In our previous article, we explored the current state of Sri Lanka’s real estate market in early 2026, highlighting steady price appreciation, tourism-driven demand, and ongoing affordability concerns. Building on that overview, this piece examines the recovery trajectory since the severe economic crisis of 2022. The crisis brought the sector to a near standstill, with stalled projects and declining transactions, but subsequent years have marked a gradual yet resilient rebound. By 2026, the market shows clear signs of stabilization and growth, supported by macroeconomic improvements and renewed investor interest.
The path has not been uniform central urban areas have seen moderated growth, while suburbs and tourism-linked segments have surged. Drawing on official data from the Central Bank of Sri Lanka (CBSL) and tourism authorities, this analysis traces the key phases of recovery, the contributing factors, and the balanced outlook moving forward.
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The Depth of the 2022 Crisis and Initial Setbacks
Sri Lanka’s economic crisis in 2022, marked by foreign exchange shortages, high inflation, and debt default, profoundly impacted the real estate sector. Construction activity halted on many sites due to material shortages and financing constraints. Property transactions plummeted as buyer confidence eroded, and many developers faced liquidity issues.
Land and property prices, which had been rising steadily pre-crisis, either stagnated or declined in real terms. In Colombo District, land values saw limited growth or corrections in certain segments during 2022-2023, with asking prices reflecting cautious seller behavior. Apartment sales volumes dropped significantly, and unsold inventory accumulated, particularly in mid-tier projects.
The condominium market was especially hard-hit, with absorption rates slowing amid reduced expatriate demand and local purchasing power erosion. Commercial real estate also suffered, as businesses delayed expansions. Overall, the sector mirrored the broader economy’s contraction, with real GDP shrinking sharply in 2022.
Recovery began tentatively in late 2023 as stabilization measures took hold, including debt restructuring progress and inflation moderation. By 2024, early signs emerged: construction resumed on select projects, and transaction volumes started to pick up, laying the groundwork for stronger growth in 2025.
Milestones and Growth Metrics in 2025
The year 2025 proved pivotal, with the real estate market demonstrating robust recovery across key indicators. According to CBSL data, the Land Valuation Indicator (LVI) for Colombo District rose by 11.4% in the first half of 2025 compared to the same period in 2024. Residential land prices specifically increased by 14.4%, signaling strong demand in housing-related segments.
Asking price indices for lands, houses, and condominiums in Colombo District recorded consistent year-on-year gains throughout 2025. In the third quarter, house prices reflected a 7.9% annual increase, with the index reaching approximately 179 points. The new condominiums price index climbed to 271.8 in the second quarter, underscoring appreciation in the apartment segment.
Sales activity rebounded notably. Reports from property platforms and market analyses indicate apartment sales volumes rising significantly year-on-year, driven by pent-up demand from local buyers and returning expatriates. Suburban areas led the charge, with land prices in outskirts of Colombo appreciating faster than central zones. For instance, the 2025 Land Price Index showed central Colombo (zones 1-15) recording a more modest 4% year-on-year increase, with average prices reaching around Rs. 12 million per perch, while suburban and peripheral districts saw double-digit gains.
This divergence highlights a shift in buyer preferences toward more affordable and spacious options outside the city core, facilitated by improved infrastructure and remote work trends persisting post-pandemic.
Factors Fueling the Rebound and Regional Dynamics
Several interconnected factors have propelled the recovery. Macroeconomic stability played a central role: inflation moderated, interest rates stabilized, and policy consistency encouraged borrowing. The Central Bank’s supportive stance, including liquidity measures, aided financing availability for developers and buyers.
Tourism’s resurgence has been a major catalyst, particularly for residential and hospitality-linked properties. Sri Lanka recorded over 2.3 million tourist arrivals in 2025, a significant increase from prior years and approaching pre-pandemic peaks. This influx boosted demand for vacation homes, serviced apartments, and rental properties in coastal and urban tourist areas, contributing to higher occupancy and yield expectations.
Foreign remittances from expatriate Sri Lankans also supported purchases, especially in the condominium segment where ownership rules are more permissive for non-residents. Larger developments incorporating mixed-use elements residential, retail, and leisure have attracted both domestic and international interest, resuming progress after crisis-era delays.
Regionally, the Western Province, particularly Colombo suburbs and adjacent districts like Gampaha, experienced the fastest appreciation. Average land prices in these areas rose substantially, reflecting urban spillover and development potential. In contrast, prime central Colombo maintained premium pricing but slower growth rates, as supply constraints and high baselines tempered percentage gains.
Commercial segments lagged slightly but showed improvement in integrated projects. Overall, the market’s recovery has been end-user driven rather than speculative, leading to more sustainable pricing trends.
Remaining Challenges and a Balanced Perspective
While the recovery is evident, challenges persist that temper optimism. Affordability remains a core issue, with rapid price growth outpacing income rises for many locals. Colombo continues to rank among the world’s least affordable cities for housing, limiting broad-based participation.
Supply in mid- and lower-tier segments is still catching up, and external risks such as global economic slowdowns affecting tourism could influence momentum. Regulatory hurdles for foreign land ownership direct interest primarily to apartments, potentially concentrating demand in that segment.
Nevertheless, the trajectory from 2022 lows to 2026 stability reflects resilience. With continued policy support and tourism growth carrying into early 2026 evidenced by strong January arrivals the sector appears positioned for sustained, moderate expansion. Investors and buyers entering now benefit from a market that has moved past distress into a recovery phase, though careful due diligence on location and financing is essential.
In essence, Sri Lanka’s real estate recovery since the 2022 challenges demonstrates a phased return to growth, led by residential demand, suburban expansion, and tourism spillover. The data points to a healthier, more balanced market in 2026 compared to the crisis years.
Disclaimer: This article is based on various public sources, including Central Bank of Sri Lanka reports, Sri Lanka Tourism Development Authority statistics, and market analyses, for educational purposes only. Data reflects trends up to early 2026 and may change. For direct investment decisions or specific market inquiries, please visit official government sites such as cbsl.gov.lk or sltda.gov.lk to verify and consult relevant sections.
