Article
Property

Cyprus property for passports: A cause for concern?

28 December, 2017 | Posted By: Antonis Loizou

By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents

 

As time passes, so does the pressure on Cyprus from the E.U. and others increase. At this point of time the visa/passports measure is working well for us and has contributed to the expansion of the economy to 4% this year, whereas the net income from these sales of around 500 mln euros is a sizeable amount.


Although based on government reports those who have secured Cyprus passports number around 1,700, if you add the family members and those for the visas (mainly Chinese) the number escalates. On the other hand, the population of Cyprus is not increasing to any extent, raising future problems as the population is ageing and living longer, thus putting pressure on future pension funds.  The population stagnation does not help the real estate market and this coupled with the swap deals is causing on many occasions and for certain type of properties an oversupply.

The foreign market demand is here, however, and which is taking up the top end real estate (e.g. Limassol, marinas, mainly Russian speakers, etc.) and the holiday homes at the lower end (Chinese in Paphos). The foreign demand in terms of number of sales amount to around 26% of the total sales (in 2016) and 25% (year 2017). In terms of value, however, the percentage is much more.

This is a substantial percentage which keeps the market going, but is it a healthy state of affairs to have the real estate market dependent on this foreign demand?

At this point of time no one dares touch/suggest the restriction of the passport/visa scheme, but it is something that we should look into over the next couple of years.

Of course, Cyprus is not alone in this ageing population danger and most European countries have a similar problem. Italy for example needs 500,000 p.a. immigrants to keep its population steady and Greece around 150,000 p.a. The recent research on the Russian speaking residents (of around 40,000) is an indication of the situation and by projection their support for the real estate market. It is also a fact that most of the foreign buyers do not intend to stay in Cyprus forever.

With reference to the passports which require the retention of real estate for three years only (save the permanent residence), we expect that after this three year period, a large percentage of the foreign buyers will be selling their real estate and at prices well below of what they paid for it, and they will most likely flood the real estate market.

I am worried since from the announcement date of the measure, the first lot of buyers are nearing the 3-year time limit and we will then realise if the foreign market wishes to move on. In addition to the supply which will become abundant, there are new projects under design and those that are under construction will create a new worrying state of affairs.

In a recent survey we have carried out for Limassol, there appears to be at the planning stage around 400 new apartment units, which will come into the market over the next 1-2 years. In addition to the over supply, developers who do not manage to sell their units over the next couple of years, might find themselves in difficulty to complete the projects as promised. The banks, at this point of time, do not seem to be particularly worried since most high end buyers are cash payers and thus the developers require little or no finance.

This foreign demand boom has helped various developers to survive, the banks to get their loans repaid, whereas deposits and business ventures (eg. hotel development) has helped new business and the wider economy. It will be interesting to examine the effects that the new Chinese restrictions of taking money out of China will have on Cyprus and it will indicate the sensitivity of the local market from the foreign demand. The Cyprus Investment Promotion Agency (CIPA) is playing this down, but I doubt if it is correct.

The situation is very sensitive and little Cyprus cannot say ‘no’ to new demands by the big countries. I am not pessimistic, but looking at the recent events at the Attorney General’s Office, one must examine its possible repercussions from the Russian government.

Surely, we need to tidy up the market, so that we do not have a repetition of the disastrous 2013 situation, including some restrictions on the visa/passports measure and a more viable/sustainable scheme should be the introduction, for example, of a quota system relating to the number of units sold for such purpose per district. The quota to refer per district, so that all areas could benefit (eg. Nicosia, mountain villages) as well as nature of projects, such as no limit for golf courses.

In every sense, we will not be liked by the majority of the beneficiaries of this boom but to ignore it will be hiding our head in the sand not following the events that are ahead of us.

 

www.aloizou.com.cy

[email protected]