"The proposed tax on lease values will discourage long term lease agreements with foreign tenants and will have an impact on the Company with regard to its ability to demand higher rentals, especially in the context where substantial informal markets exist in converting houses into office premises via informal rent agreements.
"With the proposed tax, it could be expected that the total tax on lease rentals for foreign nationals will increase to approximately 30 percent or more (inclusive of Value Added Tax (VAT), Nation Building Tax (NBT) and Stamp Duty)."
Equity Two said property prices have been stable in Colombo but is starting to pick up. Stable property prices lack of bubbles however also point to low inflation and better economic and banking sector stability.
Officials have said a tax of around 10 percent is likely to be imposed on long property leases and foreign companies will be prohibited from owning land freehold except when they have been in operation for more than 10 years.
The exact rules are yet uncertain.Ordinary Sri Lankans got absolute freehold (the right to own, alienate or sell land to anyone they wished) under European colonial rule with the gradual breakdown and final abolition of a feudal service tenure (Wedawassam) system by British.
Analysts say the restriction of 'foreign' property ownership is a development that occurred in Eastern Europe and is part of the so-called rural nationalism agenda.
Economists say high transfer taxes on land which is a type of capital also hits employment generation.