Property Valuation

Need a Valuation

Property valuation in Sri Lanka is a professional and systematic process to determine a property’s market value. It is carried out by professionally qualified valuation surveyors who must adhere to established valuation and ethical standards. The process is a combination of on-site inspection, market research, and analysis.

Key Steps in the Valuation Process

1) Instruction and Documentation

The valuation process begins when a client, such as a bank, individual, or government agency, commissions a valuer. The valuer requires several key documents, including:

Copy of the title deeds
Copy of the survey plan
Approved building plans
Certificate of Conformity (CoC), if applicable
Street Line Certificate

2) Physical Inspection

A qualified valuer will visit the property to conduct a thorough inspection. They will assess various physical characteristics, including:

Location: Proximity to city centers, main roads, schools, hospitals, and other amenities.
Physical Condition: The age, state of repair, and overall quality of construction.
Size and Layout: The land area, floor area of the building, and functional layout.
Unique Features: Any special features, such as a swimming pool, garden, or architectural design.
Legal and Environmental Factors: The valuer will also consider zoning regulations, land use restrictions, and any environmental issues that could affect the property’s value.

3) Market Research and Analysis:

After the inspection, the valuer conducts a detailed analysis of the local real estate market. This is a crucial step that involves:

Comparative Analysis: The valuer researches recent sales of similar properties (comparables) in the same area. This is often the most important method, as it directly reflects current market conditions.
Valuation Methods: Professional valuers in Sri Lanka use several internationally recognized methods, often in combination, including:
Comparative Method (Market Approach): Comparing the property to recently sold, similar properties.
Cost Approach: Estimating the cost to replace the property and then deducting for depreciation.
Income Approach (Investment Method): Valuing the property based on its potential to generate income (e.g., rental income).
Residual Method: Used for development projects, where the value is determined by the potential profit from the completed project.

4) Report Preparation

Based on the inspection and analysis, the valuer prepares a comprehensive report. This report outlines their findings, the methods used, and their professional opinion on the property’s estimated value. The report is then reviewed by a senior valuer to ensure accuracy and compliance with industry standards.

The Role of the Government Department of Valuation

While most valuations for private transactions are done by private firms, the Government Department of Valuation, headed by the Chief Valuer, plays a significant role, particularly in government-related matters. Their functions include:

Valuations for compulsory land acquisitions for public purposes.
Assessing property values for official purposes like stamp duty and tax collection.
Valuations for state-owned assets and rental assessments.

Require Inspection

The inspection process is not as standardized as in some Western countries, but it is a critical step that is typically handled with the assistance of professionals.

The process can be broken down into two main types: legal and physical

1) Legal and Regulatory Inspection (Due Diligence)

This is the most crucial part of the inspection process in Sri Lanka and is primarily handled by your lawyer or notary.

Title Search: The lawyer will check the property’s title deed and its history for 25 to 30 years to verify the legal ownership and ensure there are no legal disputes or encumbrances (such as mortgages or liens).
Permit and Compliance Check: Your lawyer will verify that the property has a valid Certificate of Conformity (COC) and an approved building plan from the relevant local authority, such as the Urban Development Authority (UDA) or a Municipal Council. The COC is a crucial document that certifies the building’s compliance with safety and construction standards.
Document Verification: Other essential documents, such as the non-vesting certificate and the approved lot plan, are also checked to ensure the property is legally sound and all regulations have been followed.

2) Physical Inspection of the Property

While a formal “home inspection” industry is not as developed as in some other countries, it is a highly recommended and common practice for buyers to conduct their own physical checks and hire professionals for more detailed analysis.

Personal Inspection: You, as the buyer, should personally visit the property multiple times to check for obvious issues. This includes examining the location, neighborhood, and general structure of the house.
Checking Utilities and Systems: It’s essential to check the functionality of all systems, including the electricity and plumbing. This can involve checking for leaks, water pressure, and the condition of electrical outlets and wiring.
Hiring a Structural Engineer: For older properties or if you have concerns about the structural integrity, it is highly recommended to hire an independent structural engineer. They can inspect the foundation, walls, and overall structure to identify any potential issues, such as noticeable cracks or tilts.
Professional Valuation: A valuation report from a licensed valuer is often a key part of the process, particularly if you are obtaining a mortgage. This report estimates the property’s market value, which is used to calculate taxes and is required by banks for loan approvals.

In summary, the inspection process for a property in Sri Lanka is a combination of thorough legal due diligence conducted by a lawyer and a physical inspection, which may be done by the buyer and/or a hired professional like a structural engineer or a licensed valuer.

Looking for a Property Management Agent/Company

In Sri Lanka, property management companies offer a comprehensive suite of services to property owners, particularly those who are living abroad or own multiple properties and require professional support. The process is designed to be a “hassle-free” solution, covering everything from tenant acquisition to financial administration and property maintenance.

Here is a brief overview of the process

1) Pre-Rental and Marketing

Before a property is rented out, the management company takes on the responsibility of preparing and marketing it. This can include:

Property Preparation: Conducting defect checks, furnishing, and interior solutions to ensure the property is in optimal condition.
Marketing: Listing the property on various online platforms and using their network to find suitable tenants.

2) Tenant Management

Once a potential tenant is found, the company handles all aspects of tenant relations to ensure a smooth and secure tenancy. This includes:

Screening and Vetting: Conducting background checks and vetting potential tenants to ensure reliability.
Lease Administration: Drafting, administering, and renewing lease agreements. They also handle the check-in and check-out processes.
Rent Collection: Managing the collection of rental payments, security deposits, and any other fees. Some companies offer online portals for both owners and tenants to track payments and manage communications.

3) Maintenance and Operations

A core function of property management is the upkeep of the property. Companies handle this with a proactive and reactive approach:

Routine Maintenance: Arranging and supervising routine repairs and maintenance tasks. This includes finding and coordinating with reliable contractors.
Inspections: Conducting regular site inspections to ensure the property is well-maintained and that the terms of the lease are being met.
Service Contracts: Managing essential service contracts, such as for generators, lifts, swimming pools, and garbage collection, particularly for apartment complexes.

4) Financial and Administrative Reporting

To ensure transparency and allow owners to track their investment, property management companies provide regular financial reporting.

Financial Reports: Providing monthly or periodic reports on income (rent collected), expenses (repairs, utility payments, taxes), and other financial details.
Utility and Bill Payments: Managing the timely payment of all property-related outgoings, such as utility bills, property taxes, and staff salaries.

5) Legal and Administrative Support

The companies also offer support in navigating the legal landscape of property rental in Sri Lanka. This can include:

Legal Compliance: Ensuring all lease agreements and practices are in line with Sri Lankan laws, including the Rent Act, where applicable.
Administrative Tasks: Handling all necessary administrative and legal documentation, from lease registration to resolving disputes.

The fee structure for these services can vary, with some companies charging a monthly fee or a percentage of the rental income, while others, particularly for short-term holiday rentals, may operate on a commission-only basis.

Seeking Legal Assistance

In Sri Lanka, a legal service provider that handles both investment and property matters “under one roof” offers a streamlined and comprehensive solution for clients, particularly foreign investors and expatriates. This integrated approach combines the expertise of corporate and property lawyers to manage all legal aspects of a client’s venture, from initial investment to final property acquisition and management.

Here is a brief overview of how this model operates

1) Corporate and Investment Legal Services

The first stage involves setting up the legal framework for the investment. The company provides assistance with:

Company Formation: Guiding clients on the best legal structure for their investment (e.g., a limited liability company, a branch office) and handling the entire incorporation process.
Board of Investment (BOI) Approvals: Assisting with applications to the BOI, which is crucial for foreign investors to benefit from tax incentives and other government-backed concessions.
Regulatory Compliance: Providing legal advice on foreign exchange laws, local business regulations, and corporate governance to ensure the investment is fully compliant.
Legal Due Diligence: Conducting comprehensive due diligence on potential local partners or target companies, including mergers and acquisitions.

2) Property and Conveyancing Legal Services

Once the corporate structure is in place, the focus shifts to the property aspect of the investment. The “under one roof” model ensures a seamless transition between these two areas. The services provided include:

Property Due Diligence: A crucial step involving a thorough title search at the local Land Registry to verify ownership, identify any encumbrances, and ensure the property has a clear title.
Conveyancing: Handling all legal aspects of the property transfer, including drafting and reviewing sale agreements, lease agreements, and deeds of transfer. This is done by licensed Notaries Public, which is a legal requirement in Sri Lanka.
Compliance with Foreign Ownership Laws: Advising on the legal avenues for property acquisition by non-citizens, such as purchasing condominiums or leasing land for up to 99 years, and ensuring compliance with the Land (Restrictions on Alienation) Act.

3) Integrated and Ongoing Support

The main advantage of this model is the continuity of service. The same team that helped with the initial investment can also manage the legal aspects of ongoing property operations, such as:

Lease Management: Drafting and managing lease agreements for tenants.
Dispute Resolution: Representing the client in any legal disputes that may arise.
Tax Advisory: Providing advice on property taxes, stamp duty, and other relevant levies.

By providing these services together, a firm can offer a more efficient, coordinated, and cost-effective solution, eliminating the need for a client to engage with multiple legal teams.