JLL Lanka hails deregulation of real estate market as boost for foreign investment

Real estate consultancy JLL Lanka this week commended the passing of recent legislation pertaining to foreign ownership of land in Sri Lanka, noting that the move will provide a much-needed boost to investor confidence. JLL refers to the Amendment to Section 3 of the Land (Restriction on Alienation) Act No. 38 of 2014, which was certified on 30 July. 

The Amendment enables foreign companies to acquire and hold freehold land in Sri Lanka, so long as that entity is listed on the Colombo Stock Exchange, thereby lifting the previous restriction prohibiting the transfer of freehold land to a foreign company exceeding the maximum permitted holding of 49% foreign shareholding. 

The renewed Act No. 21 of 2018 (published on 3 August) retrospectively comes into effect for land transfers after 1 April, and removes the restriction for foreign nationals owning condominium real estate below the fourth floor of a building. 

JLL notes that this relatively minor adjustment is unlikely to have a significant impact in urban areas such as Colombo but could prove to be a major attraction for foreign investors looking to buy dream condominium homes in coastal areas (where low rise residential projects have previously been limited to tree top height). 

Shrewd developers will acknowledge the powerful combination of improved access via the Hambantota Expressway extension and lifted restrictions; such intuition is already in evidence with projects such as Serenia Residences and Tamba Villas – both in Talpe, near Galle. 

The key development is the removal of the 49% foreign shareholding restriction, which had long been lobbied for by the capital markets and real estate sectors. This restriction was widely viewed as a barrier to foreign direct investment and an unreasonable constraint on companies that exceeded the 49% limit. 

JLL Lanka Managing Director Steven Mayes noted that almost all business conglomerates in Sri Lanka have ventured into real estate. Thus this move is likely to increase market capitalisation and liquidity in the Colombo Stock Exchange. For context, the value of foreign holdings of listed shares has declined from Rs. 860 billion a year ago to around Rs. 760 billion today. Planned Government divestment of non-core commercial assets such as the Hilton and Grand Hyatt hotels should also be impacted positively as the move has made transferring technical competence and capital and accessing Sri Lankan markets a much more transparent process. 

Another beneficiary of improved access to foreign capital will be the soon to be launched Colombo Port City. It is estimated that in addition to the $ 1.5 billion already invested in the Port City by the China Harbour Engineering Company, another $ 15 billion will be required to develop a built up area of (projected) 5.65 million m2. 

Mayes also added that previously, best in class regional and global development companies were dissuaded from taking controlling stakes in projects and companies due to the 49% restriction, “but now, the brakes are off, so to speak. We expect renewed appetite for these ventures by international stakeholders.” 

JLL is a professional services and investment management firm offering specialised real estate services to clients in more than 80 countries worldwide. The Fortune 500 company operates from 280 corporate offices with a global workforce of 70,000, providing management and real estate outsourcing services for a property portfolio of 4 billion sq. ft. JLL entered the Sri Lankan real estate market in 2011.