Impact of Land (Restrictions on Alienation) Act on property transactions in Sri Lanka: A legal and policy analysis

Introduction 

‘Land’ has long been central to Sri Lanka’s socio-economic development and political debate. It represents not only an economic resource but, over successive phases with evolving national priorities, it has also been a touchstone of identity, sovereignty, and social equity. 

The post-independence governments treated land policy as a sensitive matter of sovereignty. Early measures such as the Finance Act, No. 11 of 1963 imposed a 100% tax on transfers of land to foreigners, reflecting apprehensions about foreign dominance in land ownership, the trend continued with amendments that extended restrictions to companies with significant foreign shareholding, encompassing policy that land remain primarily under national control. 

By the early 2000’s, however, Sri Lanka’s development strategy increasingly relied on attracting foreign direct investment (FDI). The post-war period after 2009 marked a sharp surge in foreign interest in real estate, with luxury condominiums, coastal resorts, and infrastructure projects dominating urban and coastal landscapes. Though the influx of foreign capital drove economic growth, policymakers and civil societies raised concerns over affordability, displacement, and speculative acquisition of prime land by foreigners which could undermine the citizens’ access to housing, making them ‘tenants in their own country.’1 These concerns gave the policy impetus for restrictive legislative measures governing foreign participation in land; leading ultimately to the enactment of the Land (Restrictions on Alienation) Act, No. 38 of 2014, implemented with retrospective effect from January 2013. 

This marked a drastic policy change from taxation to prohibition. The long-standing land policy in Sri Lanka, which balanced constitutional commitments to national development, social equity, and sustainable use with the imperative to attract foreign capital had shifted decisively with the Land (Restrictions on Alienation) Act, No. 38 of 2014, which, together with subsequent amendments in 2017 and 2018, recalibrated the legal landscape for both domestic and cross-border real estate transactions. 

This article undertakes a critical analysis of the Act: tracing its historical evolution, clarifying its scope, evaluating its restrictions and exemptions, and examining how certain exemptions undermine its stated policy objectives of safeguarding national interests and promoting sustainable development. 2 

Historical context and legislative evolution 

The regulation of foreign ownership of land in Sri Lanka has historically reflected a balance between safeguarding sovereignty and encouraging development. The Finance Act No. 11 of 1963 marked the first major statutory step, introducing a hundred percent (100%) tax on transfers of immovable property to foreigners2. The measure was in line with the government’s protectionist economic policies of the 1960’s, which sought to reduce external economic influence while promoting national ownership of key assets. Far from a mere commodity, land was cast as a strategic resource requiring protection, the guiding imperative being the retention of national ownership. 

The time to relook and recalibrate Sri Lanka’s land policy is now. The region is competing aggressively to secure investments, unless Sri Lanka recognises its potential and makes changes accordingly, the window of opportunity to securing long-term mandates in logistics, aviation, renewable energy, and modern agriculture will not stay open indefinitely. If reforms lag peer jurisdictions will continue to capture the projects, investment opportunities, supply chain anchors, talent, know-how, technology that could otherwise locate in Sri Lanka

Evolving foreign investment patterns and indirect foreign acquisitions through corporate vehicles brought about amendments to the Finance Act. The Finance (Amendment) Act, No. 8 of 2004 extended the hundred percent (100%) tax to transfers involving companies with more than Twenty Five percent (25%) foreign shareholding. While the extension closed a significant loophole, it retained a material gap, i.e. leases of land. Thus, foreign nationals were still able to secure long-term interests in land through leasehold arrangements, a channel that continued to expand in the years that followed. 

With the end of the armed conflict in 2009, Sri Lanka actively sought foreign direct investment (FDI) as a pillar to strengthen its reconstruction and development agenda. While this inflow of capital helped accelerate economic growth, it also heightened concern amongst policymakers and public about preserving domestic ownership of land. 

The cumulative pressures precipitated a policy shift toward more stringent regulation of foreign land acquisition; most notably, the 2013 Budget Speech of the President and Minister of Finance declared a prohibition on the sale of state land to foreigners. This stance, reflected in three letters dated 28December 2012, 2 March 2013, and 21 May 2013 whereby the Finance and Planning Ministry Director General instructed the Registrar-General of Lands, that no transfer of land was to be permitted to:

(a) a foreign national.

(b) a foreign company.

(c) a company incorporated in Sri Lanka with 50% or more foreign shareholding, subject to limited exceptions.

Although lacking formal legislative force, these administrative directives effectively created a nationwide regime that restricted foreign ownership of land. 

The culmination of these policy shifts led to the enactment of the Land (Restrictions on Alienation) Act, No. 38 of 2014, which Parliament gave retrospective effect from 1 January 2013, thereby regularising administrative restrictions imposed in the interim. The Act imposes a categorical prohibition on freehold transfer of land to foreign nationals, foreign companies, and locally incorporated companies with Fifty percent (50%) or more foreign ownership, while introducing a distinct regime for leases of land, and prescribing associated registration and compliance requirements. In contrast to the previous tax-based framework, which permitted transfers subject to a prohibitive fiscal burden, the 2014 Act transformed the restriction into a blanket prohibition.3

Scope, objectives, and legal framework of the Act 

The Land (Restrictions on Alienation) Act, No. 38 of 2014 (“the Act”) constitutes the operative status presently governing foreign ownership of land in Sri Lanka. It is framed broadly to close indirect acquisition routes through corporate vehicles and to conserve domestic ownership of freehold land. The Act articulates its objectives through a combination of prohibitions, permitted forms of access, and limited statutory exceptions. In this way, the Act functions as the current baseline for regulating foreign access to land, replacing earlier fiscal deterrence approaches with a more rules-based framework of categorical restrictions with narrowly defined exceptions. 

The objectives of the Act appear to encompass three primary policy aims. First, safeguarding national sovereignty; parliamentary debates at the Second Reading of the Bill repeatedly framed the measure as ensuring that ‘the ownership of Sri Lanka’s land remained with its citizens (as recorded in Hansard).”4 Second, protection of affordability and access; the post- war real estate boom, especially the Colombo high-end residential property market, witnessed a sharp escalation, by 2018 house prices had risen by over Fifty percent (50%), with average housing commanding values in excess of Rs. 160 million.5 This rapid growth, partly driven by foreign demand for luxury condominiums, raised concerns about affordability for locals. Third, the Act aims to ensure that FDI flows through regulated channels such as condominium ownership and long-term leases, rather than outright acquisition of freehold land. Taken together, these aims situate the Act as an instrument for conserving citizen ownership while structuring, rather than excluding, foreign investment in land. 

Core prohibitions on transfer of title in land to foreigners 

Section 2(1) of the Act prohibits the transfer of title in land in Sri Lanka to (a) a ‘foreigner’, (b) a company incorporated in Sri Lanka under the Companies Act where the foreign shareholding, either direct or indirect is Fifty percent (50%) or above; (c) a foreign company, and such prohibition is deemed operative from 1st January 20136 

Furthermore, a significant feature of the Act is, Section 18, which provides that “any alienation of land effected in contravention of the provisions of this Act, shall be void and shall have no effect in law” 

This statutory design, however, raises several transactional complexities. For one, the prohibition of land transfers to Sri Lankan incorporated companies with fifty percent (50%) foreign ownership. While section 2(2)(a) requires the company’s foreign shareholding to remain below fifty percent (50%) for at least twenty (20) consecutive years from the date of transfer, section 2(2)(b) of the Act extends the restrictions to instances where foreign shareholding subsequently exceeds the fifty percent (50%) threshold, whether by direct or indirect transfer of shares or through inheritance upon the death of a shareholder, the 4 original transfer of land is rendered void from the date of the increase. This is subject to limited ‘cure’ windows i.e. twelve (12) months for listed companies meeting Colombo Stock Exchange thresholds; six (6) months for other companies; after which validity is restored from the date the shareholding falls back below 50%.

Although the core purpose of the provision seems to prevent gradual alienation of land through incremental share acquisitions by foreigners, these moving thresholds generate transactional complexities, thus, title can fail mid-stream by virtue of post-closing share movements or succession events, and compliance turns into an ongoing condition. The Act reinforces this by imposing registrational gatekeeping, i.e. proof of fifty percent (50%) foreign ownership at the time of registration7 and continuing confirmations (six months) by the company secretary, with notations on the folio if the threshold is crossed.8 Accordingly, in practice, parties must draft for dynamic risk (change-of-control covenants, restrictions on indirect transfers, succession planning, and monitoring undertakings), because the statute makes corporate shareholding composition a determinant of land title over time. 

Furthermore, the remedy provided by law wherein, listed companies are afforded up to twelve months, and unlisted companies up to six months, to reduce foreign ownership below the 50 percent threshold, [in terms of section S.2(2)(b)] creates instability, as the validity of title effectively hinges on the company’s ability to restructure its shareholding within strict timelines. 

 Lanka has significant potential to use land policy to enhance productively rather than limit it. There are number of strategic reforms where land could be utilised and monetised for the development of the country. One such area is modernisation of agriculture and utilising agricultural land in Sri Lanka. Given Sri Lanka’s strategic location Sri Lanka has a competitive advantage to utilise its land policy to develop sectoral pathways for productive land use

Furthermore, the retrospective nullification of a validly registered transfer creates uncertainty in title, thus a validly- registered title can fail mid-stream raising questions as to whom does the title reverts to, and whether innocent third parties, such as mortgagees or bona fide purchasers are protected. The Act contains no express vesting or saving provisions on these points, leaving material uncertainty at the interface with general property and registration law. 

Similarly, because transfers become void ab initio from the date of crossing the threshold, later dealings premised on the title (such as mortgages or sale) lack a legal foundation. 

Furthermore, although the act provides for direct or indirect foreign shareholding to not be above 50% in relation to companies incorporated in Sri Lanka, there is still no practical process for monitoring the use of subsidiaries to secure foreign ownership or trusts to obscure beneficial ownership. Thus, a foreign investor might indirectly control more than fifty percent (50%) of a company’s shares through subsidiaries, without triggering scrutiny at the level of the Sri Lankan incorporated entity. Similarly, trust arrangements may mask the true foreign beneficiary of shares where a Sri Lankan national holding a particular property for the benefit of a foreign national or a company. 

However, it is pertinent to note that, in view of the Companies (Amendment) Act, No. 12 of 2025 under the new Section 130A all companies must disclose the beneficial ownership of a 5 company to the registrar at the time of incorporation or within twenty (20) working days of the issue of any shares or transfer of shares.9 The details inter- alia include full names, nationality and identity details, addresses and birth place, tax identification, details of beneficial owners of the company, nature and extent of the beneficial ownership, etc. Furthermore, such details are required to be given by every shareholder, (within ten working days of subscription of any shares, or transfer of shares);10 and every Director or Secretary of the company is required to disclose details of such beneficial interest to the Registrar.11 

Furthermore, the company must maintain a record of beneficial ownership register12 and updates to the beneficial ownership must be reported to the registrar13 these obligations also apply to any offshore company incorporated outside Sri Lanka and overseas companies registered under the Companies Act. 

Moreover, with the introduction of Sections 130A to 130J, the framework for beneficial ownership disclosure under the Companies Act has become significantly clearer and more comprehensive. These provisions establish a transparent mechanism for identifying and maintaining records of individuals who ultimately own or control companies14, including foreign shareholders and entities. By mandating detailed disclosure, periodic updates, access to authorities,15 public accessibility,16 and strict penalties for non-compliance,17 the law now provides a credible foundation for verifying and recognising genuine ownership structures, including matters involving foreign participation in land transactions. This enhanced transparency directly supports the implementation of the Land (Restrictions on Alienation) Act, ensuring that foreign ownership and control are properly identified, monitored, and regulated in accordance with national policy objectives. 

Trust arrangements have often been used as a mechanism to circumvent statutory restrictions on foreign land ownership. In the case of Saroja Nisansala V Aberfoyle,18 (2011 case)19 the Supreme Court considered a matter where a Sri Lankan national had purchased land in her own name, from funds provided by a foreign national, allegedly in order to evade the payment of 100% tax on the sale. Supreme Court looking into the circumstances of the case recognised that the funds being provided by the foreign national, created a constructive trust, because the trust in itself was not unlawful under section 4(1) of the Trusts Ordinance. Court also leaned on the principle that an “unlawful intention bilaterally entertained is no longer an absolute bar to restitution,” drawing both from earlier Sri Lankan case law, such as Muniyandy Natchie V Kayambo,20 and South African authority in Jajbhay V Cassim (1939). Thus, reflecting the judicial willingness to protect equitable rights. Court found rationale in preventing the unjust enrichment: in that, if the Sri Lankan holder was permitted to retain the land absolutely, the foreign financier would be left without a remedy. 

Accordingly, the Sri Lankan courts have often prioritised fairness and restitution over strict adherence to statutory prohibitions. Thus, although section 2(2) of the Act is designed to prevent indirect land alienation, its operation must be weighed against competing equitable rights, even where the underlying arrangement appears to contravene statutory policy. 6 

Thus, in such instances, the more pragmatic approach would be upon the determination of the beneficial interest to allow the party to use that window to rectify the transfer, and not allow a third party to make profit. 

These associated complexities of the Act can be mitigated through targeted clarifications, disclosure reforms, phased amendments and practice directions with reasonable transition periods. Thus, inter- alia 

(i) clarifying legal consequence of void transfers (who the title reverts to, consequence for bona fide purchases and mortgages, including proving of legal remedies for bona fide purchasers, interim mortgages etc.); 

 (ii) strengthening disclosures (requiring disclosure on certificates of foreign shareholding, imposition of notice requirements when the threshold criteria is approached or crossed, and imposing sanctions for misstatements); and 

 (iii) regulating beneficial ownership by looking through nominees and indirect control etc., would in effect enhance certainty, reduce litigation risk, and preserve the Act’s policy aims without unduly burdening compliant transactions. 

Exemption to restriction on sale of lands to foreigners 

The Land (Restrictions on Alienation) Act, No. 38 of 2014 provides a suite of exemptions, subsequently broadened by the Land (Restrictions on Alienation) (Amendment) Act, No. 21 of 2018. The key exemptions are set out in Section 3 of the Act, some important exemptions are as follows; 

i. Condominium Ownership 

Section 3(1)(b), of the Act21, No. 38 of 2014 permit foreigners to acquire condominium units (specified under the Apartment Ownership Law) on or above the fourth floor of a building. The exemption attempted to draw a balance between preserving land for nationals, while encouraging urban high-rise developments. However, the Amendment Act No. 21 of 2018, removed the floor level restriction. Foreigners are now permitted to acquire condominium units specified under the Apartment Ownership Law, on any level of a building, provided the entire value is paid upfront through an inward foreign remittance prior to the execution of the deed of transfer. 

It is interesting to note that, Sri Lankan Law does not specify a maximum number of condominiums which a foreigner could purchase. Accordingly, where a foreigner purchases all units of a condominium complex/ building, the foreigner technically becomes the owner of the entire land and property, given that in terms of the Apartment Ownership Law22 where a person purchases an condominium/apartment, they become an absolute owner of the 7 

individual apartment unit (parcel) and also acquire an undivided share of land and common elements. 

ii. Strategic Development Projects 

Another major exemption is provided for in terms of section 3(2) of the Act, which empowers the Minister, in consultation with the Minister in charge of Lands and with prior written approval of the Cabinet, to exempt from the operation of section 2, foreign entities engaged in sectors of banking, finance, insurance, maritime, aviation, advanced technology, or infrastructure development which are identified as ‘Strategic Development Projects’ (SDP’s) under the Strategic Development Projects Act, No. 14 of 2008. 

However, this exemption for ‘Strategic Development Projects’ have been a topic of much debate. Proponents of the exemption argue that the Act creates a purposeful avenue to accommodate strategic, high value projects of national importance to be carried out without undue delay. Moreover, the mechanism vests considerable discretion on the Executive to facilitate projects aligned with national development goals. This exemption can thus be utilised as a tool to promote the country’s investment objectives.   However, critics of the exemption contend that the executive is vested with discretionary power and although legislative intent is to provide for promotion of nationally significant investments, the extent of this power raises significant concerns regarding criteria, transparency and consistent application. 

These apprehensions have been further echoed by the International Monetary Fund (IMF), with the IMF Deputy Legal Department Unit Chief Joel Turkewitz calling for the abolition of the SDP framework, citing risks of corruption and weakened fiscal accountability.23 The IMF’s Governance Diagnostic Assessment has accordingly included removal of the SDP Act as an priority recommendation for enhancing public sector transparency, aligning investment incentives with public interest, and restoring confidence in policy predictability.24 

Moreover, the reliance on SDP’s reflects broader policy inconsistencies. i.e. while the Act ostensibly upholds a protectionist stance, in practice the exemption can create well connected foreign investors to bypass general restrictions, undermining the regimes integrity, equitable access and deterring public trust and investor confidence. 

However, for a country like Sri Lanka it is a must to court foreign direct investments to attract capital, technology, know- how, access to new markets and expand to uncharted territories. Thus, having opportunities to attract such major FDI is in the best national interest. However, any resort to such exemption must be governed by clear objectives, and publicly available criteria which is applied uniformly, and published by Gazette, with specific time bound procedures and monitoring processors. Furthermore, such decisions should not rest purely on discretion; rather a transparent, rules-based framework that discloses beneficiaries and 8 terms are essential to ensure a level playing field for all investors, and to minimise opportunities for favouritism or corruption. 

The framework for the criteria could be based on the amount of FDI, the creation of jobs, transfer of new technology, sustainable development objectives, access to new global markets etc. which is aimed at overall strategic development of Sri Lanka. 

Contd. on page 18

iii. Foreign companies engaged in international commercial operations 

Section 3(3) of the Act introduces an exemption similar to the Strategic Development Projects exemption. The provision empowers the Minister, in consultation with the Minister responsible for Lands and with written approval of the Cabinet, to exempt foreign companies engaged in international commercial operations from section 2, where land is purchased for the purpose of locating or relocating global or regional operations, or for the establishment of a branch office, formalised by Order published in the Gazette. 

At a conceptual level, section 3(2) and 3(3) are designed to attract foreign direct investment, with section 3(2) focusing on large-scale Strategic Development Projects and section 3(3) targeting multinational corporations seeking to establish regional bases in Sri Lanka. Collectively, they reflect the government’s ambition of positioning the country as a regional hub for commerce, finance, and logistics. 

However, the provision presents serious legal and governance challenges, in that the Act does not define a “foreign company engaged in international commercial operations” and sets no eligibility criteria, placing wide discretion with the Cabinet. The absence of statutory guidance creates risks of arbitrariness and inconsistency, generates investor uncertainty about qualification, and weakens transparency and accountability. However, these matters can be addressed with the proper regulatory mechanism. 

iv. Listed companies 

The 2018 Amendment²⁵ introduces a significant exemption to the general prohibition by 

allowing the transfer of title of any land on or after 1st April 2018, to a company 

incorporated in Sri Lanka and listed on the Colombo Stock Exchange (CSE). Importantly, this exemption applies to companies with a direct or indirect foreign majority shareholding. Thus, after 1st April 2018 a listed company with a foreign shareholding exceeding 50% may acquire freehold title to land, overriding the restriction in Section 2(1)(b). 

The underlying policy rationale is twofold. First, listed companies are subject to continuous disclosure obligations, which reduce the risk of opaque ownership arrangements and facilitate easier regulatory monitoring. Second, the exemption encourages foreign investment to be channelled through formal, regulated corporate vehicles, thereby supporting capital market development and economic growth. By granting this 9 exemption, the legislature sought to strike a balance between restricting uncontrolled foreign ownership and promoting foreign participation through transparent investment structures. 

However, the amendment does not avail any purchase of land by a listed company with a majority of foreign shareholding prior to the effective date. Accordingly, it appears that restrictions on foreign ownership of land still applies where a listed company owning property with a majority of local shareholders subsequently increases its indirect / foreign shareholding to 50% or above. Therefore, such transactions will continue to be prohibited and void and shall have no effect in law. 

Beyond the exemptions stated above, the Act provide further exemptions under section 3 that serve practical and diplomatic purposes. Thus; 

Land transfers to diplomatic missions or recognised international, multilateral, and bilateral organisations are excluded from restrictions imposed by the section 2, consistent with Sri Lanka’s obligations under the Diplomatic Privileges Act.²⁶ land may be transferred by succession, gift, or testamentary disposition to the next of kin of a Sri Lankan owner, even where the heir is a foreigner, reflecting the principle that inheritance rights should not be curtailed by nationality. 

A further exemption is granted to dual citizens, who, although holding foreign nationality, retain a recognised legal and political connection to Sri Lanka under the Citizenship Act. 

The Act also addresses financial realities by exempting land transfers to banks and finance leasing institutions with foreign shareholding above fifty per cent in specific situations. These include transfers arising from the enforcement of mortgages, loan recovery, or lease agreements under the the Recovery of Loans by Banks (Special Provisions) Act, No. 4 of 1990, and other relevant legislation. 

The exemptions under section 3, while inter- alia justified on grounds of diplomacy, succession, dual citizenship, or financial necessity, the broader ministerial, Cabinet approved discretionary exemptions in terms of Section 3 (2) and 3(3) create uncertainty. The result is a dual-track regime, rigid restrictions on ordinary foreigners but flexible exceptions for powerful corporate actors, international institutions, and politically significant projects. This duality can undermine both the credibility and equity of the law. A more transparent, rules- based exemption system grounded in clear statutory definitions and supplemented by a targeted tax regime would better balance the twin goals of safeguarding national sovereignty and attracting sustainable foreign investment. 10 

Leases and the Land Lease Tax 

Initially Land (Restrictions on Alienation) Act, No. 38 of 2014 extended to include leases of land to foreigners. Section 5(1) and 6²⁷ provided for foreign individual and entities to lease land, for a period not exceeding ninety-nine (99) years, subject to a fifteen percent (15%) Land Lease Tax (LLT) on the total lease value, payable upfront. This regime availed foreigners to obtain leasehold rights subject to the specified regulations. 

This regime, introduced certain exceptions. Section 6 (2) and 6 (3) introduced a reduced land lease tax to 7.5 percent for specified cases, such as (a) leases to Sri Lankan-incorporated companies with ≥50% foreign shareholding that have operated locally for at least ten consecutive years, (b) certain group company structures, (c) condominium parcels (subject to floor/tenure conditions), and (d) land within BOI, tourism, industrial zones or other areas designated by regulation. Section 7 then fully exempt the LLT for defined categories. Which inter- alia included (a) leases to diplomatic missions and specified international organisations, (b) certain condominium leases funded by inward remittances, (c) dual citizens, (d) Cabinet approved investment structures prior to 2013, (e) Cabinet approved Gazette exemptions for Strategic Development Projects and for foreign companies establishing regional or global operations or branch office, (f) leases connected to projects of national importance. 

This lease regime underwent a dramatic shift with the enactment of the Land (Restrictions on Alienation) (Amendment) Act, No. 3 of 2017. The amendment introduced a new section 5A completely abolished the Land Lease Tax to leases executed on or after 2016. Thus, at present the LLT does not apply to foreign individuals and companies and as such Foreigners and companies with ≥50% foreign ownership may lease land for up to 99 years without such LLT obligation. 

This reform marked a clear policy departure from the original protectionist and revenue generating rationale of the 2014 Act. The removal of the Land Lease Tax was welcomed by sections of the business community and international investors, as it reduced the cost of establishing long-term projects in tourism, manufacturing, and services. 

Impact of the Land (Restrictions On Alienation) Act on investors 

Sri Lanka’s location, astride the main East -West sea lanes of the Indian Ocean make it a natural trade, logistic and service hub; an obvious vantage point for foreign investors. In this backdrop the land policy in Sri Lanka has evolved over time into a more investor friendly structure, where it aims to preserve citizens ownership to free hold land while opening pathways for foreign participation and attract Foreign Direct Investment into the Country. 

From an Investor perspective, the Land (Restrictions on Alienation) Act now provides for a clear framework on the prohibitions and the available exemptions for foreigners, enabling 11 investors to take decisive action. Thus, the new regime has replaced ad hoc practice with defined rule based pathways. The post 2018 Act expressly channels foreign participation into condominium ownership and long-term leases (up to 99 years). The removal of the Land Lease Tax on new leases has materially benefited investors. Sri Lanka’s BOI and zone ecosystems (industrial, logistics, tourism) give land linked projects a workable framework zoning, utilities, and incentive administration within which to structure compliant deals. For investors, the combination of statutory certainty and leasehold economics reduces legal risk and makes it more straightforward than in purely discretionary regimes. 

Be that as it may, the Act creates certain notable frictions. The blanket ban on direct acquisition of freehold land by foreigners’ limits collateralisation, and can increase the cost of capital for land incentive developments. Furthermore, the five (5) year bar on mortgages involving foreign parties creates complications on debt structuring, forcing heavier reliance on equity, parent guarantees, or offshore security packages just when projects are riskiest. 

From a Sri Lankan standpoint there must be some level of calibration of the land policy to retain its policy aim of preserving land for the citizens of Sri Lanka while at the same time enhancing Foreign Direct Investments. 

Land policy in other jurisdictions 

8.1 Foreign ownership and lease of land in Singapore 

Singapore regulates foreign ownership through the Residential Property Act (RPA), which sets out a comprehensive and transparent system. Section 2 of the RPA defines “foreign person” broadly, including non-citizens, permanent residents, and foreign-controlled companies. Section 3(1) prohibits such persons from acquisition of land and residential property including bungalows, detached, semi-detached, terrace houses, and vacant residential land remains subject to a rigorous approval process by the Land Dealings Approval Unit (LDAU), part of the Singapore Land Authority. 

Foreign individuals and entities are, however, allowed to purchase certain categories of property without prior government approval such as Private condominium and apartment units (not landed), Strata landed houses within approved condominium developments, Commercial/industrial properties (offices, shop units, certain retail spaces), Some leasehold interests (typically less than seven years).²⁸ 

The Act further provides that any transaction in breach of these provisions is void ab initio (s 3(2)). In contrast, foreign acquisition of condominiums or apartments in developments of six storeys or more is permitted without approval under section 4(1), reflecting a deliberate policy distinction between scarce landed housing and high-rise property. 

Singapore’s framework relies heavily on fiscal instruments to regulate foreign demand and preserve affordability. The most significant of these is the Additional Buyer’s Stamp Duty 12  (ABSD), currently set at 60 per cent for foreign individuals purchasing residential property.²⁹ This, alongside standard Buyer’s Stamp Duty (BSD) and property tax, creates steep transaction costs that deter speculative buying while generating substantial state revenue. Rather than outright bans, Singapore uses tax levers to balance openness to foreign capital with protection of domestic housing interests. 

By contrast, Sri Lanka’s Land (Restrictions on Alienation) Act, No. 38 of 2014 adopts a far less nuanced approach. Section 2 imposes a blanket prohibition which is broader and more rigid than Singapore’s framework, Moreover, Sri Lanka’s Act is complicated by wide ranging exemptions under section 3, which are granted at the discretion of the Cabinet of Ministers. The absence of a transparent approval process similar to Singapore’s Land Dealings Approval Unit (LDAU), can contribute to criticism that Sri Lanka’s regime is opaque and susceptible to political influence. 

An Investor Friendly Land (Restrictions On Alienation) Act 

The regulation of foreign ownership and leasing of land in Sri Lanka has always been dominated by protectionist impulses, animated by concerns over sovereignty, affordability, and speculative acquisition. While these are legitimate policy objectives, the Land (Restrictions on Alienation) Act, No. 38 of 2014 has created a regime that is rigid on one hand, as it imposes a blanket prohibition on freehold ownership by foreigners; and creates inconsistent flexibilities on the other, through wide exemptions, many of which are discretionary and politically mediated. 

Targeting and calibrating administrative refinements 

Against this background, a calibrated approach which preserve citizen ownership of freehold land while lowering avoidable frictions should be encouraged. While comparative practice in the region which range from approval based models to designated zone openness, Sri Lanka need not import any model wholesale, rather it can refine the Land (Restrictions on Alienation) Act to maintain its sovereignty objective and improve bankability, transparency, and execution. The aim is not deregulation but better regulation with clear rules, credible disclosure, and reliable timelines. 

Thus, one way is targeted modifications, alterations and amendments to the law that could ease these frictions without abandoning the ‘citizen first’ principle is (i) clarifying consequences where voidness is triggered, (ii) strengthen transparency through measures such as disclosure procedures to deter nominee circumvention while giving bona fide investors predictable compliance steps; (iii) improve bankability in the early stages, thus, consider narrowly framed lender safeguards to unlock cheaper debt especially during the initial five years; and (iv) design criteria, procedures and guidelines to tighten transparency around discretionary exemptions, making such exemptions predictable, Coupling these legal reforms with features such as time-bound permitting and strong zone level facilitation, 13 

introduction of single window interface for strategic land-linked projects, etc. would preserve the Act’s sovereignty objective while making Sri Lanka a competitive FDI destination. 

Policy developments 

First and foremost, Sri Lanka should reconsider its categorical prohibition on freehold ownership by foreigners. The assumption underlying section 2 of the Act, that, foreign freehold title will “alienate” land from the national patrimony maybe on closer inspection, misguided. Unlike commodities, land being immovable will only lead to attracting foreign investors, capital generation, development of unutilised and underutilised land (through residential, commercial, or industrial projects) which in turn generate employment, infrastructure, and long term tax revenues. A more open policy would therefore enable Sri Lanka to attract sustained foreign direct investment (FDI) in sectors such as tourism, logistics, and high-end real estate. 

Comparative experience bears this out. Singapore, for example, preserving landed housing for citizens, and however complements this policy with steep fiscal disincentives such as the Additional Buyer’s Stamp Duty. Australia, likewise, allows foreign acquisitions subject to a “national interest” screening process, while simultaneously imposing state-level surcharges.³⁰ In both jurisdictions, foreign participation in land is welcomed but carefully regulated, not categorically excluded. Replacing prohibition with a calibrated, tax-based system would better balance sovereignty and openness. 

Second, the complete abolition of the Land Lease Tax (LLT) in 2017 was a strategic misstep. When originally enacted under section 5 of the 2014 Act, the LLT imposed a 15 per cent levy on the total lease value of land leased to foreigners for up to 99 years. Although criticised for imposing a significant upfront burden, the LLT served a dual purpose: it generated immediate foreign currency inflows into the Treasury and ensured that foreign lessees contributed to state revenue in proportion to the long-term benefits derived from Sri Lankan land. 

By abolishing the LLT through the 2017 Amendment, Sri Lanka eliminated this valuable fiscal instrument, thereby foregoing substantial deposits that could have bolstered foreign reserves during periods of economic vulnerability. A reformed LLT structured to spread payments over the lease term, or tiered according to land value and project type could be reintroduced. Such a tax would re-establish a revenue stream. 

Also, Sri Lanka should establish a transparent, rules based approval system modelled on Singapore’s Land Dealings Approval Unit (LDAU) or Australia’s Foreign Investment Review Board (FIRB). Such a body would evaluate applications for foreign acquisitions or leases according to published criteria, including the scale of investment, economic contribution, employment generation, and compliance with environmental and planning laws. Decisions 14 should be subject to judicial review to prevent abuse of discretion. Transparency would reduce uncertainty for investors while enhancing accountability for policymakers. 

The way forward 

In today’s context it is axiomatic that Sri Lanka must push forward in their objectives of attracting Foreign Direct Investment (FDI). Thus, enhancement of FDI is a practical necessity for the next stage of economic growth in the nation. While several key factors work in collaboration to influence Foreign Direct Investment into the country, an investment friendly land policy is a central lever. Accordingly, the land policy, while safeguarding and preserving national sovereignty must be geared to create pathways that attract foreign investment. 

The Land (Restrictions on Alienation) Act, No. 38 of 2014 and subsequent amendments have strived to maintain this balance. However, Sri Lanka’s land policies need to be upgraded in line with contemporary trends in order to keep pace with regional and global developments. Thus, land policy must be strategically aligned with objectives of enhancing Foreign Direct Investment. 

A glance at advanced nations demonstrates a trend to pair sovereign concerns with regulated openness towards foreign participation of land. Foreign participation is calibrated through permits and regulatory procedures, condominium ownership/ leasing regulations, intensives, stamp duty surcharges and approval regimes rather than a blanket prohibitions. Even historically restrictive nations such as Singapore, have adopted various mechanisms such as approval processes to regulate land ownership and relax land policies to capture the opportunities of global market. 

Nations like the United Arab Emirates (notably Dubai) actively encourage foreign participation in real estate and land markets. Dubai allows foreigners to hold freehold title in designated zones and long term lease or usufruct interests elsewhere, with clear registration pathways. These models channel capital through defined tenures, approvals, and fiscal tools, providing predictability without surrendering policy control. 

By contrast, Sri Lanka’s current restrictive approach could lead to strategic isolation and missed opportunities. Unlike the early 1970’s and 1980’s where countries in the region adopted closed economy policies, today many regional peers have opened up their economies and compete for investments. Sri Lanka has not fully matched that shift in its land regime. 

Contemporary regional economies depend on openness, sustained investment inflows, and integration with global markets. Without competitive channels for FDI, Sri Lanka risks losing out on capital, expertise, know-how, technology and market access impeding Sri Lanka’s progress toward its next stage of development. Accordingly, Sri Lanka’s land policy must be calibrated to serve as an instrument for economic advancement rather than a deterrent of FDI. 15 

Sri Lanka has significant potential to use land policy to enhance productively rather than limit it. There are number of strategic reforms where land could be utilised and monetised for the development of the country. One such area is modernisation of agriculture and utilising agricultural land in Sri Lanka. Thus, land policy should incentivise cultivation and agro processing projects that employ local farmers, supports technology advancements, and increase agricultural export. Such initiatives align with Sri Lanka’s investment objectives by generating foreign exchange, upgrading value chains, and raising rural incomes. 

In order to do that Sri Lanka must continue to evolve and match the competitiveness in the region. Given Sri Lanka’s strategic location Sri Lanka has a competitive advantage to utilise its land policy to develop sectoral pathways for productive land use. With a clearer more bankable scheme, land can support modernise Maritime services, Aviation and MRO (making Sri Lanka a hub for maintenance, repair and overhaul for aviation needs. Thus, Sri Lanka could host third party MRO’s if land policy supports long-term hangar/apron leases, bonded warehousing, streamlined customs, and international approvals, clear bankable land/lease terms and BOI or airport-zone facilitation which will attract investors and lenders.) Information technology (IT) industries, renewable energy zones, energy infrastructure (oil refining and storage) etc. 

Realising this potential requires land regulation to evolve towards a more is simplified, transparent, predictable, liberalised and investment oriented regulatory framework that allocates land efficiently (principally through clear, bankable leases and strata routes), protects the public interest, and gives investors certainty. When properly aligned this agenda would enable Sri Lanka to utilise its land resources productively to support sustainable economic growth and strengthen its role as a regional economic centre. 

The time to relook and re calibrate Sri Lanka’s land Policy is now. The region is competing aggressively to secure investments, unless Sri Lanka recognises its potential make changes accordingly, the window of opportunity to securing long-term mandates in logistics, aviation, renewable energy, and modern agriculture will not stay open indefinitely. If reforms lag peer jurisdictions will continue to capture the projects, investment opportunities, supply chain anchors, talent, know-how, technology that could otherwise locate in Sri Lanka. Acting now aligns land policy with FDI objectives while the opportunity is still within reach. 

Bibliography 

Sri Lanka, Parliamentary Debates (Hansard), Vol. 222, 20 October 2014, Pg. 979 

K Kanag - Isvaran and Sankhitha Gunaratne, ‘A Look at the Land (Restrictions on Alienation) Act No 38 of 2014 Clarity or Uncertainty’ [2015] XXI Bar Association Law Journal 14-21 

Sri Lanka, Parliamentary Debates (Hansard), Vol. 222, 20 October 2014, Pg. 959 

Delmendo L, ‘Sri Lanka’s Amazing House Price Boom, amidst Surging Tourism’ (Global Property Guide, 17 April 2019) <https://www.globalpropertyguide.com/asia/sri-lanka/price-history> accessed 2 September 2025 

Saroja Nisansala v Aberfoyle [2011] 2 SLR 340 

16 

Muniyandy Natchie v Kayambo (1988) 2 CALR 56 

IMF Highlights Need to Abolish Strategic Development Act’ (Daily News, 28 May 2024) 

<http://www.dailynews.lk/2024/05/28/business/557408/imf-highlights-need-to-abolish- strategic-development-act> accessed 6 September 2025 

Sri Lanka: Technical Assistance Report-Governance Diagnostic Assessment’ [2023] IMF Country Report No. 23/340 

Foreign Ownership of Property’ (Singapore Land Authority, 20 August 2025) 

<https://www.sla.gov.sg/regulatory/foreign-ownership-of-property> accessed 6 September 2025 

IRAS: Additional Buyer’s Stamp Duty (ABSD)’ (Inland Revenue Authority of Singapore) 

<https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiring- property/additional-buyer’s-stamp-duty-(absd)> accessed 6 September 2025 

Foreign Acquisitions and Takeovers Act 1975 (Cth) (Australia). 

Reference 

Parliamentary Debates, Hansard, 2014. 

Section 58, Finance Act, No. 11 of 1963 

subject to limited statutory exceptions 

(Parliamentary Debates, Hansard, 2014, Page 959). 

(Delmendo, Sri Lanka’s amazing house price boom, amidst surging tourism 2019) 

Section 1(2) Land (Restrictions on Alienation) Act, No. 38 of 2014 

Section 4, The Land (Restrictions on Alienation) Act, No. 38 of 2014 

Section 4(4) The Land (Restrictions on Alienation) Act, No. 38 of 2014 

130A (1) Companies (Amendment) Act, No. 12 of 2025 

130A (2) Companies (Amendment) Act, No. 12 of 2025 

130 A (3) Companies (Amendment) Act, No. 12 of 2025 

130 A (4) Companies (Amendment) Act, No. 12 of 2025 

130 A (7) Companies (Amendment) Act, No. 12 of 2025 

130 A Companies (Amendment) Act, No. 12 of 2025. 

130B Companies (Amendment) Act, No. 12 of 2025 

130 D Companies (Amendment) Act, No. 12 of 2025 

130 G Companies (Amendment) Act, No. 12 of 2025 

Saroja Nisansala V Aberfoyle [2011] 2 SLR 340 

Under the Finance Act No. 11 of 1963 

Muniyandy Natchie V Kayambo (1988) 2 CALR 56 

Land (Restrictions on Alienation) Act, No. 38 of 2014 

Apartment Ownership Law No. 11 of 1973 as amended 

(IMF highlights need to abolish Strategic Development Act 2024) 

(Sri Lanka: Technical Assistance Report-Governance Diagnostic Assessment 2023) 

Land (Restriction on Alienation) (Amendment) Act No.21 of 2018 

Section 3(1)(a) and Section 7(1)(a) The Land (Restrictions on Alienation) Act. 

Land (Restrictions on Alienation) Act, No. 38 of 2014 

(Foreign ownership of Property, 2025) 

(IRAS: Additional Buyer’s stamp duty (ABSD)) 

Foreign Acquisitions and Takeovers Act (Australia),1975