Good question — here’s a practical, expat-focused guide to the best types of investment property in Sri Lanka, where to buy, and the legal/tax/market points you must know before committing. I’ve highlighted pros/cons and how foreigners normally structure ownership.

Top things you need to know up front (legal + tax — read these before you look at listings)

• Foreigners can buy condominium/apartment units (in developments registered under the relevant condominium/apartment law). Land freehold is generally not available to non‑citizens — land can instead be held on long leases up to 99 years. Funds for purchases must be brought in through an inward foreign remittance (IIA/SIA rules apply). (tpp.lk).
• Many buyers therefore use: (a) direct purchase of condominiums, (b) 99‑year leases for land/buildings, or (c) a Sri Lankan company structure (with local shareholding rules) for freehold projects — each has different legal/tax implications. (tpp.lk).
• Taxes: developers’ primary‑market apartment sales normally attract VAT (rate increased to 18% from Jan 1, 2024), plus SSCL in some cases; there is stamp duty on transfers/leases and a 10% capital gains tax on profits when you sell. Factor these into your acquisition model. (LankaProperty.info).

Best property types for expat investors (ranked by typical ease, legal clarity, rental demand)

1. Colombo — mid‑range apartments (long‑let rental + capital growth)

• Why: Colombo is the commercial hub, big expat/employee population, best liquidity for resale, and steady demand for furnished long‑term rentals. New supply is material but mid‑range completed/near‑complete units often give the best yields. Typical market rental yields reported around 4.5–6.5% in 2024–25 for apartments. (LinkedIn.com).
• How foreigners buy: apartment/condo ownership (subject to condominium rules) or purchase through inward remittance. Avoid unapproved/unclear titles.
• Risks/notes: higher VAT on new builds; monitor oversupply in specific suburbs (look for areas with consistent corporate demand: Colombo 2/3/5/6, Rajagiriya, parts of Colombo 5 and Nawala). (LinkedIn.com).

2. South Coast (Mirissa, Ahangama, Hiriketiya, Weligama, Unawatuna) — holiday villas, boutique guesthouses, short‑stay rentals

• Why: strong tourist/seasonal demand, surf/yoga lifestyle draw, high nightly rates during peak season. Good for higher gross yields if you manage bookings well. Travel publications and trend reports show strong lifestyle tourism growth on the south coast. (cntraveler.com).
• How foreigners invest: typically by leasing land (99 years) and building, or buying villas/condos where available on approved title. Many properties operate as serviced holiday rentals.
• Risks/notes: seasonality, variable occupancy outside peak months, local management costs, and tourism policy risk. Ensure planning/permits for guesthouse use.

3. Galle Fort & Galle area — boutique heritage houses, short‑stay rentals, B&Bs

• Why: UNESCO/heritage tourism and strong demand for boutique stays in Galle Fort. Premium nightly rates available for restored colonial houses. (cntraveler.com).
• How foreigners invest: careful title/legal checks are critical (heritage rules, conservation overlays). Leasing and company structures are common.
• Risks/notes: stricter heritage regulations and renovation approvals; occupancy can be very good but management intensive.

4. Negombo / Katunayake corridor — serviced apartments, airport‑linked rentals

• Why: close to Bandaranaike International Airport and to many expatriate workers and airline crews; good for short to medium‑term rentals targeted at transit travellers and airport‑linked staff.
• How foreigners invest: condos and lease structures. Proximity to airport makes turnover and occupancy predictable.

5. Kandy & Hill Country (Kandy town, Nuwara Eliya outskirts) — long‑let family rentals, guesthouses

• Why: domestic tourism, school/retiree demand and temperate climate can attract both local and expatriate tenants. Good for buy‑to‑let aimed at longer stays rather than short nightly rentals.
• How foreigners invest: condos or long leases; check municipal planning rules and utility access.

6. Commercial/office space in Colombo or logistics/industrial near ports — for institutional or joint‑venture investors

• Why: corporate demand and redevelopment can produce higher yields for experienced investors or those using local partners. Usually requires careful structuring and local partners. (LankaProperty.info).

Practical buying checklist for expats (legal + operational)

• Use a specialist property lawyer (title search, verify apartment registration/CMA approval, confirm inward remittance requirements and documentation). Condominium purchases must comply with the Apartment/Condominium law. (tpp.lk).
• Confirm how the purchase funds will be repatriated (use the correct foreign currency account routes and keep remittance paperwork).
• Check developer credibility, completion status, warranty and defect liability — many foreign buyers prefer completed or near‑complete properties to avoid construction risk.
• Model all taxes and transfer costs: VAT (if applicable), SSCL, stamp duty, legal costs, agent fees, and the 10% CGT on future sale gains. (LankaProperty.info).
• For holiday rentals, factor in licensing/permits and local council rules on short‑term lets, plus professional management fees.
• Get local property management in place (cleaning, bookings, compliance) — remote DIY for short‑lets is high‑work.

Risk factors you must consider

• Macro/political/economic volatility: Sri Lanka has experienced economic shocks in recent years; currency, policy and tax changes can affect returns and repatriation. Always stress‑test cashflows for VAT, tax changes, and possible regulatory shifts.
• Liquidity: outside Colombo and the top tourist pockets, resale markets are thinner. Expect longer sale timelines in smaller towns.
• Legal complexity: since freehold land ownership by foreigners is restricted, understand lease durations, renewal clauses, and rights on redevelopment.

Next steps I recommend (practical)

1. Decide objective (capital growth vs. short‑stay income vs. long‑let rental).
2. Shortlist locations from above that match your objective (e.g., Colombo mid‑range for steady long‑lets; South Coast for holiday rentals).
3. Instruct a Sri Lanka‑based property lawyer and independent surveyor to run title and compliance checks. (Ask for lawyer references from embassies/expat groups and verify their track record.)
4. Validate developer history, completion dates, and sales contracts (if buying new).
5. Model purchase + operating costs including VAT, stamp duty, CGT and management to confirm expected net yield.

If you want, I can:

• Prepare a 1–page comparison (expected yields, pros/cons, sample price bands) for 2–3 specific locations you’re interested in; or
• Find reputable local lawyers/developers/agents and recent market reports for the locations you prefer (I’ll pull and cite recent listings and market data).

Sources (key references used)

• Sri Lanka property legal and foreign buyer guides / condominium and lease rules. (tpp.lk).
• Tax and transaction notes (VAT, stamp duty, CGT, lease rules). (LankaProperty.info).
• Market commentary on Colombo apartment pipeline and yields (2024–25 market snapshot). (LinkedIn.com).
• Travel/market interest in South Coast and Galle as lifestyle/tourism destinations. (cntraveler.com).

Would you like a short comparative table of 3 specific towns (e.g., Colombo vs Mirissa vs Galle) with typical price bands and estimated gross/net yields based on current market figures? If yes, tell me which two or three locations you want compared and whether your goal is rental income, capital growth, or holiday‑rental income.