Jolt for Sri Lanka’s condo market
View(s):New rule bars foreigners from owning private land
By Bandula Sirimanna
Sri Lanka’s expanding condominium (condo) market has been thrown into disarray and confusion following new rules barring the sale of private land to foreigners, industry officials say.
The rule, based on an announcement in the Budget 2013 by President Mahinda Rajapaksa, comes in the backdrop of concern that prime properties bought by foreigners are rapidly depleted the land resources. Chairman of the state-owned Condominium Authority Kapila Gamage conceded that there is confusion at the moment with regard to the sale of condos as a result of a letter sent by the Treasury to the Commissioner General of Lands directing him not to registrar land deed transfers including condominiums of foreigners with effect from January 1st in accordance with the budget proposal.
The Commissioner General has issued a directive to the Land Registrar to immediately suspend such registrations heeding this directive.
The issue was discussed by representatives of condo developers with Minister of Housing and Construction Wimal Weerawansa. The latter had given an assurance that he will bring this matter to the notice of authorities and settle the issue.
A 100 per cent tax is levied on sales to foreigners for apartments below the fourth floor under a gazette notification issued by the Finance Ministry in 2008 under the Finance Act. For purchases above the fourth floor, foreigners need not pay a tax under this 2008 rule and though no changes have been made to this rule, the suspension of registration of foreigner-held apartments effectively bars such sales. A recent cabinet decision also re-iterated that amendments will be made to several land related laws including the Registration of Documents Ordinance, the Notaries Ordinance and the Title Registration Act to prohibit foreigners from buying land in the country.
Mr Gamage said the government will have to invalidate the 2008 gazette notification along with these amendments to prohibit the condo sales to foreigners. The Apartment Ownership Law should also be amended to implement the cabinet decision, he said. However he said that this matter has to be sorted out with the Finance Ministry and it is yet to be discussed.
Condo developers noted that between 40 to 70 per cent of apartment units at several condos being built in Colombo and the suburbs have been pre-sold to foreign expatriates and foreigners. They say future sales would be badly affected due to the failure of the government so far to clearly define the policy on condominiums to foreigners.
Kishore D.Reddy, Managing Director of Platinum Reality Investments (Pvt) Ltd, building a 20-floor condo, told the Business Times that it is premature to comment on the impact of the government’s decision as the necessary legislation is yet to be drafted.
But he referred to the current 2008 rule governing condo sales to foreigners and noted that as long as this legislation is in force, units could be purchased by foreigners and foreign expatriates.
He expressed the belief that the government will soon clarify the matter as it will affect foreign investments and the condominium market as well.
According to the government’s decision foreign investors will be barred from purchasing land to build condominiums, hotels and other projects as well, he said.
The government should focus on clarity on policy to avoid confusion in sensitive issues such as these, he said.
A senior Finance Ministry official said that the rule stems from concern that the Government wouldn’t have a strong hold on property development in the country mainly concerning hotels.
The majority of foreigners who have purchased land here have developed houses, villas, guest houses, boutique hotels, restaurants and other businesses.
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, he said.
He added that it is appropriate to re-consider the local land transactions of foreigners as the country’s per capita land ownership has dropped to 0.2 hectares at present He also pointed out that the new rule was due to ever increasing demand for land with the widening of governments development activities. The law pertaining to Condominium Ownership is defined in the Apartment Ownership Law (No. 11 of 1973) and Amendments thereto by Acts No. 45 of 1982, No. 4 of 1999 and No. 39 or 2003.
Most developers and owners are not fully aware of the prevailing legislation governing condominium ownership and many disputes arise between them that end up with the Condominium Management Authority (CMA) and/or in court for resolution, taking up much time and money.
Under the Apartment Ownership Law developers are required, on completion of a condo building, to provide buyers with a Certificate of Conformity for the building, a Registered Condominium Plan, and a Registered Condominium Declaration setting out the boundaries of each unit and describing the common elements.
They are also required to sign a deed of transfer with every owner, once he or she has paid the full amount stated in their sale agreement.
All these procedures should be changed to prohibit foreigners from buying condos, the Finance Ministry official said, adding that the ministry will clarify the matter with the Legal Draftsman before finalising the amendments to all these Acts.
“There is absolute confusion,” said another condo owner, who also raised the issue of what happens to gifting of earlier acquired and registered property by a foreigner to a member of the family or friend, etc.
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