Sri Lanka’s real estate sector is showing clear signs of recovery in 2025, but analysts say government policy must now shift from stimulus to structural support if the momentum is to be sustained. The Central Bank of Sri Lanka’s Q1 2025 market analysis revealed year-on-year increases in asking prices in the Colombo district of 7.3 per cent for land, 10.4 per cent for houses and 5.5 per cent for condominiums, compared with the same period in 2024.
Moreover, a broader industry outlook from LankaPropertyWeb estimates average year-on-year land-price growth of around 12 per cent nationwide, with suburban areas in Western Province even rising by roughly 20 per cent.
lDespite this up-surge, challenges remain: house price index data shows only modest quarterly rises (2.71 % in Q1 2025) compared to volatile swings in previous years.
Meanwhile, foreign direct investment (FDI) flows into Sri Lanka stood at US$787 million in the first nine months of 2025, with part of this sum tied to real-estate-related projects, offering a positive sign for developer confidence.
From a supply-side perspective, developers cite constraints such as high financing costs, regulatory uncertainty and slow issuance of approvals as impediments particularly for projects beyond prime Colombo areas. To lock in the recovery, government action is required. Key steps include:
Easing access to affordable credit for developers and buyers alike, by re-structuring home-loan and construction-loan interest rates.
Streamlining planning and approvals, especially for suburban and mixed-use developments poised to absorb demand from a shifting buyer base.
Providing targeted incentives (tax breaks, infrastructure offsets, fast-track zoning) for developments in under-served regions.
Ensuring transparency and foreign-investor friendliness, to convert interest into committed capital. With FDI still modest compared to potential, reforms must reassure overseas and local buyers alike.
Industry voices believe that if the government adopts a coherent support package now rather than waiting for the recovery to fully mature the sector could help underpin broader economic growth. The transition from speculative to stable growth appears underway, but without policy backing, the upturn may falter. As one developer commented: “The numbers are encouraging, but we need certainty in rules and costs to deliver projects at scale.”
In sum, Sri Lanka’s real-estate market is back in play, yet the era of recovery-led expansion demands a new era of pragmatic support and reform if it is to become a sustainable pillar of the economy.
