A look at rental yields on Sri Lankan villas

A couple of days ago I came across some old analysis I’d done looking at likely rental yields on Sri Lankan holiday villas.

Though by no means totally scientific, I found the numbers interesting to re-read. I’d looked at 10 villas all located along the island’s south coast between Galle and Tangalle. All the properties were publicly marketed for holiday rent and so I could easily allocate potential income.

Allocating occupancy levels and costs was a matter of, I’d hope, fairly educated guesswork. For simplicity I assumed an annual occupancy of 50% and a margin on profit also of 50%. In terms of valuing the properties I looked at others currently on the market – matching them in terms of size, finish and location.

With those numbers I churned out likely rental yields from a very modest 2.7% up to a much more attractive 8.8%.

There’s a dearth of reliable data on Sri Lankan property but those numbers seem to chime with what else has been published. This analysis (here) by the very readable Global Property Guide is rather dated and could do with more of an explanation on its method but the numbers are relatively consistent with mine. It points to somewhat higher yields on the west coast.

Looking at just 10 properties, as I say, is not great science but in terms of picking locations there may be something to take from the meagre sample. Ranked 8th and 9th in terms of likely yield were properties inside Galle Fort. That’s no doubt a function of the high prices now required to buy in that lovely little enclave. Topping the pack with estimated yields of 7.7% and 8.8% were two properties much further down the coast nearer Tangalle. Buying prices, though heading up, remain markedly lower the further east you head along that southern coast.

Perhaps my analysis isn’t entirely fair. You might argue those Galle properties would attract greater occupancy and so higher yields. Properties around Galle and Thalpe have also seen the greatest price appreciation in recent years and so, yearly income aside, the overall return on investment (IRR) of buying there should be very strong indeed.

It would take more time than I currently have free to confirm any of the above with total certainty. And as we continue to say, there’s much more than just financial value to be had from investment in Sri Lankan property.

I pulled these numbers together in August 2015 and, as entirely unsolicited, I shan’t name the villas. I’d be happy to share and talk through privately if anyone were interested.