Short answer

• For expat investors in Sri Lanka the most practical, high-demand options are: condominiums in Colombo (for long‑term rentals and capital growth), beachfront villas/holiday‑rental villas on the south and west coasts (Mirissa, Weligama, Galle, Bentota, Negombo) for holiday‑let/Airbnb income, and long‑lease commercial or mixed‑use units near Colombo or airport corridors. Use condominiums or 99‑year lease structures rather than trying to buy freehold land. (fjgdesaram.com)

Why these work (quick overview)

• Legal practicality: Foreign nationals generally cannot acquire freehold land in Sri Lanka; they can buy condominium units (subject to rules on payment in foreign remittance) or acquire long leases (commonly up to 99 years). That makes apartments/condos and leased villas the simplest legal routes. (fjgdesaram.com)
• Demand drivers: Colombo provides steady demand from executives and expats (good for mid/long‑term lets and capital appreciation). South/west coast tourist hubs (Mirissa, Weligama, Galle, Bentota, Negombo) generate strong short‑term rental demand from holidaymakers. Hill/cultural destinations (Kandy) and emerging east‑coast surf areas can work for niche rentals. (cntraveler.com)
• Yields & market context: Premium condos in Colombo commonly quote gross yields in the mid single digits (4–7% quoted by developers/market reports); broader Colombo/suburban gross yields often average lower (around ~3–4% reported recently). Coastal holiday villas can produce higher short‑term rental yields in peak season but are more seasonal and management‑intensive. Market activity has been recovering since 2024–25 with rising demand and land prices in many areas. (alliumtower.com)

Top property types & best locations for expats (ranked)

1. Colombo condominiums (Colombo 3, 4, 5–7, 8; also Colombo 1–2 for prestige)

   • Strengths: steady corporate/expat rental demand, easier property management, resale market, modern amenities.
   • Typical investor use: long‑term rental to professionals, corporate leases, capital growth. (alliumtower.com)

2. South‑coast holiday villas / short‑let apartments (Mirissa, Weligama, Ahangama, Galle Fort, Tangalle)

   • Strengths: high tourist draw, premium night rates in high season, strong demand for villa holidays and boutique resorts.
   • Risks: seasonality, maintenance, higher operational costs, variable occupancy. (myserendib.com)

3. West‑coast / airport corridor (Negombo, Bentota, Kalutara)

   • Strengths: proximity to Bandaranaike International Airport (appeals to frequent travellers and short‑stay tourists), good for boutique hotels and villas. (m8re.lk)

4. Kandy and hill country guesthouses / boutique hotels

   • Strengths: year‑round domestic and international tourism, cooler climate — attractive for long‑stay holiday lets and retreats. (m8re.lk)

5. Emerging east‑coast and surf spots (Trincomalee, Arugam Bay, Pasikuda)

   • Strengths: strong niche surf and eco‑tourism markets (seasonal); good for specialized short‑let investments. (thetimes.co.uk)

Key legal, tax and practical points you must know (short)

• Land ownership: The Land (Restrictions on Alienation) Act No. 38 of 2014 largely prohibits foreigners from acquiring freehold land; exemptions exist but are limited. Use condominium purchase or leasehold (commonly 99 years) to structure investments. Foreign buyers of condos usually must pay the full purchase price via inward foreign remittance before transfer. Get specialist local legal advice. (fjgdesaram.com)
• Condominium framework: Apartment/Condominium law (Apartment Ownership/Condominium Acts) governs the separate-unit ownership regime — verify the unit is properly registered and title is clean. (lawnet.gov.lk)
• Taxes & duties: Expect stamp duty on transfers, possible withholding on rental income, and municipal/property taxes. Stamp duty and other levies vary by transaction type — factor them into costs. (fjgdesaram.com)
• Financing: Local bank financing for foreigners is limited; many foreign buyers pay in cash or arrange offshore financing. Confirm mortgage availability and FX controls with banks early. (homesnspaces.com)
• Currency & macro: Sri Lanka’s macro conditions have been improving since 2024/2025 with stabilisation steps by the central bank; still factor currency and inflation risk into USD/GBP‑based returns. (Reuters.com)

Practical due‑diligence checklist (actionable)

• Engage a reputable Sri Lankan property lawyer (title search, checks against Land (Restrictions on Alienation) Act, condo plan registration). (fjgdesaram.com)
• Confirm whether the unit is a registered condominium/apartment plan and that the seller can legally transfer to a non‑national. (lawnet.gov.lk)
• Insist the buyer’s payment be structured as required (inward foreign remittance for condo purchases). (fjgdesaram.com)
• Ask for audited occupancy and income history for holiday lets; get realistic occupancy assumptions (off‑peak vs peak). (myserendib.com)
• Get a structural/engineering inspection, and estimate ongoing management/maintenance fees (holiday villas need local property management). (alliumtower.com)
• Confirm taxes, stamp duty, transfer fees and expected annual holding costs before committing. (fjgdesaram.com)

How to get started (3‑step plan)

1. Decide strategy: long‑let (Colombo condo) vs short‑let (coastal villa) vs development/lease. Match to your risk tolerance, time commitment, and return expectations.
2. Shortlist areas and properties (use reputable portals like LankaPropertyWeb/LankaProperty/agent recommendations) and obtain comparable rental data and recent sale prices.
3. Hire: (a) local lawyer with foreign‑buyer experience, (b) local tax advisor, (c) property manager — then do title search, negotiate contract (with payment in foreign remittance where required), and complete transfer/lease registration.

Risks to watch

• Legal/ownership restrictions (land ownership); changes in regulation (always possible); currency volatility and tourist seasonality; variable local governance of strata/condominium associations; development oversupply in certain segments. (fjgdesaram.com)

If you want more (I can)

• Provide a tailored shortlist of current listings in Colombo / Mirissa / Negombo for your budget and target returns (I’ll search current listings and include estimated yields, sale prices and links).
• Or draft a due‑diligence checklist letter you can send to a Sri Lanka property lawyer or agent.

Sources and evidence (key references used)

• Land (Restrictions on Alienation) Act and FAQs about foreign purchasing and condominium rules. (fjgdesaram.com)
• Market, location and yield reporting and guides (developer pages, LankaPropertyWeb market commentary, regional property guides and travel articles on tourism demand). (alliumtower.com)

Would you like a short tailored list of current properties in a specific location (Colombo vs Mirissa vs Negombo) and a modeled cash‑flow example for purchase + rental? I can fetch current listings and compute expected returns.