Cyprus's Central Bank has raised the loan threshold for mortgages on holiday or second homes, imposed last year to pre-empt excessive exposure of commercial banks to the sector.
The move will please property developers who complained restrictions imposed last year stunted growth in the market, but which the Central Bank is convinced was instrumental in protecting commercial banks from excessive risk.
A Central Bank official said on Wednesday the restriction had been taken to curb commercial bank exposure to what then appeared to be a speculative run in the island's holiday home market. Those conditions have now abated, he said.
"We are not making any relaxation.. we are simply reverting to what was in effect last year," he said.
In a circular issued on Tuesday, governor Athanasios Orphanides raised lending limits for second homes to 70 percent of their value, compared to 60 percent imposed last year.
"We now see the speculative interest has waned, and that prices have stabilised. Market conditions have changed. Qualitative data by banks and by developers suggests there has been a tapering off of this phenomenon," the official said.
Property developers had complained the measure was partly to blame for curbing growth in the sector. Domestic banks highlighted that customers could sidestep the restriction by going to overseas-based banks.
The directive did not cover individuals acquiring first homes, where the ceiling is 80 percent of property value.
Revenue from real estate helped boost the island's economy in 2007, with its GDP expanding by 4.4 percent and yielding a 3.3 percent budget surplus.
Tax data released last week showed Cyprus's revenues from property transactions were down 17 percent in the first four months of 2008.
The economy is poised to expand by between 3.5 and 3.8 percent in 2008, placing average growth at 3.65 percent.
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In another development, the Minister of Finance Ch. Stavrakis, commenting on
the imposition of a 15% VAT rate on land, stated that the Ministry is considering to
abolish the transfer fees paid for the transfer of land, whilst there are thoughts for
returning the balancing rate to the eligible persons. This would be done to support
the construction industry and the government’s housing policy.
