The Cyprus real estate and property market is holding up well despite the global crisis but land developers on the island are calling for urgent measures to be introduced by the government in order to ensure future stability and growth.
The Chairman of the Land and Building Developers Association Lakis Tofarides said there was a lot to be done to improve the market.
“Cyprus property has not been affected, at least not to a significant degree, with the possible exception of second home sales in the coastal areas,” said Tofarides, but he admitted that over the past 10 months, there had been a “discernible and worsening” fall in demand for real estate.
According to Tofarides, at the moment “there is no reason to panic”. Fears that Cyprus might suffer a similar fate to America’s shattered property market were entirely unfounded, he added.
And although a small drop in real estate prices was inevitable, “nothing dramatic” was on the cards.
Tofarides said the major problem facing the property sector is the imposition of 15% VAT on property from 2004, which led to a dramatic increase in prices and generated millions in added revenue for the state in the form of taxation, which is now set to turn around.
For example, for a house costing EUR120,000 in 1999, the transfer fee was EUR 4,270; today, the same property would cost EUR 400,000, with the transfer fee going up to EUR 25,300.
“Come next year, when the VAT will go up further, the state will end up harvesting up to 30% on the sale of a house… that’s ridiculous,” said Tofarides. Another source of grievance hindering the growth of the property sector is red tape and the threat of new VAT on land deals.
Tofarides acknowledged that banks’ current lack of liquidity was a problem, which is why the developers want the government to issue bonds to pump liquidity into the banks to be given as loans for property purchase.
Developers are proposing a string of measures to boost the property sector.
For starters, the government should immediately slash capital gains tax. Because of the high levy, people cheat and declare a lower value on their property.
Other helpful steps would be to increase the building coefficient in certain designated areas, offer tax incentives to first-time buyers, and simplify red tape to expedite the issuing of building permits.
On a broader policy level, the association is urging the government to tap into the huge European market.This would compensate for the falling demand for property from the UK as a result of the credit squeeze but also the weakening of the pound sterling.
“Our sector employs some 45,000 people, and has a turnover of EUR2 bln contributing 20% of GDP. Every year, the state rakes in some EUR500 mln from the property sector. Now imagine what would happen if real estate entered a slump and our revenues were cut in half,” said Tofarides.
Major slowdown
In its revised budget calculations, the Ministry of Finance has assumed that the revenue from the property sector would decline by 50%, or revert back to 2006 levels but state revenue would still record satisfactory growth, as the backlog of deals and construction projects clear.
Meanwhile data issued by the Land Registry Department for the period January – October 2008 showed a 24.2% YoY reduction in the number of property sale notes, whilst October showed a record reduction in property sale notes of 50.2%.
Property sale notes illustrate the activity recorded in the property market as such notes primarily refer to new property without an ownership title. This is a further indication that the property market in Cyprus exhibits signs of significant fatigue and that further slowdown is underway as the local economic growth cuts pace.
