Should you invest in a rental property?


The rental market in Colombo and its suburbs, including Malabe, Battaramulla and Wattala, is growing, as property prices increase. With property prices on the rise, owners in Colombo are in a fortunate position. They can either sell their home with a very high profit margin or simply rent it out to earn short or long-term return on investment (ROI).

With the country’s real estate market booming, property owners have two main options when it comes to making money from their property: sell for a high return on investment and invest in another property, or rent out the property to make money from the rental market. This gives house-hunters the opportunity to retain their investment, while the property of the value can increase over time.

The most popular locations for renters in Colombo are: Colombo 06, 09, 10, 13, 14 and 15. Major commercial real estate or luxury property developers have not yet begun construction in these areas. However, the government is implementing several infrastructure projects to improve the commute from these residential areas to commercial areas, such as Colombo 01, 02, 03 and 04. Consequently, the number of people looking for high-quality, yet affordable rental properties is only expected to increase.

To rent a mid-range house in secondary Colombo would cost between Rs. 25,000 and Rs. 65,000 per month. This is an affordable amount for new professionals, managers and newlyweds, looking for property to rent. By renting out their property at an affordable price, homeowners are likely to retain long-term tenants, and slowly profit from their investment.

Hugh van der Kolff, Managing Director of Lamudi Sri Lanka, commented: “Buying a home in secondary Colombo would cost an average of Rs. 10 million. Based on the location, investing in a rental property here will likely result in a strong return on investment over time, particularly as property prices increase in the long-term.

“To yield a higher ROI, buyers can rent out their property and sell at a later date, once the value of the property has increased, and the economy has strengthened.”

Most homeowners in Central Colombo, including those in Colombo 03, 04 and 05, are able to rent their properties for approximately Rs. 65,000 to Rs. 180,000 per month, depending on the size, facilities, and location. In this price bracket, renters are likely to be high-earning nationals, or expatriates, working in Sri Lanka, and often looking for longer-term rental options. This gives buyers a comfortable, reliable income from the property’s rent over the course of the tenancy.

It is significant to note that renting can increase the wear and tear on a property, which could lead to higher spending on repairs. Before investing in a rental property, buyers must calculate the long-term costs associated with the investment. (Media Release)