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By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate & Project Managers
The investment-for-citizenship and residency schemes are undoubtedly the best thing that could have happened for our economy, in particular for the construction sector. Probably this scheme alone has helped revive the economy, followed by an increase in tourist arrivals.
The scheme for visas and passports have secured income of about EUR 1.7 bln, according to the Interior Minister. This is excellent news because we have an increase in revenues, especially from the long-term and high-income visitors, while additional numbers of tourists get to learn more about the country and look for investment opportunities, such as Chinese buyers, investors in hotels, etc.)
The activity by foreign buyers is also evident in the mote vehicles market where demand for expensive cars has risen and some are even on a waiting list.
However, I am concerned that a number of property developers are dependant on the visas-passports scheme, while at least 250 units are in the pipeline in Limassol alone, with more in other towns. I hear that the number of Chinese buyers in Paphos has already reached 1,500, creating a new state of events, but we should be aware so as not to reach the other extreme, where Canada, for example, has now put a cap on permanent residencies for Chinese.
Considering that in recent months and years at least 300 units have been sold under the ‘investment for citizenship’ scheme, and that 250 more units are available for sale in Limassol, this means that we already have a supply of 550 units. These buyers/investors then have the right to sell their properties three years down the line, but it is still not clear if the countdown starts from date of purchase, delivery or transfer of deeds.
So, in three years from now, and with the additional supply of new projects, my concern about the constant supply in relation to demand is valid. Beyond that, our ostrich-mentality has also raised alarm bells within the European Commission that has already issued warnings about overdoing the scheme.
Fortunately for us, the numbers are limited, for the time being, but I am equally concerns that some day soon this scheme could be abandoned under pressure from the EU.
Because the large-scale projects rely mainly on the residency and citizenship schemes (marinas, golf, resorts, malls, etc.), it is not clear what the end of it all will be if the scheme is abolished. As a result, both the developers as well as their lenders should keep in mind that in an effort to minimise the impact from such a possibility, that this holiday cannot continue forever.
This euphoria may be justified, for now, but is considered as a general rule by many, even though demand is clearly local and focused primarily in Limassol. At the same time, there is a new trend starting in Nicosia to build high-rises the likes of which we are seeing going up in Limassol, but time will show if there will be any demand for these. Developers are basing their enthusiasm that prices in the capital are in the range of 3,500 to 4,000 euros a square metre, which is half that of Limassol, but this will probably not last as the handful of sales, mainly by the developers themselves is not proof that the Nicosia market is enjoying signs of demand.
Of course, we also have the age-old problem of common expenses, with those that are not paid (mainly by locals) will also end up in poor maintenance of such high-rise buildings of 20-30 storeys, as a result of which the negative image will be worse and cannot be hidden.
It’s a shame that all Ministers of Interior throughout the years have not focused their attention on this matter that is troubling a lot of buyers, mainly the good payers who are suffering because of the many bad apples who do not pay expenses in time (or ever).
In addition, a potential solution to the Cyprus problem will also bring the property market upside down, while the introduction of the residency and citizenship investment schemes in the Turkish component state will have a direct impact on the Greek component state.
Let’s make it clear that these well-to-do buyers have significant levels of wealth and must not be confused with the well-to-do locals.
Don’t forget the benchmark Big Mac Index that estimates cost and standard of life per country. If we adapt our own local benchmark and call it the Souvlaki Index (5-6 euros per take away portion), consider that whereas the local consumer will order a meal at a restaurant with a simple starter, a typical Russian family on the next table will probably order four times as much, which is also an indicator of wealth.
This is just to argue that it is not only the cost of purchase of a property that should be considered, but also international benchmarks for relevant products and services, such as availability of luxury boutiques, quality restaurants, etc. that may be suitable to our pockets, but we don’t know if it is satisfactory to foreign buyers.
Under the circumstances, we should try to protect the measure and not overdo it with the residency and citizenship schemes, before we get carried away and lose the game altogether.
