Dividends will also be tax free for 10 years.
A gazette notice under Sri Lanka's strategic investment law said it was a "pioneer concept for urban renewal enabling the Urban Development Authority to acquire private lands in under developed/underserved areas of Colombo City and provide a better housing/commercial area with amenities to the habitants on a part of the said area."
Acquisition private lands for commercial purposes by the state had come under fire as a further undermining of property rights and freedoms of citizens in Sri Lanka.
Opposition legislators have also called for giving a legal effect to a policy on involuntary re-settlement of inhabitants by the state, developed in the mid 1990s to protect people from the coercive powers to the state from being used against citizens.
Activists have said that earlier powers of the state to acquire or expropriate private land were only intended for public purposes such as building roads and should not be mis-used for commercial developments.Meanwhile government officials have defended the move saying people who lost land will be given the same sized or bigger apartments in at least one project involving a foreign investor and their consent have been obtained.