Sri Lankans turn to renovating old homes as building costs soar

Colombo, May 26 (Daily Mirror) - A dramatic shift is underway in Sri Lanka's real estate sector as investors and homebuyers increasingly opt to purchase lands with existing structures for renovation, stepping away from ground-up developments.

This pivot comes as escalating construction and material prices continue to place heavy financial burdens on new builds, fundamentally reshaping traditional approaches to property investment in 2026.

While the broader property market has entered a steady post-crisis growth phase driven by renewed investor confidence and stabilized economic metrics, the raw cost of construction remains a formidable barrier.

Current industry estimates indicate that building a house now demands significant capital, navigating which has prompted buyers to seek alternative entry points into the market, specifically targeting dormant properties or older houses that can be revitalized at a more manageable cost.

Lanka Property Web Managing Director Daham Gunaratne noted that while vacant lands historically attract high search volumes, there is a distinct surge in interest for lands that already house older or smaller structures.

"People prefer to buy a land with a house and then maybe renovate it or extend it rather than build from scratch because construction and material costs are quite high," Gunaratne explained during a recent market forum hosted by Softlogic Stockbrokers.

He emphasized that astute investors are now focusing on generating real returns and optimizing cash flows by upgrading these existing spaces and increasing occupancy, rather than relying solely on paper-based asset valuations driven by inflation.

As buyer behaviour evolves due to cost pressure, the geographical focus of real estate expansion is also shifting away from traditional urban centres towards emerging suburban corridors. Driven by improved highway connectivity, secondary cities such as Ja-Ela and Negombo in the Gampaha District, alongside Kahathuduwa, Piliyandala, and Malabe in the Colombo District, are recording robust demand. Gunaratne highlighted that with development such as the port access elevated highway and the Port City exit, travel times from areas such as Kahathuduwa to central Colombo have been drastically reduced to roughly 20 minutes, making these suburbs highly attractive. Currently, land prices in these growth corridors range between Rs. 1 million to Rs. 1.5 million a perch, offering a stark and appealing contrast to established areas such as Dehiwala where prices hover between Rs. 5 million to Rs. 6 million a perch.

Despite these emerging regional opportunities, first-time homebuyers face mounting challenges in getting onto the property ladder. The market is currently grappling with a severe housing deficit, estimated to be at least 200,000 units and potentially much higher.

While vertical living and apartment demand are growing at a faster pace than the housing segment, a significant mismatch exists between buyer budgets and developer inventory. Buyer demand is heavily concentrated in the Rs. 30 million to Rs. 50 million range, yet the bulk of the upcoming apartment supply is priced much higher, typically falling between the Rs. 40 million and Rs. 90 million bracket.

Addressing this affordability gap will require immediate and structural interventions to prevent a generation from being priced out of the market. Gunaratne urged that the Government and the private sector need to get involved and create new housing that will cater to this demand. He pointed out that as the younger generation increasingly seeks to move closer to Colombo for employment, there is an urgent necessity to introduce specialized financial facilities and targeted, affordable housing projects that align with the actual purchasing power of first-time buyers.