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By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents
There is a lot of theoretical debate on which is more beneficial – to build or rent governmental offices or even buy ready office buildings in the open market?
Some uninformed reports blow up the rental payment out of all proportions in the sense that the government is spending EUR 26 mln p.a. in rents. In order to examine whether this amount. is a waist of money or not, or whether this amount should be invested in own-government buildings, one must examine the following parameters.
The case of building own offices
Office are usually built on government owned land, but there is the impression that since it is governmental land it costs nothing. So in order to have a correct cost estimate, the land value should be included in the cost.
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Once the government decides to build its own buildings, it goes out to tenders regarding architectural design competition, which in addition to the large time that it takes to decide which design is the best, it usually ends up in court, by disputing architects, as the so far experience has taught us and it will not be an exaggeration to say that 1-2 years at least is needed until the final decision is made on the design.
Such architectural competitions require the architects to estimate the cost of the building, which must not be exceeded. Alas, 100% of the cases are underbudget (not a single project is within budget at the end) and the architectural competitors at the end bear no responsibility.
The case to rent existing buildings
This is more straightforward, if a suitable building can be found. The building is there, the rent is there and the quality/services are there. Easy. It is difficult to find, however, suitable buildings both in terms of location and size.
Renting a building is usually for a fixed period of five years with the tenants/ government having two options of five years’ extension (total 15 years).
The landlord usually maintains the responsibility of paying the ownership taxes, the maintenance and repairs, and updating of facilities.
As technology evolves, electrical and structural installations need to change, so if the government leases a building and if the above are out of date by the end of the lease, it can move out (as opposed to own building).
Renting a building implies also that the tenant pays for the income tax and other taxes, so at the end the government gets back part of the rent.
As circumstances stand and since the government borrows on a long term basis with interest of 3% p.a., it is logical to compare this with rental level to be similar to the 3%.
Buying Offices
Buying ready offices is another option if these can be found. A case in hand now are the offices of the ex-Co-Op which has properties in all towns and some of them could be suitable for the purpose. Since the government is now the owner of these buildings and instead of buying/renting, one should consider allocating such buildings for governmental use.
Let & Sell
Another option is for the government to lease on a long term office buildings and then based on the rent, to sell the same to investors. In this case the government could reap (e.g. Co-Op) a considerable amount of which it has invested.
Vacant Land
If one is not to adopt any development, but to use cash for new/improvement of buildings, some of the governmental land could be sold provided the cash goes towards offices/other development (e.g. the new Nicosia Museum). This might sound objectionable to many, but then it is part of Troika requirements to sell governmental land in order to reduce the government debt.
BOT
The BOT (build-operate-transfer) alternative is an option, where the government owns the land and seeks tenders to erect a building with a long term repayment. Such an alternative reflects the overall specs, the design, delivery dates, fixed cost/rent, etc.
Whatever alternative the government chooses, there are always irregularities that are notable to the public eye which must be taken into account.
· – Corruption for the governmental competitions.
· – The con job of the cost overruns and delivery delays.
· – The various reports recorded in the press, on pre-determined specifications and locations in order to favour certain developments/owners.
· – A couple of reports regarding direct purchase suggest serious irregularities as reported by the Auditor General.
So, it is not a clear cut case and the various alternatives should be compared against each other.
