The Cyprus real estate market is more attractive to foreign buyers now than it has been for decades. A combination of legislative changes together with strategic planning by the construction industry, mean this is the optimum time for overseas investors to move into Cypriot real estate.
Cyprus, with its year-round sunshine, high quality of life, and convenient location between three continents, has long been a magnet for international investors, expats, retirees and those looking to enjoy a second home in a mild and hospitable climate. It seems that despite the uncertainty of fluctuating global economic cycles, these factors continue to have enduring appeal. The 2013 Knight Frank Global Lifestyle Review ranks Cyprus as the fifth best place in the world to relocate, establishing the island as the only European location alongside Switzerland to make it into the top five – ahead of London, Madrid and Monaco. Cyprus ranks highly because of its favourable tax regime for new residents – particularly for high-net-worth individuals. In May 2014, the island ranked 11th out of 40 countries in the Top of the Props chart, which records the most searched for overseas destinations to buy property. Recent legislation, coupled with a fall in real estate prices, has triggered new interest in the middle and lower end of the market, while sales of luxury, top-end developments have surpassed expectations. During the first seven months of 2016 property sales in Cyprus saw an increase of 28%.
Increasing Sales and New Incentives
As corrections to the Cyprus property market continue, the numbers of completed sales are on the rise. Property sales increased by 26% in July 2016 compared July 2015, according to the latest official figures of the Department of Lands and Surveys. This boost in July sales follows a staggering 42% increase in June, a 17% increase in May and a 35% increase in April. However, it should be noted that these sales also include recoveries, loan restructurings and debt-to-asset swaps agreed between the banks and defaulting borrowers. Sales in Nicosia rose 70% compared with July 2015, while sales in Limassol, Larnaca and Paphos rose by 41%, 29% and 9% respectively. According to the RICS (Cyprus) July report on Q1 2016, residential prices for both houses and flats increased by 1.5% and 1.2% respectively, with the biggest increase being in Famagusta 4.1% for flats and Paphos (5.6% for houses). Values of retail properties fell by an average 0.5%, while offices and warehouses increase by 1.5% and 1.2% respectively.
The island’s once-booming construction industry contributes around 2% to Cypriot GDP, and the sector has certainly felt the chill winds of global economic austerity over recent years. During the first ten months of 2015 the number of building permits authorised for both residential and non-residential projects fell by 0.5% compared to 2014, but their value saw an increase of 18.3% to €846 million and their area increased by 14.2%. Although the recovery of this sector has been modest, there are signs of a possible stabilisation of construction activity in the short term. New legislation has been enacted providing additional benefits to investors in the property market, such as a 50% reduction in transfer fees for all sales and a 100% exemption from capital gains tax for profits on properties purchased by 31st December 2016. Prospective purchasers will also be attracted by recent changes to immoveable property tax (IPT). A new law was passed in July 2016 to cut property taxes by 75% this year and abolish them altogether in 2017.
Perhaps not surprisingly, local financiers remain cautious, but foreign investors are showing increasing interest in the Cypriot real estate sector. The recovering property market on the island provides ideal opportunities for foreign investors, offering the chance to acquire extraordinary properties at exceptional prices. Around 20% of sales are driven by foreign buyers, proving Cyprus continues to be on the list for investors, holiday-home seekers, expats and retirees, with the traditionally popular areas of Paphos and Limassol leading the way. This trend is likely to continue throughout 2016/2017, especially following the passing of new legislation allowing banks to foreclose on unserviced debts, which is expected to release a significant tranche of repossessed properties onto the market. There has already been strong local interest in the asset sales by Bank of Cyprus and Hellenic Bank and analysts speculate that as more properties become available, Cyprus will be an even more attractive proposition for the canny bargain hunter.
It is expected that transactions in the property market will remain concentrated on prime assets while overseas buyers, encouraged by the government’s Naturalisation Scheme, will focus almost exclusively on high-end residential properties in the over €300,000 bracket, according to a report published by Resolute Asset Management, while institutional investors are focused on producing income from their investments, such as grade A properties and sizeable plots of land with tourism development potential.
New property legislation was also passed in 2015, ramping up protection for buyers in Cyprus, allowing owners to apply for their own title deeds. A contentious issue for years, the new property law is a welcome move, and aims to correct the failures of previous years of not issuing title deeds to people who have paid for property, either because the property was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes. The new law grants the head of the land registry department the authority to exempt, eliminate, transfer and cancel mortgages and or other encumbrances, depending on the case and under certain conditions. Thanks to the new amendment, the process is set to become more efficient while giving prospective buyers more peace of mind and security.
Traditionally, Cypriot developers have provided holiday homes for British buyers, due to the countries’ historical ties, strong tourist market and attractive tax treatment – particularly for expats and retirees (5% tax on pensions). Today, the sector is pursuing a more innovative strategy, targeting top-end clients with a range of exclusive villas in five-star gated complexes, golf course and seafront developments and luxury townhouses. Many buyers are non-EU nationals who have taken advantage of Cyprus’ residency and citizenship programmes to relocate to a European base. These programmes, which require the purchase of property, brought in over €2 billion in revenue over the past two years, with most enquiries coming from Russia, China and the Middle East. Recent studies conducted by global immigration experts rank the Cyprus’ Citizenship by Investment programme amongst the top ten worldwide. The scheme was introduced by the Cypriot government two years ago to attract high-net-worth individuals, investors and entrepreneurs with all the benefits available to a Cyprus and EU national.
Despite the general economic downturn, this elite market continues to do well, as illustrated by the recent success of Limassol Marina, which enjoyed another successful year of sales. Other luxury developments approved in 2014, include a €25 million commercial construction project operated by Cybarco, called The Oval, which, at 75 metres tall, is set to become the highest commercial building in Limassol. Russian developers Lanomex are also reaching for the sky in Larnaca, where the new multimillion-euro Kimon project will include a state-of-the-art 70 metre-high hotel, apartments, shops and offices on the popular Phoinikoudes beachfront promenade. Meanwhile, outside Paphos, exclusive villas at the multi-million euro Minthis Hills sport and leisure resort are being snapped up, mostly by Russian and Chinese buyers purchasing off-plan.
Although still recovering, the real estate and construction sector is slowly making a comeback, with prestigious new developments in the pipeline and corporates investing in new ambitious premises. Landmark buildings have begun to spring up, such as the new global headquarters of Wargaming in the capital city Nicosia. The company, also a strategic shareholder of Hellenic Bank, bought the impressive 75 metre ‘President’ building from Rotos Developers for €20 million. An office building developed by Cyfield on Limassol Avenue, was sold for €3.7 million to a Belgian fund, which has also invested €7.4 million in other prime real estate, while the Embassy of Kuwait bought the ‘City Link’ building for €5.1 million.
Oil and gas exploration in Cypriot waters along with new investments in tourism infrastructure and hotels have also given the ailing sector a boost. Projects with a special focus on golf courses and marinas have spurred new interest in large scale projects in Cyprus, and the country has seen a surge of investors looking into the acquisition of entire complexes and into projects that are both in the planning stages and already under construction. Cyprus’ ongoing process of establishing its first ever luxury casino resort, is set to boost tourism and fuel demand for holiday rentals. These premier developments will become the driving force behind the construction industry in years to come. The varied range of exceptionally priced properties together with Cyprus’ 2016 growth prospects, make this a golden opportunity to invest. The real estate sector is still in the early stages of recovery, but it already has firm foundations in place to underpin its re-emergence as a star performer in the island’s economy.