Property Law

A common question we get from clients is whether foreigners can buy property in Sri Lanka. If you’re a Sri Lankan citizen living abroad, purchasing property is straightforward. However, if you’ve acquired citizenship in another country, things can get more complicated, as gaining foreign citizenship might revoke your Sri Lankan citizenship. It’s crucial to consult with a lawyer to understand your specific situation before making any property purchases. If you’re a foreigner interested in buying property in Sri Lanka, understanding the legalities and options available is crucial. This simple guide will help you navigate the process and make informed decisions about property ownership in Sri Lanka. Can Foreigners Directly Buy Freehold Land in Sri Lanka? No, foreigners cannot directly purchase freehold land in Sri Lanka. This restriction is outlined in the Land (Restrictions on Alienation) Act No. 38 of 2014. The law prohibits foreigners and foreign companies from acquiring freehold land in their own name or through direct ownership structures. Can Foreigners Own Condominiums in Sri Lanka? Yes, foreigners can own condominium units located on or above the fourth floor. This exception is provided under Act 21, which allows ownership of such properties if they are registered under the Apartment Ownership Law. Ensure the property is officially registered as a condominium to qualify for this exception. What Are the Alternatives to Freehold Ownership for Foreigners? What Taxes Are Involved in Leasing or Purchasing Property? Are There Additional Taxes for Foreign Buyers? No, there are no additional taxes specific to foreign buyers when acquiring freehold or leasehold property. However, the previous 15% land tax on leasehold arrangements was removed under Act 3 of 2017. Can Foreigners Obtain Residency Through Property Investment? Purchasing property alone does not grant residency. However, foreign investors can obtain residency through specific visa programs: Can Foreigners Obtain a Mortgage for Property in Sri Lanka? Foreigners cannot obtain mortgages from local banks in Sri Lanka. Dual citizens and non-resident Sri Lankans are eligible for mortgages. For assistance with mortgage applications, please contact us. How Should Foreigners Transfer Money for Property Transactions? Use Inward Investment Accounts (IIAs): Funds must be channelled through an IIA at a local bank. This account type ensures compliance with regulations. Upon selling the property, funds can be repatriated via the same account, including any gains. What Are the Limits for Transferring Money Out of Sri Lanka? What Are Some Common Misconceptions About Foreign Property Ownership? Sri Lanka offers diverse opportunities for property investment, including leasing land and owning condominiums. By understanding the legal framework and exploring available options, foreigners can make informed decisions about property ownership in Sri Lanka. If you are a foreigner looking to buy a property in Sri Lanka, for personalized assistance please reach out to or visit The New Sri Lankan House for further information on completed homes, prime bare lands, boutique hotels, and villas for sale and lease within Sri Lanka.

Introduction In the realm of property transactions, securing clear and marketable title is paramount. In Sri Lanka, the complexity of land ownership and the diversity of legal systems governing property rights often lead to title defects that can hinder the ability of landowners to secure loans. Defective title insurance, a relatively lesser known but vital tool, has emerged as a solution to these challenges, ensuring that even lands with imperfect titles can be used as collateral for loans. This blog explores the origins, development, and impact of defective title insurance in Sri Lanka. Understanding Title Insurance: Origins and Types Title insurance, which originated in the United States, was developed to address the uncertainties faced by landowners and banks due to defects in property titles. There are two main types of title insurance policies: In Sri Lanka, a unique model of title insurance, known as Defective Title Insurance, was introduced to address the specific challenges faced by landowners who lacked marketable titles—essentially titles that were not accepted by banks as security for loans. The Problem of Defective Titles in Sri Lanka Property rights in Sri Lanka are embedded within a complex web of legal systems, including Roman-Dutch law, customary laws (such as Kandyan, Thesawalamai, and Muslim law), and statutes introduced during colonial rule. This diversity, coupled with informal systems of land ownership, often results in titles that lack the formal documentation required by banks to extend credit. For instance, many landowners in rural areas possess only a single deed without proof of prior ownership, or they hold land through informal inheritance systems without proper testamentary documentation. Such titles, often described in non-standard measurement systems and lacking formal registration, were historically rejected by banks, making it difficult for landowners to use their property as collateral. The Introduction of Defective Title Insurance to Sri Lanka In the 1960s, the Sri Lankan government, recognizing the need to expand access to credit as a means of promoting social and economic development, sought solutions to the problem of defective titles. The conventional approach of implementing a Torrens title registration system and conducting cadastral surveys was deemed too costly and time-consuming. Instead, the government, through the Insurance Corporation of Ceylon (now Sri Lanka), introduced a defective title insurance scheme. This innovative insurance model was designed to cover known defects in property titles that banks identified as reasons for rejecting land as loan collateral. The first defective title insurance policies were issued in 1970, and to date, around 200,000 policies have been issued, allowing previously unmarketable lands to be used as security for loans. How Defective Title Insurance Works Defective title insurance in Sri Lanka does not aim to grant full legal title to landowners. Instead, it guarantees the marketability of the land by covering the specific defects that make the title unmarketable. The process typically involves the following steps: The Impact of Defective Title Insurance The introduction of defective title insurance had a significant impact on the Sri Lankan property market. By making previously unmarketable lands creditworthy, it enabled a broader section of society, particularly those in rural areas, to access loans for development and entrepreneurship. Banks, initially skeptical, became advocates of the scheme as it provided a reliable way to secure loans without the need for costly and time-consuming legal procedures. Moreover, the scheme allowed property developers to obtain insurance for large parcels of land with defective titles, making it easier to develop and sell subdivided plots. This, in turn, contributed to the growth of the real estate market in Sri Lanka. Conclusion Defective title insurance is a critical tool in Sri Lanka’s property market, particularly for landowners with imperfect titles. By providing a guarantee of marketability, it has enabled greater access to credit and facilitated the development of lands that were previously considered unmarketable. While the concept of title insurance is still evolving in Sri Lanka, its impact on the real estate sector and the broader economy cannot be understated. As the country continues to modernize its property laws and systems, title insurance will likely play an increasingly important role in securing property rights and promoting economic growth.