Yiannos Trisokkas, Managing Partner, Henley & Partners Cyprus
There is little doubt that the island of Cyprus was, in many ways, ‘born lucky’. Resting comfortably in the Eastern Mediterranean basin, it enjoys not only the mild weather and abundant sunshine, but also balances its sweeping coastline with pine-forested inland mountains. The overall picture is one of multi-faceted natural beauty. Add to that the island’s proximity to Europe, the Middle East and North Africa, as well as its history, culture and hospitable population, and the potential for tourism is obvious.
Recognizing and capitalizing on its advantage as a preferred tourist destination, Cyprus has for decades focused on and developed the main coastal resorts and their surroundings to appeal to sun-seeking holidaymakers, offering them ample opportunity to escape and relax, or enjoy action-packed vacations. The results of these efforts have been consistent growth in the tourism sector over the years. The average number of tourist arrivals per year is currently around 3 million — approximately triple the resident population. Apart from providing accommodation, maintaining clean and safe beaches is a priority, while awareness of ‘green’ tourism is growing day by day. With a total of 53 ‘Blue Flag’ beaches, Cyprus holds three Blue Flag world records: the highest concentration, the highest number per capita, and the highest number per coastline of such certified beaches. The lowest crime rate in Europe makes the island even more appealing to visitors.
Since 2013 when the Cyprus government launched its citizenship-by-investment program for non-EU citizens, the interest in Cyprus property has witnessed a sharp rise, as anticipated. This is because one of the requirements for applicants is to invest in real estate of a set minimum value. In attempt to further incentivize foreign direct investment, the government recently amended its application requirements by lowering the investment requirement to EUR 2 million plus a residential property worth EUR 500,000 or a total investment in residential property worth at least EUR 2 million.
Taking all of the above into consideration, it becomes clear that investment in property development projects along the coast is a golden opportunity — the closer such projects are to the sea, the better. However, the availability of beachfront land in touristic locations is limited due to the small size of the island and the extensive development along the coast over the past 45 years. To a great extent, the remaining land is not for sale — it is either government property or in the hands of families who are not inclined to part with their assets. In other cases, the land is used for agricultural purposes, or has no road access and is not connected to public utilities. There is a limited supply of beachfront land available for development, therefore sales are low compared to the demand.
Everyone involved in the real estate market — investors, households, policy makers, real estate agents and land developers — is bound to have their eyes on the valuation of housing prices. The 2012–2013 financial crisis delivered a powerful blow to the real estate market in Cyprus, as it did all over the world. After years of tangible suffering that led to near-stagnation, it appears that the market hit rock bottom and is now not only stable, but even registering the first signs of recovery, as the most recent figures across the Mediterranean island illustrate.
In a report prepared by the Central Bank of Cyprus, which sets the equilibrium of housing prices at the levels of 2006, the overall conclusion, which the European Central Bank agrees with in part, is that housing in Cyprus during the fourth quarter of 2015 was undervalued by 4–16%.
In the first quarter of 2015, housing prices were on par with the balance point, in other words, the long-term average has reached a level corresponding to the end of 2006 and early 2007. This is interpreted as a turning point and a concrete sign of stabilization in the real estate sector.
The positive trend has been visible since the beginning of the 2016, with a 25% increase in the number of sales for the first five months of the year, compared with the same period last year. Across the whole of Cyprus, that translates to 2,355 sales for the period of January to May in 2016, compared with 1,884 for the same period in 2015. In May alone, the increase was most encouraging at 17%, with 474 submissions of contracts compared with 405 in May 2015.
An interesting note from the Department of Lands and Surveys is that 442 properties were transferred to foreigners, 73% more than the figure of 256, which was recorded in the respective half of 2015. Indirectly, this sends out an encouraging message to both the local public and the community of international investors, underlining confidence in the immediate future of the Cyprus property market. The value of the property that changed hands during the first half of 2016 amounted to EUR 1.96 billion — well above the total value of transactions recorded during the full year of 2015, which amounted to EUR 1.54 billion.
At least to some extent, this boost is linked with the government’s announcement of a significant reduction in the rate of property tax, down to 25% of the current rate, provided it is paid by 31 October 2016. For owners who pay their property tax between 1 November and 31 December, the rate will increase marginally to 27.5%. Delayed payments made after 31 December 2016 for the current year will result in a 10% penalty on the amount that is calculated on the basis of the rate for 1 November to 31 December. Even more welcome was the announcement that property tax will be abolished entirely from 2017 onwards.
As the Central Bank of Cyprus points out, the real estate sector has yet to regain its pre-crisis health. However, the fact that the construction industry appears to have already responded to the increased movement in the property market. After recording the largest drop in production among EU member states about a year ago, the sector has noted the restored trust in the economy, combined with the government’s incentives that were designed to attract foreign direct investment — and have proved effective. As demand picks up, construction companies are hoping to record significant growth, possibly even before the end of 2016, but certainly in the coming year, to keep step with a market that bears all the signs of a steady and solid recovery.