ECONOMYNEXT – Sri Lankan condominium developers have welcomed proposals in the government 2017 budget relaxing restrictions on foreigners buying property, saying it would help prevent a “catastrophic” oversupply situation.
The Condominium Developers Association of Sri Lanka, an affiliated trade body of the Ceylon Chamber of Commerce, said the budget contained a number of “progressive proposals” to stimulate demand from a new market segment to help absorb the increasing supply pipeline.
An association spokesman said in a statement that currently there are over 8,000 luxury apartments being constructed in the city of Colombo.
“It is important to attract foreigners and Sri Lankan diaspora to purchase apartments to absorb this supply,” the statement said.
“An oversupply situation can be catastrophic to the property sector in particular and the economy in general.”
Under the current practice, foreigners are not allowed to buy condominium property situated below the 4th floor and condominiums could be bought by foreigners only if the entire value is paid upfront through an inward foreign remittance.
According to the budget proposal, foreigners are allowed to purchase condominium property in the first four floors as well and are allowed to raise 40 percent of the cost from a domestic bank although debt servicing might be from foreign currency.
In the Budget speech, Finance Minister Ravi Karunanayake identified the significant potential for Real Estate Investment Trusts (REITs), and agreed to help the Securities and Exchange Commission in introducing amendments to the Unit Trust code.
The government also relaxed the Land Alienation Law by removing restrictions on foreign-controlled listed entities.
Now quoted public companies with foreign ownership exceeding 50 percent could purchase property and land in Sri Lanka, the Condominium Developers Association said.
“It is essential to attract FDI into the property development sector via freehold land ownership,” they said.
“Furthermore, public quoted companies whose shares are freely transferable with no control over the extent of foreign ownership could now acquire property.”
Earlier, in October 2016, the VAT Amendment Act exempted the supply of condominiums from Value-Added Tax.
The Condominium Developers Association said this made “apartments more affordable and creates an even playing field among different categories of condominium developments and developers who were earlier subjected to different VAT regimes.”
(COLOMBO, Nov 22, 2016)