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By Antonis F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents
Over the last year, the first skyscrapers appeared in numbers on the Cyprus horizon and I must say that in total they are quite impressive.
The fast rate of sale, which in most cases is in cash without loans, is encouraging others to follow. As an estimate of what there are in the market and those in the pipeline in the immediate future, there are a total of 1,000 apartment units all over Cyprus. The vast majority of these buildings are in Limassol, but two more are under way in Nicosia (and one pending), as well as one in Paphos and one in Larnaca.
These buildings, impressive in appearance as they may be, offer top luxury accommodation all with modern conveniences and include common facilities such as common internal pool, restaurants/cafes, ample parking, 24 hours concierge service, etc.
Lovely so far, but then who will manage these buildings in terms of the maintenance, administration, the collection of common expenses, etc, which we estimate at an average EUR 1,000-1,500 per month per apartment unit under a rotten common expenses law which cannot be implemented. For this type of property, the situation will get worse since the buyers of such units (99% are foreign), who may most likely not live in them, is doubtful if they are going to pay and maintain the projects.
The question is, is there such a demand to absorb the 1,000 presently available units, plus another 500 or so units which will come into the market over the next couple of years? In this respect (high-end foreign buyers) there should be alternatives combined with other pending projects such as the Larnaca-Paphos marina (to be), the golf courses (huge supply) and other type of properties.
Living in a small isolated island, it appears that we might not appreciate what we have and not appreciate how others see us, and the wealth that foreign investors have and be prepared to invest. Looking at office rents in Limassol reaching EUR 30/sq.m. p.m. (the average top in Nicosia is EUR 15/sq.m., Larnaca EUR 8.0/sq.m. etc) it seems that we are not well informed of the financial ability of foreign investors.
It is true that the plight of others helped us so far, with the attraction being the investments-for-passports and visas schemes, as well as a unique taxation system that we have. Will this huge supply generate enough demand for the next 3-5 years for all these units to absorbed (and provided of course no new ones come into the market at any significant rate)? We are all very happy (as part of the real estate economy) with this state of affairs, but we have to look a bit ahead in the immediate future and not hide our head in the sand.
– The passport measure is now under revision and although it will not stop, it will be more difficult to secure passports/ visas with loads of information required from the buyers and with an oversight committee.
– The tax situation (as the passport issue) is under scrutiny by the E.U. and if our advantageous tax system is harmonised with the remaining E.U. countries (as is the E.U. goal) we stand to lose another part of our attraction.
– The Russian government is taking all sorts of measures to attract repatriation of Russian capital and although we expect that it will not succeed (due to its political situation) to an extent, it might have its appeal to some large investors.
As a result of the above danger, a recent announcement by the Planning Department, be it at its initial stage, that such future high-rise developments is a policy to be reconsidered, should be seen as a warning, although it will cause a rush of applications by others to climb on the golden wagon.
Prices for such residential units range from EUR 5,000/sq.m. to 15,000/sq.m. with the lower end being in Nicosia. Are the investments, however, going to be sustainable in terms of value and rental income? If an apartment of 2 bedroom has a sales price of EUR 1 mln, who is going to pay the rent for say EUR 3,000 p.m. plus common expenses in total say EUR 4,500-5,000 p.m.?
At this point of time suitable land owners, accountants and lawyers who deal with this sector of the market, are having a good time (but not for long) and cautions is required. So as not to have a new situation similar to the post-2008 period with the oversupply and especially the 2013 banking meltdown, we have suggested measures and we repeat our idea of having a quota system for such developments in various regions and locations which will help the even distribution of this unexpected wealth in all towns (with special attention to Nicosia and the mountain resorts).
Because we live on our little island, we seem to ignore the political situation. It will only take a small episode to scare away investors and buyers, let alone the tourists and we dread to think what will happen by extension to the industry (if a small conflict episode happens – such as the tension now with the gas discoveries).
If we refer the old testament regarding another historic skyscraper (the Babel Tower) where “one” enthusiastic “developer” at the time aimed for the sky-god, we know what the result was – punishment due to greed.
