.
By Shavasb Bohdjalian
Approved Investment Advisor and CEO of Eurivex
Cyprus is facing tough competition from its EU partners in its bid to attract foreign investors with the promise of residency permits for five years for those who purchase property worth at least EUR 300.000 and show proof of at least EUR 30.000 in their bank account to cover living expenses.
Greece recently passed a similar law allowing foreign nationals from third countries such as Russia, Ukraine and China to qualify for a five-year residency visa, provided they invest more than EUR 250.000 in real estate, without any other conditions. Spain and Portugal are also offering a scheme with a minimum threshold of EUR 500.000.
Foreign investors, particularly the Chinese, are said to be keen to acquire residence permits in Greece, Spain and Portugal as this would secure them easy access to the other 24 countries in the passport-free Schengen area, in contrast to Cyprus which is not a member of the Schengen area, where third country nationals need to apply for a visa to other EU countries.
Cypriot developers have already scored a major win especially with the Chinese investors, since according to media reports, about 600 to 1000 lots have been sold, mainly in the Pafos area.
Cyprus scored another success after Dolphin Capital and Aristo Developers announced the sale for EUR 290 mln of all their joint interest in the Venus Rock Golf Resort project to Hong Kong investors.
The government believes that the best way to clear the backlog of unwanted properties built during the bubble period is to offload them on foreign investors, which at the same time will lead to new demand for housing and thus help land development companies out of their dire financial situation, help reduce unemployment and generally create economic activity, while also generating new taxes and other revenue.
The small size of Cyprus is both an advantage and a disadvantage. It’s an advantage if the country closes another five to ten deals similar to the Aristo deal, then it will have sold most available land along the coastal areas and if managed properly, the unemployment problems in the sector will have been solved to a large degree, the government will generate satisfactory income from the transfer fees and the renewed buzz in the sector will go a long way to help boost economic activity.
Our disadvantage is that being a small place with limited available land on the coastal areas, there is a limit to how many large deals we can accommodate. Since Cyprus is not a member of the Schengen area and the fact that Greece is offering a lower investment threshold, this will for sure hurt Cyprus in the medium term. The massive negative publicity that Cyprus received from the bank deposit haircut, the economic default and the continuing capital restrictions are also hurting Cyprus’s chances of attracting serious foreign investors.
Unofficial reports also suggest that a number of Cypriot developers have tarnished the reputation of the island by offering up to 25% commissions to Chinese agents and middlemen while other developers are reported to have attempted to sell low value houses for the “minimum price” of EUR 300.000 with the promise to rebate EUR 30.000 to the buyer to cover the first-year expenses.
Such gimmicks have alerted the Chinese to the fact that the real value of the properties they are being offered is significantly below the purchase price, which is why many are now demanding additional guarantees and safeguards with respect to the price volatility range that they will tolerate, especially on the downside.
It is obvious that there is a huge market in China, Russia and other countries eager to secure an EU residency permit, which is why this sector will continue to boom in the next years. The question is whether Cyprus manages such a demand properly and fairly for the benefit of the country, the sellers, as well as the buyers.
[email protected]
(Eurivex Ltd. is a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10. Eurivex is an approved Nominated Adviser for listings on the Emerging Companies Market of the Cyprus Stock Exchange. The views expressed above are personal and do not bind the company and are subject to change without notice)
