Investment promotion minister Lakshman Yapa Abeywardena said it was the policy of the administration to stop the sale of land outright to foreigners but foreign investors will be allowed to lease land for up to 99 years, after a paying a tax.
"We will allow foreigners to lease land and we have requested that the tax be kept below 10 percent," minister Abeywardena said.
Chairman of the Board of Investment of Sri Lanka MMC Ferdinando said a tax of between 5 to 15 percent for leases had been discussed and the Treasury was expected to issue a circular soon.
He said freehold land ownership will be allowed for companies with more than 50 percent of shares held by resident and companies that have been in operation for more than 10 years.
"For example if a company like Prima (a Singapore based firm) want to expand and buy some land they will be allowed to buy land," Ferdinando said.
He said there will be no retrospective effect and anyone who already had land will not be affected.
Large investment projects may be given permission to purchase land by special approval.
Ferdinando said listed companies where ownership tips over 50 percent may be affected by the rule.
But once company has been in operation for 10 years with proven record of good conduct would also be able to buy land in the future, he said.
In apartment projects foreigners will be allowed to buy from the fourth floor onwards.
Abeywardena said there were concerns about villas in the coastline being owned by foreigners and land being bought for 50,000 rupees a perch and being re-sold for 800,000 later.
Sri Lankan citizens gradually got property rights and the absolute freedom to break up sell or transfer land to anyone they wished (freehold) with the breakdown of the feudal system where the king owned practically all the land, as the island came under European rule.
The British abolished Wadawasam or service tenure outright but later started the first expropriation through a controversial waste land ordinance, which critics say gave ideas to post independence rulers to also violate the property rights of citizens.
Post independent rulers egged on by nationalists have progressively undermined freehold of citizens through the imposition of prohibitive taxes on sale to foreigners now culminating in a broad prohibition.
Several years ago the state slapped a 100 percent tax on sales of lands freehold by locals to foreigners.
Analyst say most nationalist policies targeted at 'foreigners' including trade restrictions end up restricting the freedoms of citizens.