Sri Lanka’s property market has emerged as a vibrant and dynamic sector, presenting a plethora of opportunities for investors and developers. With a strategic location, a growing economy, and a focus on infrastructure development, the country’s real estate landscape is poised for substantial growth in the coming years. 

The property market has experienced steady growth, fuelled by rapid urbanisation and population expansion. The World Bank estimates that Sri Lanka’s urban population stood at 18.8% in 2020, indicating a shift towards urban centres. 

This trend has created a robust demand for residential, commercial, and mixed-use properties, particularly in major cities such as Colombo, Kandy, and Galle. The country’s urbanisation, coupled with a rising middle class and increasing purchasing power, has contributed to the sustained growth and stability of the property market.

Foreign Direct Investments (FDIs) have played a pivotal role in shaping Sri Lanka’s property market. The country’s strategic location, coupled with supportive Government policies, has attracted significant inflows of FDI. According to the Board of Investment of Sri Lanka, the country received $ 600 million in FDI so far in 2023, demonstrating the confidence of international investors in the potential of Sri Lanka’s real estate sector.

Impending apartment shortage

Speaking to The Sunday Morning Business, Iconic Developments Managing Director Rohan Parikh stated that a shortage of apartments in the Sri Lankan property market was imminent, which would inevitably lead to a surge in property prices. 

“This impending shift is a consequence of the recent economic crisis, which has slowed down new developments. With the current inventory in Colombo expected to sell out soon and a limited number of new projects in the pipeline, the demand for apartments will soon outstrip the supply,” he stated. 

He further noted that this could pose challenges for prospective homeowners seeking affordable housing in the city, while potentially benefiting existing property owners and investors.

“Meeting a surge in demand will be a significant challenge for the property sector. The economic crisis has led to a contraction in the sector, forcing many developers to halt operations due to financial constraints. This, coupled with the high cost of construction, VAT [Value Added Tax], and import duties, has created a challenging environment for developers to initiate new projects,” Parikh noted. 

Moreover, he added that the situation was further complicated as many developers had not been adequately capitalised before the crisis, which had hindered their ability to weather the economic downturn and invest in new projects. 

Parikh added that while the sector may recover and cater to high demand in the long run, it was likely to face difficulties in the short- to medium-term. This highlights the need for strategic interventions and supportive policies to bolster the sector’s resilience and capacity to meet future demand.

Tourism and the property market

Sri Lanka’s thriving tourism industry has been a catalyst for the property market. The country’s natural beauty, rich cultural heritage, and warm hospitality have attracted a growing number of international visitors. Although the Covid-19 pandemic and the unprecedented economic crisis presented temporary challenges to the tourism sector, the Government’s efforts to achieve economic recovery are expected to spur a resurgence in tourism.

The revival of tourism will drive demand for hospitality-related properties such as hotels, resorts, and vacation homes. With the potential influx of international tourists, there will be an increased need for accommodation and related services, creating lucrative opportunities for investors in the hospitality sector.

Sri Lanka’s property market is not isolated from the broader regional trends. South Asia, as a whole, is experiencing rapid economic growth and urbanisation. According to the South Asian Association for Regional Cooperation (SAARC), the urban population in the region is projected to reach 50% by 2030. This presents a significant market for residential and commercial properties, offering opportunities for cross-border investments and regional collaborations.

While the Sri Lankan property market holds immense potential, it also faces certain challenges that need to be addressed for sustainable growth. Land scarcity, regulatory complexities, and bureaucratic procedures can present obstacles to investors and developers. 

However, these challenges can be overcome through policy reforms, streamlined processes, and stakeholder collaborations. The Government’s commitment to improving the ease of doing business and creating an investor-friendly environment is a positive step towards addressing these challenges.

Increasing demand

Meanwhile, a seasoned property developer who wished to remain anonymous told The Sunday Morning Business that he had observed that the property market had displayed both resilience and adaptability despite facing occasional volatility. 

“Over the years, Sri Lanka’s real estate sector has experienced growth and transformation, driven by various factors. Urbanisation has been a significant catalyst, with more people migrating to cities in search of better opportunities and lifestyles. This trend has fuelled the demand for residential, commercial, and mixed-use properties in key urban centres.”

He noted that Sri Lanka’s population continued to grow, resulting in increased housing needs. The rising middle class, with its growing purchasing power and aspirations for improved living standards, has further contributed to the demand for quality properties. 

Furthermore, the cultural significance placed on property ownership in Sri Lanka, as a secure investment and a tangible asset, has sustained the demand despite occasional economic fluctuations.

“While the property market has experienced its fair share of ups and downs, the long-term prospects remain promising. The Government’s focus on infrastructure development, such as transportation networks and utilities, also plays a significant role in enhancing the attractiveness of various locations for property investment. Overall, despite occasional market fluctuations, the property market in Sri Lanka continues to demonstrate resilience and potential for growth.” 

Further, he stated that there was a continued increase in demand for properties in Sri Lanka even in the face of economic volatility, inflation, and the rising cost of living, adding that the reasons for this sustained demand were multi-faceted and could be attributed to several factors.

Firstly, property ownership is seen as a secure investment in Sri Lanka. Amidst economic uncertainties, individuals and investors seek tangible assets that can retain or increase in value over time. Real estate offers stability and serves as a long-term store of value, making it an attractive investment option.

Secondly, Sri Lanka’s urban population has been steadily growing, particularly in major cities such as Colombo, Kandy, and Galle. This urbanisation trend drives the need for housing, both residential and commercial, as well as mixed-use developments that cater to the changing lifestyle preferences and demands of urban dwellers.

Thirdly, the expanding middle class in Sri Lanka, supported by increasing disposable incomes and improving living standards, has created a surge in housing aspirations. As people aspire to own their homes or upgrade to better living spaces, the demand for quality residential properties continues to rise.

Lastly, despite the challenges posed by inflation and the high cost of living, individuals and businesses recognise the long-term value and potential returns that real estate investments offer. With prudent financial planning and access to financing options, buyers and investors are willing to invest in properties as a means of securing their financial future.

Addressing challenges

“While the property market in Sri Lanka has the potential to meet the increasing demand, there are certain considerations and challenges to address to ensure a smooth supply response,” the property developer stated.

Firstly, the availability of suitable land for development is a critical factor. While Sri Lanka possesses ample land resources, it is important to identify and allocate suitable parcels for different types of developments. Collaborative efforts between the Government and private sector are necessary to ensure efficient land use planning and allocation, taking into account factors such as infrastructure requirements, environmental considerations, and urban development strategies.

Secondly, streamlining and expediting the approval processes for development projects is crucial. Timely approvals and permits are necessary to avoid unnecessary delays and cost escalations. Simplifying bureaucratic procedures, establishing clear guidelines, and enhancing coordination between relevant authorities can significantly contribute to speeding up the supply response.

Thirdly, ensuring the development of supporting infrastructure is vital for the successful supply of properties. This includes transportation networks, utilities, and amenities that are essential for creating liveable and sustainable communities. Adequate investments in infrastructure development, both by the Government and private developers, are essential to meet the demands of a growing population.

Fourth, it is important to enhance the capacity and capabilities of the construction industry. This includes promoting skill development and training programmes, encouraging the adoption of innovative construction practices, and fostering collaboration between local and international construction firms. Strengthening the construction industry will not only enable timely project completion, but also contribute to the overall quality of the built environment.

Sri Lanka’s property market is positioned for remarkable growth, driven by urbanisation, FDI, and the revival of the tourism industry. The country’s strategic location coupled with ongoing infrastructure development presents lucrative opportunities for investors and developers. By leveraging the growing urbanisation trend, focusing on the hospitality sector, and capitalising on regional collaborations, stakeholders can unlock the full potential of Sri Lanka’s real estate sector.

As the country continues to attract investments and improve its business environment, the property market is expected to flourish. Stakeholders who stay informed about market trends, adopt innovative strategies, and navigate regulatory landscapes will be well-positioned to benefit from the promising opportunities that lie ahead.