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By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate & Project Managers
It is with great disappointment that we observe a clear lack of direction and strategy from the state to the Land Surveys Dept. and other government services as regards leasing and development of public land. As a result, the President and the Minister of Interior keep talking about “the benefits to the economy are far greater than just the rental price”, while the civil servants review each case based on their own interpretations.
One case in point is a lease agreement that our office has undertaken on behalf of a client who is developing a marina. Despite the clear specifications laid out in the rental agreement, the Lands Dept. has adopted its own approach and is asking for a rent fee for the sea are that the project will include. It took us a year to get a meeting between the client and the Ministry of Commerce in order to work out where the differences lie, while also present was the watchdog of the public sector, the Auditor General.
In another case, an investor who wanted to develop a project in Troodos also had to wait for a whole year to get a reply from the Lands Dept. after which a token rent fee was agreed upon.
And now, we are faced with the Eden coastal project in Paphos, developed by a Hungarian investor, who, after waiting for almost three years and having secured the intervention of the President himself in order to determine a lease rate for state land, has now been told he has to pay a “gentle” fee of EUR 2.6 mln a year for the sea area that the project will include, in order to build the islets and land reclamation.
No wonder investors such as these, or more recently for the Protaras marina, are backing out, resulting in a damage of millions in lost revenues.
Because this is a new development in our property sector, I would suggest the following to help educate foreign investors and incompetent civil servants:
• Estimation of the cost of marina, based on EUR/km of sea barrier. The cost should be allowed to depreciate in 30 years with a maximum lease agreement of 100 years. So, at least in the earlier years, there will be no need to pay for rent, as long as the sea-based construction and “property” remains as state ownership, and after 30 years to charge a fee of 5% on the total value.
• The benefit to the state from such infrastructure projects (marina, mall, hotel, casino, etc.) should have a 50% discount from the payable rent for the remainder of the 70 years.
• The rent for a marina should be based on the initial historical rate, reviewed every five years based on inflation.
• In the case of development on the land-side are of the marina project, alternatively the investor could pay a royalty-based rental fee, with a minimum set rate. This way, the foreign investor reduces his risk and subsequently increases state revenues. If, for example, the Hungarian project in Paphos were to expand over 10,000 sq.m., with a sale value of EUR 15,000/sq.m., then with 8% of sales over 100 years equals EUR 12.5 mln, considering that in the end all the project’s ownership will return to the state.
Some people here are convinced that Cyprus is the centre of the world and that all foreign investors are eagerly waiting to rush and grab a part of this treasure. How naïve some people are, considering that we are at the bottom of the list when it comes to attracting foreign investors to such projects.
Let’s recap the projects so far:
• Technology park – no interest.
• Larnaca port/marina – would be surprised if interest is shown.
• State-owned parcels – no interest.
• The Old GSP stadium for a hotel – no interest.
• The Troodos project – still looking for foreign investors.
These and other projects are still in the “looking for investors” phase, but even if we find even one, the whole system of the rigid civil service, the Auditor General and the meddling House of Representatives are obstructions to allowing any project to proceed.
There are also investors who don’t do their homework properly. I was surprised to hear that the Russian investor who want(ed) to build a deluxe EUR 120 mln hotel on the Phinikoudes seafront, is now facing problems with evicting long-term tenants. Surely, the learned lawyer must have advised the Russian investor prior to the deal, and that from a European norm of 1-2 years, evicting someone in Cyprus could take up to 5-6 years.
I also recall advising on the (failed) Qatar deal, where members of parliament were fighting among themselves to see who would put up the biggest obstacles. In the end the whole deal collapsed without even attempting a compromise deal, while the land opposite the Hilton in Nicosia remains abandoned, an ugly sight for any economy.
That is why I had recently stated that theory and reality are two different things, recalling the recent arguments over whether the new casino (which we all so desperately want) should be a smoking or non-smoking venture, simply succumbing to the whims of a former party leader and other wise public officials.
