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)