Good question — here’s a practical, Sri Lanka‑focused guide to the best property-investment locations outside Colombo (short list of high‑potential towns + what to buy there, realistic return drivers, main risks, and a due‑diligence checklist). I’ve cited recent market sources for the key points.

Top locations and why they can work for investors

1. Galle / Unawatuna / Koggala (Southern coast)

• Why: strong tourism demand, established heritage/tourist market around Galle Fort and south‑coast beaches; mix of holiday‑rental and long‑term demand. International profile supports capital appreciation for quality villas, boutique hotels and serviced apartments. (cntraveler.com)
• Best property types: boutique guesthouses, holiday villas, serviced apartments, small hotels, beachfront land (careful with zoning).
• Typical return drivers: high short‑stay occupancy in high season, good capital growth if close to the Fort, beach or key attractions.
• Main risk: seasonality (monsoon timings), oversupply of low‑quality units in some pockets.

2. Mirissa / Ahangama / Weligama (South coast surf / lifestyle strip)

• Why: surge in lifestyle tourism, surf scene, boutique F&B and coworking; high short‑stay rental demand from Europeans/Aussie surf tourists and digital nomads. (cntraveler.com)
• Best property types: small villas, guesthouses, holiday apartments, boutique hotels.
• Risk: local planning/road access, competition among short‑lets.

3. Bentota / Balapitiya / Hikkaduwa (South‑west beaches / family tourism)

• Why: traditional beach resort belt with established transport links, appeals to family holiday market and higher‑end resort development. Branded resort projects have been launched here. (dailymirror.lk)
• Best property types: resort apartments, managed villas, land for boutique resorts.

4. Negombo (airport corridor, west coast)

• Why: proximity to Bandaranaike International Airport (quick access for arrivals), steady local rental market (airport staff, expats, tourism). Good for short‑stay and mid‑term rentals including airport transfers. (thetimes.co.uk)
• Best property types: apartments, guesthouses, family homes for rental to airport workers/long‑stay tourists.

5. Kandy & Hill Country (Kandy, Nuwara Eliya, Ella)

• Why: year‑round domestic tourism and expat/retiree interest; cooler climate, heritage tourism; good for longer stays and boutique hospitality. Hill‑country villas and B&Bs can command premium nightly rates. (excelproperty.lk)
• Best property types: tea‑estate bungalows, boutique guesthouses, long‑term rental homes.

6. Trincomalee / Pasikudah / Arugam Bay (East coast)

• Why: fast‑growing east‑coast tourism (excellent beaches, surf, whale‑watching). Different peak season to south‑west (good to smooth occupancy across the year). (thetimes.co.uk)
• Best property types: villas, surf hostels, holiday apartments, small resorts.

7. Hambantota (southern development zone)

• Why: government and private infrastructure (port, airport, special economic zones) have sparked investor interest and low land prices — attractive for longer‑term plays if infrastructure projects progress. (excelproperty.lk)
• Best property types: land for development, logistics‑linked housing, mid‑to‑long term rentals.

8. Emerging inland towns (Kurunegala, Ratnapura)

• Why: affordability, improving highway connectivity, and local population/rental demand for workers and families; good for buy‑to‑let targeted at locals rather than tourists. (excelproperty.lk)

Expected yields, pricing signals and seasonality

• Short‑stay holiday rentals in popular southern/east coast spots can produce higher gross nightly rates (seasonal), but net yields vary widely after management, vacancy and marketing costs.
• Long‑term rental yields (residential) outside Colombo are often lower than Colombo but with cheaper entry prices — yields commonly range around mid‑single digits (3–6% gross) for many suburban and regional residential properties; well‑positioned holiday properties can out‑perform in high season. For Sri Lanka’s 2025 market recovery and price rises in many areas, see LankaPropertyWeb market summaries. (lankaweb.com)

Key legal and foreign‑buyer rules (critical)

• Foreigners cannot generally own freehold land in Sri Lanka; the common legal routes are: (a) buy condominium units (there are exemptions and conditions, historically units above the 4th floor were restricted, but interpretation has changed — always confirm current law with a local lawyer), (b) long leases (up to 99 years), or (c) purchase via a Sri Lankan company structure with required local shareholding rules. Payment must typically be made via an inward foreign remittance (Inward Investment Account) to comply with exchange controls and allow repatriation of proceeds. Always get specialist legal/advice before transacting. (fjgdesaram.com)

Main risks to factor

• Regulation and ownership restrictions for foreigners (see above). (fjgdesaram.com)
• Seasonality and concentrated tourism flows (different coasts have opposite high seasons). (thetimes.co.uk)
• Local infrastructure delivery and political/economic volatility affect capital gains and repatriation conditions. Recent market reports show recovery but variable performance by region. (lankaweb.com)
• Quality and management risk for holiday rentals — poor management kills yields.

Practical due‑diligence checklist (before you buy)

1. Confirm zoning and permitted use (residential vs. tourist vs. hotel) with local Council/Planning Authority.
2. Title search at the Land Registry — check for encumbrances, mortgages, disputes.
3. Confirm legally who can buy (foreign restrictions) and the mechanism to transfer funds (IIA/SIA) — get an exchange‑control check from your bank and a Sri Lankan lawyer. (fjgdesaram.com)
4. Check utilities, road access, drainage and flood/erosion risk (especially coastal plots).
5. Obtain realistic pro‑forma cashflow: occupancy by month, operating costs, taxes, management fees, and vacancy.
6. Ask for proof of developer performance (completion certificates, past projects, sales history) if buying off‑plan.
7. Tax implications: stamp duty, VAT on developer sales, CGT and property taxes — confirm current rates with a tax lawyer/accountant. (fjgdesaram.com)

How to proceed (recommended next steps)

• Narrow to 2–3 target towns (pick one coastal holiday market and one inland/long‑let market).
• Speak to 2–3 local agents who specialise in that town and ask for comparable sales and occupancy data. Good starting listing/market sites: LankaPropertyWeb, Ikman, Excel Property. (lankaweb.com)
• Engage a Sri Lanka property lawyer early (title search, exchange control, purchase structure).
• If you’re a foreign buyer, confirm the exact transaction route (condo purchase, lease, company) and remittance/repatriation path for funds. (fjgdesaram.com)

Quick summary recommendation

• For short‑term, higher‑return but seasonal plays: target south coast pockets (Mirissa / Ahangama / Galle stretch) or east coast surf/beach towns (Arugam Bay / Pasikudah). (cntraveler.com)
• For more stable, long‑term residential rental and capital growth: Negombo (airport corridor), Kandy / hill country, and selected inland hubs (Kurunegala, Ratnapura). (thetimes.co.uk)
• For speculative long‑term upside tied to major infrastructure: Hambantota — but this is higher risk and depends on project delivery. (excelproperty.lk)

If you want, I can:

• Narrow this to 2–3 towns based on your investment amount, risk appetite and time horizon; or
• Pull recent comparable listings / price ranges for one town you pick (I can fetch current listings and recent sales data).

Would you like me to pull current listings and recent sales for a particular town (e.g., Mirissa, Galle or Negombo)?