Q:Can you give us a flavour of the real estate sector in Sri Lanka, both residential and commercial? And the ability for FDI investments to be made in this sector?
In terms of foreign ownership of land, there are some restrictions, freehold ownership of land is not allowed for foreigners, but leasehold ownership is possible. In terms of apartment investment, foreigners can own apartment freehold above the 4th floor, that’s an old law, I think Singapore has a similar law foreigners can own above 6th floor, so in Sri Lanka, it’s above the 4th floor, and there is no restriction on foreigners buying apartments and on sale of apartments, you can repatriate the sales proceeds including the capital gain immediately. That is also a new liberalization that the Central Bank brought in recently wherein recent gain on sale of apartments can be repatriated immediately.
Let me just add a bit to that. You see the point with regard to the 100 percent tax on land for foreigners is having a deep impact to the property prices.
Many countries at the time when they were growing have had property prices shooting up very very rapidly and thereby creating certain bubbles, and in order to deal with that, we brought in this law, so that the foreign investment in properties, in land, is going to be discouraged to some extent. But if it is property which is purchased for business purpose, then there is no tax of that nature and freely you can buy without the tax.
But overall it is to ensure that young people are able to buy property in the country, you have to have this law. I know in certain countries, when the property prices shoot up very quickly, some of the young people who are entering the property market are unable to buy properties, and that causes a huge political unrest as well. So that has been addressed in Sri Lanka, and overall we believe that as a result of that policy, we don’t have any bubble formation and the banks are protected to some extent as a result.
As the Chairman of the Colombo Stock Exchange mentioned, property can be purchased by foreigners without any taxes from the 4th floor onwards and ensure that the hub concept that we are having for commercial activities is also given some encouragement.