Imagine overlooking the crashing beach waves and feeling the cool ocean breeze stroking your cheeks as you sip on a cup of tea from the balcony of your 25th floor apartment. What a view, right? That is exactly the kind of modern island living that Sri Lanka welcomes you to.
At the center of frequently used trade routes to the global market, Sri Lanka is an island rich with many natural resources and a growing property market. Though it is still in its developing stages, it is home to a rapidly advancing metropolitan city; Colombo and an upcoming global hub; Port City.
Because of this, Sri Lanka is also a country that attracts a lot of attention from tourists, investors, and the elite locals themselves. Investment in the country is expected to bring in large returns, turning Sri Lanka into the next Singapore of this decade. With advance government infrastructure plans drawn and put in place, the property market of the country is witnessing its own kind of hike. Property value in Sri Lanka is improving day by day, and many intricately designed skyscrapers are redefining the traditional nation as we know. And that makes investing in the country now, one of the best decisions you could ever make.
Steps to follow when investing in Sri Lankan Real Estate
Step 1: Research and find your ideal home
Sri Lanka has 9 provinces and 25 districts; with its metropolitan city of Colombo subdivided further into 15 parts, there is a range of real estate to choose from to invest. Some cities with properties in high demand are Colombo and its suburbs, Gampaha, Kandy and Galle. However, when you are selecting from these cities, you need to think of what you expect from this new investment. If it’s for a vacation home, cities like Kandy or Galle are ideal because of the rich natural resources and relaxing vibe. But if it’s for work, Colombo is the best.
In all these cities properties are available for rent, some on sale, some above the 28th floor and some with sea views. And when choosing amongst them, you could either work with a real estate agent or go through the newspapers or take the fast track with a real estate website. Filter your search based on what you are looking for and locate your dream home in minutes.
Next would be to research the market and make sure the property you have chosen is the correct one in terms of value and location.
Step 2: Meet the developer/seller, view the property and ask the right questions
Getting insight on a property before you purchase it helps you select the ideal home easily. It also gives you an idea on how you can plan out your financing options. Here are a few factors to address.
The completion date and payment plan (if under construction)
If they have the necessary documents and approvals for the stage of development they are in.
If the property is mortgaged to a bank and how it’ll affect the issue of deeds
Reputation of developer and contractor (for apartments)
Once you have found out all that you need to know on a selected property of your choice, the next step is to work on appointing the right and experienced lawyer to help you with the other steps.
Step 3: Appoint a lawyer
Property lawyers or attorneys in the industry assist buyers and sellers with the legal aspects involved in purchasing a property. As a buyer, working with a trusted lawyer would mean that it reduces your chances of being scammed by fake sellers. But when you are selecting a lawyer, consider his or her experience and speciality or ask for recommendations from a trusted friend or family.
Appointing a lawyer earlier on in the property buying or investing process can help you with;
Property title checks
Preparing the Title Deeds and other documents
Setting up a property ownership firm in Sri Lanka (if required)
Assisting with resident visa applications
Negotiating the Sale and Purchase Agreement
Settling legal dues if you are a foreigner
Setting up a company for the transaction to be made through (if required)
Setting up a company bank account for funds to be transferred through (if required)
Preparing the Power of Attorney, if you wish to allow someone else to sign on your behalf
A lawyer will typically charge 0.5% of the lease amount if the property is obtained under a lease and if it is purchased he charges 2-3% for documentation.
Step 3: Gather your funds
Unless you have the required funds to purchase your dream home right off, the best option is to apply for a housing loan. It’s also one of the safest options to make sure you don’t end up falling for any scams. To fund this, local commercial banks offer different housing loan schemes for locals and Sri Lankan expats. They are customized based on repayment period, repayment conditions, profession, value, etc. You can compare the latest home loan rates and decide on the best one for you. Use a home loan calculator as well to find out what your monthly repayments will be.
However, for foreigners the Sri Lankan law doesn’t allow you to purchase property (apart from Condominiums) unless it is through a private limited company. For this, you need to open up bank accounts in a local bank to maintain everyday living funds and pay for the property purchase. If the property is being purchased through the company, then the account should be opened under its name. This process identifies the foreigner’s property as an investment to Sri Lanka rather than a mere purchase.
An Inward Investment Account (IIA) is the special bank account offered by international and selected local commercial banks in the country for such property investments. Transacting through this account for your property investment would mean that remitting funds to overseas can be done easily.
To set up an IIA;
Open an IIA USD and LKR account in a local bank in Sri Lanka.
Transfer funds to your new IIA account.
Pay for the property purchase by transferring funds from your bank account to the seller’s.
Provide official documents of the purchase to the bank (ex: sale receipt). You will need them if you decide to sell the property or repatriate money out of Sri Lanka.
But if you’re purchasing a condominium, there are exceptions. Before the government changed the law, they only allowed foreigners to purchase condominiums above the 3rd floor. However, with the recent changes foreigners can now purchase apartments on any floor in any part of the country on a cash basis. They can also lease land in the country up to 99 years.
Step 4: Reserve with the Sales and Purchase Agreement (SPA)
If you’re purchasing a Condominium, signing a Sales and Purchase agreement symbolizes that you will purchase the property from the seller and that similar agreements cannot be signed with third parties later on.
This agreement shall include;
Payment schedule including a deposit
Obligations of the buyer and seller
Terms and conditions related to the deposit
The SPA should also include details on when the contract can be terminated, reasons for termination, penalties, etc. For new developments, the seller’s lawyer prepares the document and offers it free to the buyer. Otherwise, it’s common for the buyer to pay a deposit to the seller’s lawyer when signing the agreement.
Step 5: Do the legal work
The sale of a property is only complete after all the legal paperwork is done. This includes the title deeds, ownership history, proof of the absence of legal disputes related to the property, survey plans, building certificates, street line certificates, certificates of conformity and documents to show payments of taxes and local rates.
Check the validity of each of these documents with a lawyer and confirm their authenticity. What matters is that the building construction is in line with the building certification and that other additional constructions, apart from the approved plan, have not been constructed.
Step 6: Complete
The final transfer of ownership and title takes place through the Deed of Transfer (DOT). For new developments, the seller’s lawyer prepares this document and offers it free to the buyer. The seller also offers an updated version of the survey plan with the DOT to register the property title with the buyer’s name in the land registry. A public notary notarizes the change in ownership and confirms the transfer. Here the seller’s lawyer or the buyer’s lawyer can also act as the public notary without the involvement of a third party notary.
As the buyer, you don’t necessarily have to be present at the signing of the DOT. It’s the seller that signs it in the presence of the lawyers and two witnesses and your lawyer works with settling payment balances, estate agent fees, etc. He will also receive the keys of the property and title documents on your behalf and register the DOT while notifying the local council or municipality of the change in ownership. Finally, once the registration is complete, you will receive the certificate of ownership.