View from Colombo: Real estate market continues to flourish throughout the island

There was an overwhelming response from many sectors of society to the government's recent decision to impose tax on foreigners buying land in the country.

There were many restrictions in the past that made it prohibitive for foreigners to buy land in Sri Lanka. All these restrictions, including the 100 per cent tax, were removed under the United National Front (UNF) government that encouraged foreigners to buy all types of properties.

As a result, during the UNF government rule between December 2001 and early this year there was a steady inflow of foreign investors buying prime property all over the island, especially in the south and south-western coastal belt known for its clean and shallow beaches, scenic beauty, tropical climate and holiday resorts.

Some of them purchased land and buildings at historic places, such as the Fort in the ancient city of Galle in the south.

For those selling, the prices they were getting for their properties were very attractive. These prices, however, were unaffordable for most Sri Lankans except the wealthy few. Foreign buyers found the prices reasonable in view of the continuous depreciation of the Sri Lankan currency. For example, a dollar today fetches more than Rs100.

Some foreigners purchased property in historic areas and opened restaurants specialising in their countries' cuisine, thereby creating a home away from home. This was more prevalent in Negombo on the west coast due to the close proximity to the island's major airport.

Trend

Although most foreign buyers were from Europe — and to a lesser extent from the Far East — Indians, too, started coming in considerable numbers, investing in prime properties in cities as well as the interior, contributing significantly to the overall boom in the real estate sector.

Indians started their business operations here, purchasing both residential and commercial properties. As a result, the real estate sector thrives in many areas.

This trend of foreigners buying valuable property, especially in historic areas, has alarmed many citizens. In response, the government has re-imposed the 100 per cent tax on these sales.

Some believe that those who want to settle here will continue to invest in all types of property despite the new tax, while others predict the tax on these sales will have a negative impact on the island's booming real estate market. Real estate agents who concentrate only on this segment say that enquiries for various properties continue.

Meanwhile, the real estate market in general, contrary to all negative predictions, continues to flourish throughout the island despite the political uncertainty.

High demand

The demand for good property in Colombo is so high with some plots of land fetching between Rs2 million and Rs2.5 million in such posh business and commercial areas as Duplication Road and at about Rs2 million on popular Galle Road in Colombo.

"Some Sri Lankans employed abroad are returning home with bags full of money in search of good property. The point is finding someone selling property and even if you do find that person, he demands an exorbitant price. No one wants to sell except a few who are hard-pressed for cash," said a real estate agent, who pointed out that many spend months running around looking for good property and eventually leave the country in frustration.

To overcome this problem, the trend in some areas in Colombo is to build high rise apartment buildings where a two bedroom flat sells for Rs5 million to Rs7 million while a three bedroom flat with the latest facilities fetches between Rs10-Rs12 million. In fact, most of these have been sold even before construction was completed.

Land prices continue to skyrocket all over the country, including in strife-torn Jaffna, where many Tamils who migrated over the past two decades, return to invest in land, raising the price to unprecedented levels.

The writer is a Sri Lanka-based journalist