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Rising Land Prices in Colombo: Key Areas and Factors Driving the Increase
Property prices in Colombo, Sri Lanka, have seen a notable surge, with land prices rising by 7.7% in the second half of 2024 compared to the same period in 2023, according to the latest Land Valuation Indicator (LVI) report. The data reveals significant growth across various categories, with residential land prices seeing the highest increase of 9.9%, followed by commercial land at 9.4% and industrial land at 3.9%.
This surge in land prices is being attributed to a combination of factors, including economic recovery, infrastructural development, and increased demand for property in key urban areas. The report, which tracks semi-annual price changes per perch of land, is compiled by the Government Valuation Department and covers all 13 Divisional Secretariat (DS) divisions in the Colombo District, providing a comprehensive overview of the land market.
Key Areas of Growth in Colombo
Residential Land: The sharpest increase in land prices was observed in residential areas. Prime locations such as Colombo 1 (Fort), Colombo 3 (Kollupitiya), and Colombo 7 (Cinnamon Gardens) saw price hikes of over 10%. These areas have always been popular due to their proximity to central business districts, high-end residential developments, and international schools. The surge in residential land prices is largely driven by the demand for upscale housing and luxury apartments, as well as the urban migration of families seeking better living conditions.
An emerging hotspot for residential development is Mirihana in Nugegoda, which has seen a significant rise in land prices in recent months. This suburban area, known for its peaceful environment and proximity to key transportation routes, has become increasingly popular among homebuyers and developers looking for more affordable alternatives to Colombo’s city center. Its accessibility to the city and growing amenities make it a prime location for residential projects, and its land prices have surged in response to this growing demand.
Commercial Land: Commercial areas such as Colombo 2 (Slave Island), Colombo 3 (Kollupitiya), and Colombo 4 (Bambalapitiya) experienced increases in land prices, reflecting the demand for office spaces, retail establishments, and mixed-use developments. The commercial market has benefited from a revival of business activity, as companies continue to expand in key urban locations, particularly as Colombo remains the economic hub of Sri Lanka. The trend is also supported by the ongoing development of transportation networks, like the expansion of the Colombo Port and the Light Rail Transit (LRT) project, which enhances accessibility.
Industrial Land: Industrial areas in Kelaniya, Biyagama, and Orugodawatta have seen more modest price increases, up by 3.9%. These regions are increasingly becoming attractive for manufacturing and logistics companies, especially due to their proximity to the port and main highways. However, demand for industrial land is still lagging behind the residential and commercial markets due to shifts in Sri Lanka’s industrial policy and changing demand patterns.
Driving Factors Behind the Increase
Economic Recovery and Infrastructure Development: Colombo’s property market has benefitted from a strong economic recovery in 2024, following the challenges faced by the country in the previous years. Key infrastructure projects such as the Colombo Port City and the expansion of Colombo’s outer circular highway are expected to boost land prices even further in the coming years, as these developments bring greater connectivity and improved economic prospects.
Demand for Residential and Commercial Space: The demand for both residential and commercial spaces has been fueled by a growing middle class, the expansion of high-income earners, and an increase in foreign investment. As Sri Lanka continues to position itself as a regional business hub, international businesses are seeking prime commercial spaces in the heart of Colombo. This has led to increased competition for land in high-demand areas.
Government Initiatives and Policy Changes: The Sri Lankan government’s push to revive the real estate sector, especially with incentives for developers and businesses, has also contributed to the rise in land prices. The Colombo Urban Development Authority (UDA) and various other state institutions have implemented policies to encourage development, and investors are capitalizing on these opportunities.
Foreign Investment: With Sri Lanka’s strategic location and growing infrastructure, foreign investments, particularly in commercial and mixed-use projects, have also played a role in the escalation of land prices in Colombo. The expected increase in foreign business activity has led to a significant uptick in demand for high-value land in and around Colombo’s central areas.
Future Outlook
While residential land prices are expected to remain high in Colombo’s prime areas, there may be a shift towards suburban locations in the medium to long term, as developers look to capitalize on land with greater space at more competitive prices. Areas such as Rajagiriya, Nugegoda, Maharagama, and Mirihana have already started to see increased demand as buyers look for more affordable alternatives without sacrificing proximity to the city.
In the commercial sector, the continued growth of Colombo as an international business centre will likely keep commercial land prices on an upward trajectory, especially in districts with access to major transportation hubs and key business zones.
Industrial land prices, though lower in comparison, may experience gradual growth as the logistics and manufacturing sectors evolve, particularly with the expansion of port facilities and the construction of industrial zones.
Colombo’s land market is experiencing robust growth across residential, commercial, and industrial categories, with key areas seeing double-digit price increases. Economic recovery, infrastructure improvements, and ongoing urban development are expected to continue driving demand and pushing land prices higher in the coming years. Additionally, emerging hotspots like Mirihana in Nugegoda are expected to become central to future real estate investments as the city continues to expand outward.
