanka requires developers to navigate a complex and overlapping set of rules and regulations, and to seek permission from various federal and regional authorities – a process that some local players consider to be burdensome. Recent changes to the country’s real estate-related legislative framework have the potential to improve this situation. Finally, Sri Lanka’s affordable housing market is widely regarded as undersupplied, though both the state and the private sector have launched new projects in this segment recently.

“There is a surplus of luxury apartments and there will be a glut, but middle-class housing is not there,” Ranjit Fernando, chairman of the federal-level Urban Development Authority (UDA), told OBG. “[This] is a huge market opportunity, but the programme is not for the government to build it, but for the government to stimulate the market to build it.”

Sector Oversight

The UDA, which was established in 1978 with a mandate to implement a master plan for Sri Lanka’s capital city, Colombo, has since taken on a nationwide advisory role, planning and regulating urban areas throughout the country. The authority plays various roles, serving as an oversight body in the context of city planning, liaising with developers, drawing up new policies and, in certain cases, implementing government projects in urban areas, particularly those related to housing.

In addition to the UDA, a number of other oversight bodies are involved in Sri Lanka’s property sector. The Ministry of Housing and Construction (MHC), for example, has authority over the country’s construction sector and works alongside the UDA on housing-related issues and projects. With an eye towards boosting its regulatory capacity and streamlining operations, the MHC was reorganised under the authority of Sri Lanka’s new government, which came to power in early 2015.

Additional federal-level entities involved in real estate regulation include the Ministry of Lands; the Ministry of Transport and the Ministry of Higher Education and Highways, both of which play an active role in infrastructure development (see Construction chapter); the Condominium Management Authority, which has the authority to settle disputes among condominium owners and renters; and the Ministry of Tourism, which sets policy for the nation’s burgeoning tourism industry (see Tourism chapter). Sub-national organisations such as the Colombo Municipal Council, meanwhile, are also involved in local development planning.

Regulation & Planning

Key components of Sri Lanka’s regulatory framework that pertain to the real estate sector include the Apartment Ownership Law No. 11 of 1973 and Act No. 39 of 2003, the latter of which amended the former; the Registration of Title Act No. 21 of 1998; and the Land (Restriction on Alienation) Act No. 38 of 2014.

With the introduction of this latter piece of legislation, non-nationals were prohibited from buying, leasing or otherwise taking control of land, property or apartments in Sri Lanka. According to a KPMG report on the law, the ruling does “not apply where a condominium unit is situated on or above the fourth floor of a building”. The 2014 law also included a 15% tax on all land lease by foreigners, with the exception of long-term leases, i.e., those for 35 years or longer. The tax drops to 7.5% for units on or above the fourth floor of an apartment building. Since the law was introduced, it has attracted criticism both from Sri Lankan observers and foreign players, on the basis that it deters foreign investment.

The government of President Maithripala Sirisena, whose party took power in January 2015 after winning federal elections, has worked to ease the 2014 law, in an effort to boost foreign investment into Sri Lanka. In the country’s 2016 budget, which was announced in November 2015, the administration proposed removing the lease tax for non-nationals, and streamlining the process by which foreign direct investment deals are approved.

However, the current government has maintained the ban on foreigners and foreign corporates owning land. “In 2014, after a few years of debate in the industry and within the government, the Land Bill (Restriction on Alienation) was passed,” said JLL’s Subramanian. “Effectively foreigners could lease land by payment of an additional land lease tax of 15%. Freehold title cannot be obtained by foreigners or foreign-owned firms.”

In Figures

Sri Lanka’s real estate sector is relatively mature as compared to some of the country’s other economic, less-developed sectors. Nonetheless, detailed, up-to-date numbers that describe the size and scope of the sector were not readily accessible as of time of publication. The most recent government data available as of early 2016 were from the Central Bank of Sri Lanka (CBSL), and showed recent growth in the value (GDP) of real estate activities (including ownership of dwellings) at constant 2010 prices. Indeed, from the third quarter of 2013 through the second quarter of 2015, Sri Lanka’s real estate sector grew in value by just under 24%, from RS102bn ($734.4m) to RS126.4bn ($910.1m).

This growth trend is backed up by a considerable amount of local private sector and foreign research, which suggests that the property sector has grown rapidly since 2009, in line with the country’s overarching economic performance. Indeed, according to data from NDB Securities (NBDS), a Colombo-based brokerage, from 2010 through 2014 Sri Lanka posted an average annual GDP growth rate of 7.4%. Similarly, since 2009 the country has seen rapidly expanding levels of investment from both the state and private sector alike. From 2009 through the end of 2014 the government’s investments in the country have grown by a compound annual growth rate (CAGR) of 6.6%, while private sector investment has expanded at a CAGR of 21.9%, according to NBDS data. The pace of investment growth since the civil war ended can be understood at least in part as a reflection of local demand for new products, services and properties.

Sri Lanka’s Western Province, which includes Colombo and a variety of other densely populated urban areas, was home to around 28% of the population as of late 2015, despite comprising just 6% of the nation’s total land area, according to estimates reported by the Ministry of Megapolis and Western Development, a ministry that was formed in mid-2015 with a mandate to develop the province. Most of the real estate development in Sri Lanka in the past six years has taken place in Colombo and environs, though in 2014 and 2015 some local players reported increased development activities in Kandy, Galle and other parts of the country as well.


Demand for new residential property spiked in the years immediately following the end of the war, driven in large part by wealthy resident Sri Lankans (RSLs), non-resident Sri Lankans (NRSLs) and, to a lesser extent, expatriates. Currently, less than 4% of investments in premium residential property is generated from foreign buyers, according to Pravir Samarasinghe, CEO of Overseas Realty ( Ceylon), which is developing the Havelock City project in Colombo. More than a third of sales are made by Sri Lankans living abroad, with the balance coming from locally based high-net-worth individuals.

High-End Demand

From 2008 through 2014, around 670 new luxury and high-end condominiums came onto the market each year, according to data from KPMG. As of early 2016 demand for these units remained high, though a raft of new units are expected to be completed by 2018. Indeed, according to KPMG, from 2015 through 2018 the number of new high-end units coming onto the market on an annual basis was expected to jump to 950, an increase of 42% on the 2008-14 period. In this climate, the depth of the demand for high-end residential units remains unclear, though many local players are optimistic. “There are a huge number of NRSLs living abroad at the moment, far more than we have seen come back and buy property in Sri Lanka,” Subramanian told OBG. “Given this reality and the political stability we feel that sales of high-end residential property could perform well.”

Another spur to premium developments is a shift back into the cities by wealthier Sri Lankans now that better accommodation options are becoming available, which could see an improved market for rental properties, according to Pradeep Moraes, president of sales and marketing at Altair. “There was in the past an exodus out of town by those seeking larger properties, but there is a new emerging segment for rental apartments living in the city,” said Moraes, whose company is developing Sri Lanka’s largest residential tower in the capital.

According to JLL data, from 2005 through 2014, projects with a total of 3300 upper-mid and luxury residential units were launched in Sri Lanka. A majority of these projects were initiated after 2009. A considerable number of new residential projects have been launched in the past few years. In September 2015, for example, John Keells Holding, the largest listed conglomerate on the Colombo Stock Exchange and the country’s largest private developer, launched Cinnamon Life, an $850m mixed-use project, on Slave Island, near Colombo’s waterfront. The project, which includes 450 luxury residential units, an 800-room luxury hotel, grade-A office space, a high-end shopping mall and a variety of entertainment and conference spaces, has been touted by John Keells as Sri Lanka’s single largest private sector investment. Cinnamon Life is scheduled to be completed by 2018.

Up & Coming

Additional projects either currently under way or recently completed by John Keells include 7th Sense on Gregory’s Road, a luxury residential apartment building; and three condominium tower projects, namely OnThree20, which consists of three 37-storey towers; The Emperor, a 35-story tower; and The Monarch, a 30-storey tower that was completed in 2009. Other ongoing or recently completed residential projects have been developed by Fairway Holdings, Imperial Builder, South City Projects, the Apurva Natvar Parikh Group, Shangri-La, AVIC, Silver Needle Hospitality and the ABANS Group, and Keppel CT Developments (see analysis).


According to JLL data, as of August 2014 Colombo was home to around 2.6m sq feet of grade-A office space, 95% of which was occupied. Since then a handful of new office projects have either come on-line or were under way as of time of publication, including AEC Towers, Free Lanka Towers, Orion City, Cinnamon Life and Shangri-La’s One Galle Face. Since mid-2014, however, the supply of new high-quality office space has lagged behind demand, pushing up prices at existing office properties and squeezing smaller corporates into lower-quality space.

This has, in turn, given rise to a vibrant second-tier market, with many small and medium-sized enterprises (SMEs) operating out of residential spaces that have been converted into office units.

Worked Up

According to research carried out by Lamudi, a digital real estate marketplace based in Germany that has been operating in Sri Lanka since 2014, from the last quarter of 2014 through the first quarter of 2015 interest in office properties in Colombo – as measured by a growth in search activity on the firm’s website – grew from 3.7% to 5.7%.

Demand for office space continued to rise through 2015 and into 2016. According to JLL data, over the second half of 2015 office property rents increased by around 10%. “Prices for top-end office space have nearly doubled in the past five years,” Subramanian told OBG. “So today demand for grade-A space spills over to grade B, and demand for grade-B space spills over to grades C and D and so on.”

In an effort to take advantage of pent-up demand, most of the large-scale mixed-use projects currently under way in Sri Lanka include a considerable office component. For example, Shangri-La’s One Galle Face project, which is expected to be completed by 2018, includes 60,000 sq metres of new space.


Sri Lanka’s tourism sector has grown rapidly over the past six years, which has, in turn, contributed to a flurry of activity in the development of hotels and other tourism-related properties. From 2009 through 2015 the number of visitors jumped from 447,890 to 1.79m, an overall jump of almost 300%, according to data from the Sri Lanka Tourism Development Authority (SLTDA). Indeed, over the course of 2015 alone arrivals rose by nearly 18% on Similarly, according to data from the CBSL, in 2014 tourism receipts increased by 42% on the previous year to reach $2.4bn in total. With the SLTDA aiming to attract 2.5m visitors to the island nation in 2016, most local developers expect tourism to be an increasingly important growth driver of real estate activity in the country for years to come. As such, according to a recent report issued by JLL, “the hotel environment has grown increasingly competitive, with an increase in hotel room supply as several new domestic and international players establish their presence in the country”.

As of the end of 2015, the SLTDA estimated that Sri Lanka had around 28,000 rooms, more than 60% of which were in informal rooming houses and unclassified establishments. The formal market is largely dominated by a handful of local developers and owners, which operate chains across the country, including John Keells, Jetwing Hotels and Aitken Spence. As in the residential segment, much of the activity in hotel development has taken place at the upper end of the quality index, with the addition of numerous four-, five- and, to a lesser extent, three-star properties in recent years. Indeed, of the 8000-odd rooms either in development or planned in Sri Lanka as of the end of 2015, around 60% were luxury or upscale properties, according to JLL, and some 65% of the total upcoming inventory was in Colombo. Major new hotels expected to come on-line in the capital in 2016 include Premier Pacific’s 306-room Sheraton; a 196-room Zmax Fairway developed by Fairway Holdings; Damro’s 270-room Marino Sands; and Softlogic’s Mövenpick property, among others. With expected completion dates further in the future, new projects include those from John Keells (as part of the Cinnamon Life project), Colombo City Centre, Shangri-La and Asia Capital (see Tourism chapter).


As Sri Lanka’s economy has improved in recent years, local retailers have reported a dramatic increase in demand for a wide range of products. As of 2014 the country’s per capita gross national income was at $3460, according to World Bank data, up from $3170 in 2013, $2920 in 2012 and, in 2005, just $1210. Rapidly rising incomes among RSLs, paired with a steadily growing number of foreign tourist arrivals and an influx of businesspeople, has resulted in a change in retail spending patterns in recent years. Traditionally many locals did much of their shopping at informal markets and small, standalone retail outlets. More recently, however, there has been a shift towards formal, branded shops, with shopping malls an increasingly popular destination.

As of mid-2014 Sri Lanka was home to eight shopping malls, which offered a total of around 660,000 sq feet of retail space, according to JLL data. As in the office segment, the vacancy rate in the formal, grade-A retail sector was less than 5%. As might be expected given this situation, a considerable amount of additional retail space is currently under construction. The UDA, for example, has worked alongside private developers to turn a handful of Colombo’s historical sites into retail spaces, including the Dutch Hospital and Arcade Independence Square, both located in the capital’s tourist-friendly Fort neighbourhood. In addition, most of the major new mixed-use projects under way in Sri Lanka have a retail component, including John Keells Cinnamon Life and Shangri-La’s One Galle Face, among others.

“Some international retail brands have contacted us about setting up shop at One Galle Face,” Rajeev Garg, director of finance and deputy general manager at Shangri La Hotels and Resorts in Sri Lanka, told OBG. “For many of these brands this is the first time they’ll be in the country, which points to the changing retail landscape here right now.”

Regional Activity

A key trend moving forward is the development of Sri Lanka’s so-called second-tier cities, outside of Colombo and the Western Region. “There is a risk of oversupply in the coming years in the capital,” Subramanian told OBG. “At the moment, however, prices are quite high in many segments, after more than five years of rapidly rising demand and developers struggling to keep up.” Given this situation, many investors and end-users alike are increasingly looking to Kandy, Gampaha, Galle, Hambantota and other smaller urban areas for new real estate opportunities. “[The year] 2016 will see the development of Sri Lanka’s smaller cities,” Hugh van der Kolff, the managing director of Lamudi, told local media recently. “In these cities, developers are faced with lower land, resource and building costs; as a result, investors get more for their money.”


Taking into account steadily increasing demand for property of all kinds in Sri Lanka since the end of the civil war in 2009 and the numerous large-scale projects that have been launched in recent years, most local developers are optimistic about the future. The luxury and upper-mid-tier residential segment, which has seen near-continuous expansion over the past six years, was widely regarded as a key growth driver at the time of publication, despite ongoing concerns about oversupply.

Meanwhile, given the low (below 5%) vacancy rates across the nation’s existing high-quality retail and office spaces, particularly in Colombo, these segments are also expected to play an important role in the property market in the coming years. Finally, provided that tourist arrivals continue to grow at the current rate – and the government is working to ensure that they do – demand for new hotel rooms will also likely continue to rise.

A raft of legislative and policy changes recently introduced by the new government are widely expected to lower the barrier to entry for investors interested in moving into Sri Lanka. This should, in turn, have a positive knock-on effect on real estate activity throughout the country.

“It can feel expensive to develop here, because the price of inputs, including land and materials, has gone up dramatically over the past four-to-five years,” Kishore D Reddy, the managing director of Platinum One, told OBG in October 2015. “But compared to most other cities in South Asia, Colombo is actually still reasonable. Besides, the fact is that sales and rental prices have also grown rapidly over the same period. And they are not finished yet,” he said. Beyond the capital, development in the country’s other cities promise to provide further opportunities.