A little more clarity….

Chairman of the Board of Investment of Sri Lanka MMC Ferdinando also added

He said freehold land ownership will be allowed for companies with more than 50 percent of shares held by resident and companies that have been in operation for more than 10 years.

“For example if a company like Prima (a Singapore based firm) want to expand and buy some land they will be allowed to buy land,” Ferdinando said.

He said there will be no retrospective effect and anyone who already had land will not be affected.

Large investment projects may be given permission to purchase land by special approval.

Ferdinando said listed companies where ownership tips over 50 percent may be affected by the rule.

But once company has been in operation for 10 years with proven record of good conduct would also be able to buy land in the future, he said.

In apartment projects foreigners will be allowed to buy from the fourth floor onwards.

When will it become CLEAR what the government wants?

Sri Lanka’s new restrictions on foreign ownership of property will have provisions that will allow non-nationals investing in the country to lease land with a tax of 5 to 15 percent, senior government officials said.

Investment promotion minister Lakshman Yapa Abeywardena said it was the policy of the administration to stop the sale of land outright to foreigners but foreign investors will be allowed to lease land for up to 99 years, after paying a tax.

“We will allow foreigners to lease land and we have requested that the tax be kept below 10 percent,” minister Abeywardena said.

Chairman of the Board of Investment of Sri Lanka MMC Ferdinando said a tax of between 5 to 15 percent for leases had been discussed and the Treasury was expected to issue a circular soon.

NOT GOOD NEWS

Sat, Jun 22, 2013, 11:23 am SL Time, ColomboPage News Desk, Sri Lanka.

June 22, Colombo: the Sri Lankan government will prepare legislation banning the further sale of state or private land to non-citizens.

Sri Lanka President in his capacity as the Minister of Finance and Planning has forwarded a proposal to the Cabinet of Ministers seeking approval to instruct the Legal Draftsman to draft legislation to impose restrictions on transfer of lands to foreigners.

Accordion to the President’s proposal, transfer of state or private land by way of a sale, donation, gift, or by any other disposition to a person who is not a citizen of Sri Lanka will be prohibited.

Further a sale cannot be sold or transferred to a company incorporated in Sri Lanka where any foreign shareholding of such Company is 50 % or above to a Foreign Company, unless exemption is granted in terms of the proposed Act.

Under the proposed act, the state or private lands could be leased out subject to stipulations to non-citizens for a maximum period of 99 years, instead of outright sale.

The Cabinet has given its approval to the proposed legislation.

I will try to help you but cannot help everyone.

Each day I receive many e-mails from people around the world asking me for advice about Sri Lanka. If I can provide a quick reply I will just to try and help. But unfortunately I cannot get involved in long drawn out cases involving legal help and advice.

To be very frank it never ceases to amaze me how stupid many ‘foreigners’ can be when buying property in Sri Lanka. I will not go into any details but I will just make my self clear with the basic advice as always:

1. NEVER give money to a Sri Lankan who is not a lawyer.

2. NEVER buy land/property in another persons name unless you have been legally advised to do so and you have the lawyers instructions in writing.

Be careful. Sometimes I think its the hot humidity that has an effect on peoples usual thinking ability when they are in Sri Lanka.

TIP: When negotiating any business in Sri Lanka use an air conditioned room/meeting place. They don’t need it…but you do.

Sri Lankan Hotel Industry – The Risks for Tourists

Sri Lankan Hotel Industry

Sectors (My own classification)

  1. Group Operators (4 & 5 Star Hotels)
  2. Boutique Hotels
  3. Typical Sri Lankan Hotels
  4. The Rest – Take Your Chances

According to government statistics over one million tourists visited Sri Lanka in 2012. Sri Lanka has some very nice hotels it also has many nightmare hotels. Here is a quick rundown on hotels in Sri Lanka according to my own classification.

  1. Group Operators (4 & 5 Star hotels) – If you are planning a holiday for the first time in Sri Lanka I strongly recommend you stay in one of the many hotels owned by one of the large hotel operators. Aitken Spence Hotel Holdings PLC,  John Keells Holdings PLC, Ceylon Hotels are the main big players and own some of the very best hotels on the island. As big group operators they can afford to invest in the maintenance and upkeep of their hotels but more importantly they invest in staff training and development. Here you will find good quality of service in the restaurants and bars and most staff know the value of customer service.
  2. Boutique Hotels – Many of the boutique hotels are owned and/or operated by foreigners who have invested in Sri Lanka. Some with just six rooms offer a very high level of service. However prices can range from $85 to $800 per night per room. Most are to be found in the south west and south of the island. If the hotel is owned AND operated by a foreigner its double luck on your part as they will probably be in attendance to ensure that the staff deliver a high level of quality service.
  3. Typical Sri Lankan Hotels – Some are OK, some are satisfactory but many are horrible. It all depends on the experience you are prepared to risk and the price you want to pay. These are the hotels where you simply MUST insist on seeing the room before you book in and pay.  Always advisable to visit the room and do a ‘smell test’.  Many are ‘family operators’ where most of the staff are relatives of the owner. Waiters will not have received any training in hygiene or serving methods. You get what comes as it comes. Good idea to check out Trip Advisor to see what reports they have on these hotels.
  4. The Rest – Take Your Chances – This group is made up of all those ‘Rooms available’ signs, Bed & Breakfast hotels, ‘Self Catering Apartments’ and some hostels. Prices range from $5 to $45 per night. You need to remember that Sri Lankans do not understand the term ‘Planned Maintenance’. Things sometimes get replace when they break. Sometimes not. Air conditioning in this group is considered a luxury although the conditioning unit has probably never been serviced since it was installed. If they claim to have WiFi, best to check that it actually works.

There is currently a severe dearth of employees in the hotel sector vis-à-vis catering to the authorities’ target of 2.5 million visitors. Employment in the hotel and tourism sector comes up to around 300,000 at present; industry experts estimate that close to 1.5 million employees would be required to attend to the anticipated influx of tourists by 2016. As such, the number of such personnel must augment 5-fold within the next 5 years – a demanding task given the current state of tourism education in the country. Such education is mainly provided by the Sri Lanka Institute of Tourism and Hotel Management (“SLITHM”), a few national universities and several isolated private institutions. Due to lack of information, the number of graduates from these private institutions cannot be estimated; the SLITHM and national universities only produce some 3,000 graduates each year. Meanwhile, the quality of the training offered by the private institutes is also a concern, as they are not regulated.

Unfortunately the majority of hotel operators/managers and employees have never visited another country to compare their levels of offerings/services. They only know the Sri Lankan way.  For many years the main tourists visiting the island were the British, Germans, Swedish, and Austrians etc. But since 2012 a new breed of tourist is visiting. Russians, Ukrainians, Indians, Arabs, Chinese are becoming dominant groups. The downside for Sri Lankan hotel owners/operators is that this new breed of tourist is inclined to complain more than the usual Northern European types.

Those who have already visited Thailand and Malaysia are usually disappointed with the level of cuisine and service offered in Sri Lanka in comparison.

Please make sure you choose your hotel in Sri Lanka carefully. There are some excellent hotels where you will enjoy a wonderful holiday experience. But there are some hotels which need to be viewed with caution. Beware.

Sri Lanka Government makes it difficult for foreigners to buy property.

We were waiting for the Sri Lanka government to make an announcement last week and they did. (See an example from Reuters below in full)

This is not what people in the property business and many others were expecting. The government have now made it very clear they do not want foreigners buying land in Sri Lanka unless it it approved by the government.

There are not many countries where foreigners are expected to pay 100% tax on a LEASEHOLD property. The option of freehold ownership has been removed.

 But the statement made by government spokesman Keheliya Rambukwella is just inaccurate. It would appear that the government are fearful that they will not have a strong grip on property development in the country mainly concerning hotels. Sri Lanka is well behind in developing the required number of hotels rooms if it is to reach it’s tourist targets in the next few years. So the easy option is to blame foreigners.

Foreigners make a significant contribution to the Sri Lanka economy. The great majority of foreigners who have purchased land here have developed houses, villas, guest houses, boutique hotels, restaurants and other businesses. It is true that many have also purchased very small land plots and built small retirement homes and/or holiday home where many still come for 3 months each year to escape the European winter.

You will not see many abandoned half-finished projects that are under foreign ownership. Foreign investors have a reputation for getting things done and completing projects. Plus they employ staff in so many different areas.

The great majority of half baked, half-finished and abandoned projects belong to Sri Lankans. Lack of planning, lack of finance and lack of experience all contribute to the sight of so many unfinished hotel projects in Sri Lanka.

Admittedly, most foreigners are not here to build large scale hotel projects. That’s the job of professional property developers from Sri Lanka or other parts of the world.

The big question that still remains unanswered and I doubt if anyone within government would be brave enough to offer any answers is on the subject of ‘corporate ownership’. Many hotels/restaurants/villas and current projects are owned by a Sri Lanka registered company where the shareholders are foreigners. Sale and purchase via the corporate route does not attract tax liability. However my legal friends tell me the government will monitor and restrict the share ownership of foreigners to just 25%. Step forward the ‘Trustee’ who holds the other shares.

(If you need further information please write to me).

The whole situation is messy. It is not good for the future development of Sri Lanka. Do these people in government really think they can do it all themselves? I can understand to a certain level that they want to know what is going on with large scale projects. The government claim they can help more and provide better tax incentives to foreigners who are investing over USD 10 million.

Many of us thought that after the end of the war in 2009 Sri Lanka would develop into a true free market economy and attract a significant level of foreign direct investment.

I think the government of Sri Lanka has made a big mistake.

COLOMBO | Thu Feb 21, 2013 9:39am EST

Feb 21 (Reuters) – Sri Lanka has decided to ban land sales to foreigners after finding that some offshore investors did not use land and property purchases to benefit the nation’s economy, the government spokesman said on Thursday.

The decision comes as the $59 billion economy is struggling to boost foreign direct investment despite gradually stabilising macroeconomic economic conditions since the end of a three-decade war.

The cabinet has decided to prohibit foreigners from purchasing absolute ownership of state and private lands in Sri Lanka, government spokesman Keheliya Rambukwella told reporters.

“Wealthy foreigners buy lands and do not utilise them fully. They just keep it for their private consumption and don’t contribute to the national economy such as by boosting tourism,” he said.

However, Rambukwella said long-term leases of land will still be allowed, and law will not apply to diplomatic missions.

Foreign direct investment (FDI) last year totalled $1 billion, only half of the government’s target and the same figure as for 2011.

Government officials say the slowdown in advanced economies hit FDI in 2012, while economists say inconsistent economic policies in Sri Lanka have contributed to the below-target result.

On Thursday, Sri Lanka’s Central Bank Governor said in Mumbai that he expects $1.8 billion FDI in 2013.

Sri Lankan President Mahinda Rajapaksa last November proposed banning state land purchases by foreigners. The sale of a prime hotel construction site in Colombo to a Chinese firm had previously been cancelled after the opposition said the price was too low.

Sri Lanka’s parliament passed legislation in November 2011 allowing the government to acquire enterprises or assets it deems underperforming or underutilised. (Reporting by Ranga Sirilal; writing by Shihar Aneez; editing by Stephen Nisbet)