Sri Lanka’s housing market is growing increasingly unaffordable to the typical local buyer. According to a March report by The Economist, Sri Lanka has been ranked the second most unaffordable housing market in Asia.
Furthermore, with urbanisation driving large groups of people into major urban centres, the world’s largest cost-of-living database Numbeo’s Property Prices Index by City 2026 places Colombo as the most unaffordable city in the world for buying property, with a price-to-income ratio of 55.1. The average property costs more than 55 times the average annual income and the affordability index is marked at 0.1.
At the same time, for international buyers, Sri Lanka’s cost of living is ranked as affordable. International Living magazine has identified the country as the most affordable place to live or retire in 2026, scoring the highest in the cost-of-living category of its 2026 Annual Global Retirement Index, due to affordable local transportation and easy-to-obtain retirement visas.
The data highlights a notable gap, as well as levels of significant inaccessibility for many local, specifically young buyers. The Sunday Morning Business assessed the factors driving this level of unaffordability, from residential real estate market behaviour and economic and policy-related concerns to construction costs and contractor issues.
Recent factors
Speaking to The Sunday Morning Business on real estate market price escalations, Deputy Minister of Housing and Construction T.B. Sarath explained that the issues pertaining to the tensions in the Middle East had caused certain changes in the market, but noted that these were temporary.
In addition, the Deputy Minister noted that the Sri Lankan economy in general had witnessed a substantial expansion in the past year across various sectors. He said that certain price increases could also be led by such economic strengthening, such as construction labour cost increases. He observed that price appreciation in the housing market was therefore likely, especially for middle-income and high-end buyers.
However, Sarath noted that the construction sector had not seen a substantial increase in expenses, especially in comparison with many countries in South Asia, according to reports based on 2025 data.
Limited accessibility in the market
Meanwhile, speaking to The Sunday Morning Business, Research Intelligence Unit (RIUnit) Chief Executive Officer (CEO) and Founding Director Roshan Madawela stated that the responsibility of providing affordable and social housing fell on the Government, as private companies entered the affordable housing segment only when it was profitable.
Higher profit margins are usually found in the upmarket luxury segment, which is why private developers largely operate at the upper end of the real estate market, mainly within the organised real estate sector.
“It is important to distinguish between the organised and disorganised real estate sectors. The organised sector typically consists of apartments, gated housing developments, and, to some extent, plotted land projects, where a developer organises a large plot of land into smaller plots, provides utilities, and creates structured communities. These of course come under the residential real estate segment, where the organised sector is largely led by the private sector,” he said.
Madawela added that the Government could incentivise the private sector to build housing for a broader segment of the population. He explained that in Sri Lanka’s tier-three luxury apartment category, only around 5–10% of the population in the Colombo District could afford to consider purchasing such units even with bank financing.
He further noted that, according to a RIUnit study conducted before the economic crisis, approximately 8–10% of Colombo District residents could afford tier-three apartments through bank borrowing. However, he pointed out that real wages had since declined and had not fully recovered, suggesting that affordability may now be lower, perhaps limited to around 6–7% of the population.
“This indicates a clear affordability issue, and thousands of apartments currently under construction would only be accessible to a small portion of the Colombo District population. As a possible solution, one model used in other countries, including the Maldives, is allocating developers two plots of land, where one plot is commercially viable, while the second is designated for social housing. A similar model could be applied in Sri Lanka, where developers could be offered high-demand land, in exchange for building social housing in another location,” he said.
Madawela further noted that such an approach would allow developers to benefit from economies of scale by managing both projects simultaneously, thereby reducing costs and improving efficiency. He also highlighted the importance of ensuring that individuals working in the city of Colombo were able to live within the city, noting that location decisions for social housing could be further examined.
He outlined several potential measures in addition to collaboration with developers, such as the importance of Government engagement with capital markets, financial institutions, and banks to offer concessional lending, specifically for first-time buyers. He noted that in many countries, governments underwrote part of the interest or introduced financing products that made it easier for young couples and newly married individuals to purchase their first home.
“I would also suggest direct involvement by the Government in housing development, which would require establishing a funding mechanism to support construction. There is a significant need for housing development, specifically in the post-Ditwah context, as past land allocation practices have sometimes resulted in housing developments in unsuitable locations,” he said.
Commenting on the supply-demand dynamic, Madawela stated that available literature and estimates suggested a shortage of more than 100,000 dwelling units annually in Sri Lanka over the past few decades.
He also clarified that although entry-level prices in the top end of the market had declined, this did not necessarily indicate an overall drop in property prices. Instead, he explained that developers were introducing slightly more affordable entry-level products.
“For example, a new apartment in Colombo 2 that sold for around $ 358 per square foot two years ago may now be priced at around $ 330 per square foot. This adjustment shows that developers are making products more affordable.”
One market in the residential real estate sector includes catering to high-net-worth individuals and buyers who can access financing for luxury apartments, representing a small portion of the Colombo District population. The broader housing market includes individuals purchasing homes at affordable rates for personal use rather than investment purposes. Madawela noted that these two segments required different strategies.
He highlighted that Government incentives for private developers and capital markets, along with flexibility in the banking sector, were necessary, such as by introducing special housing loan products for first-time buyers or longer mortgage periods in order to improve affordability and support the growth of the affordable housing sector.
Trade policy and protectionism
Meanwhile, Arutha Co-Founder and Economist Rehana Thowfeek stated that home ownership was increasingly out of reach for many average Sri Lankans, especially young people.
This is largely caused by several factors. Prices of land, houses, and rent in urban areas have increased significantly and crowded out many young people from being able to own or even rent a home.
In the same vein, she noted that certain high-end apartment complexes were being sold at steep prices. According to her, this indicates a fundamental mismatch between real estate development and the average person. Another factor she noted was that many apartments and homes were being constructed as ‘investments’ rather than as homes to live in, limiting their accessibility primarily to the wealthy.
She assessed that trade policy played a significant role in shaping construction costs. “The construction raw material industry is heavily protected and there is no benefit to the consumer. There is cross ownership of these companies and the markets are mainly duopolistic or oligopolistic. It is becoming increasingly unaffordable for people while protected companies make massive profits,” she said.
With the Government having now launched a phasing out of para-tariffs, including materials related to construction, she noted that it would help make construction more affordable. However, she added that it could only happen if competition was encouraged rather than restricted, highlighting that freer trade policy and a strong competitive market were vital.
“On the other hand, Sri Lanka also experiences issues related to land supply, which are driving up the prices of available land. As the Government owns the majority of land in the country, it can distribute these lands to people, which will ease the pressure on prices and make housing affordable,” she observed.
She described this as a serious social crisis, noting that Sri Lanka had suffered a major development setback since the economic crisis. “Migration is high, birth rates have plummeted, and real wages have fallen. The typical dream of getting married and owning a house and car is getting further and further out of reach for young people in Sri Lanka. We need to address these issues before they boil over,” she added.
Increasing construction cost
Former President of the Chamber of Construction Industry of Sri Lanka (CCI) and Green Building Council Chairman Architect Jayantha Perera stated that the high cost of construction remained a key factor contributing to the unaffordability of housing in Sri Lanka, specifically in urban areas such as Colombo.
He noted that construction costs in Sri Lanka were relatively high, especially due to the use of imported components and fittings. He added that developers of high-end apartment projects and luxury apartments usually relied on imported materials and fittings, which increased overall construction costs and, in turn, pushed up selling prices.
Perera further observed that research findings had indicated that construction costs in Sri Lanka were higher than in Singapore. According to him, this is one of the reasons why selling prices of apartments, particularly luxury apartments, remain high.
“In recent years, construction labour shortages have further increased costs. There has been a significant shortage of local construction labour over the past five to six years, prompting large companies to employ considerable numbers of foreign workers. This has also added to construction costs, further contributing to the high prices of luxury apartments,” he said.
In addition to construction-related factors, Perera stated that land prices in urban areas also remained high, which added to the unaffordability of housing in cities such as Colombo.
Commenting on demand and supply dynamics, Perera noted that demand for high-end apartments was currently subdued due to economic conditions and high construction costs. Nevertheless, he added that there were indications of a possible turnaround in the urban property market, although this trend was yet to materialise fully. However, at present, demand for luxury and high-end apartments remains limited, largely due to the economic crisis and increased construction costs.
Concerns about price fluctuations
Speaking to The Sunday Morning Business, National Construction Association of Sri Lanka (NCASL) Chairman M. Darinton Paul observed that delays in approval processes remained another key issue in Sri Lanka’s housing market. He noted that there was usually a lengthy gap between the approval of a plan and the commencement of a project by an investor.
Furthermore, he stated that cost increases caused by external shocks, including fuel and utility price surges, could result in an overall price increase of approximately 25–30%. He added that there remained uncertainty regarding who would bear these additional costs, whether it would be investors, end-users, or real estate companies, and that these surges had contributed to several price-related concerns in the housing market.
“On the other hand, there is a serious concern related to Government contracts as well. In contracts exceeding three months, it is essential for payments to be made based on a price fluctuation formula. However, certain Government officials have not included this formula in some agreements during the tendering process. In economically vulnerable situations such as the present context, these concerns have a significant impact.”
“Additionally, the procurement guidelines do not approve price fluctuations for projects not exceeding three months, making it difficult for contractors to bear the costs. This can result in projects being halted,” he stated.
Paul further explained that certain Government officials failed to consider the timelines specified in procurement guidelines when in tender processes, adding that these issues had caused serious financial constraints for contractors.
“We call for Government attention on this matter, ensuring payment for price fluctuations across projects. There is also a shortage of materials in many companies, possibly caused by prevailing trade delays,” he added.