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This never-ending question i.e. to buy or rent, comes up all the time. It is a question that most young people with limited funds as well as other buyers require to address from time to time.
It is evident that when one buys real estate, the rental payable is saved and as the local saying goes, “you do not throw the rental money down the drain”.
Financiers under the present circumstances require own cash contribution which could amount to 30%-50% of the total cost, an amount not readily available even for an ordinary apartment of say €200,000 (unless the parents contribute) plus the annual Municipal and property taxes, that are attached to ownership etc.
In some cases, these taxes on the ownership could amount to the equivalent of up to 10% of the rental income.
At the same time, with the variable interest rates on loans (if one is lucky enough to secure one) interest charges could amount to the rental level if own contribution is e.g. 25% or less.
At the time when loans were easily available and when capital appreciation on real estate was 5%-8% p.a., the acquisition Vs rental made some sort of sense in financial terms.
Local interest rates (see UK) on housing of around 2.5%-3% (depending on own contribution) the loan instalments could amount to a level lower than the payable rent, but again the down payment is a problem.
As circumstances are at the moment and with the low resale prices, the pending foreclosures and the job insecurity that prevails it could be that rental is to be preferred at least until the market stabilizes.
On the other hand, it is an attraction for Cypriots acquiring an asset (75% of the locals own their homes) which could be sold in the future, mortgaged for future needs and of course passed on to the children (the dowry tradition is not gone yet).
It is interesting to note the following statistical data prepared by RICS (Cyprus) which although not 100% correct it provides an indication.
|
|
Return p.a. |
|
Apts |
4.30% |
|
Houses |
2.20% |
|
Retail |
5.50% |
|
Offices |
5.10% |
Return based on market value Vs rental income
In the “good old days” with the deposit rates at around 5%, it made more sense to rent (but see the loss on capital appreciation). Nowadays with deposit rates at approximately ±1% it means more attraction to buy (the 30% deduction for tax from deposits income in addition).
What one will realise is that in most cases it makes also more sense to buy something ready (e.g. house) as opposed to build.
Prices are now at a level below their construction/replacement cost, whereas asking prices are usually concluded at a discount, the level of which depends on the financial need of the seller (the Banks sales in addition at most attractive prices and finance to go for worthy borrowers).
Buying benefits for buyers, is that one can contribute towards improvements/ maintenance of the unit which adds or maintains its value, not having to put up with at times objectionable landlords and having always the possibility of being asked to go/or to be subjected to unreasonable rental increases.
On the other hand, and looking at the medium term, there is not much supply for rent that one can pick and choose and move out if circumstances change.
What appears to be an emerging buy-to-rent market in chosen holiday villas on/near the beach of the 3-4-bedroom type especially in the Protaras/Famagusta/ Paphos area which is becoming more and more popular with tourists and seasonal visitors (we have addressed this tax-free housing income in previous articles).
In order to assess the yield/return/net income of one property, please bear in mind the following:
Gross income €xxx
Less Common expenses Paid by tenant (or include in the rent-better)
Property and Municipal taxes Landlord
Sewage taxes Tenant
Maintenance (minor) Tenant
Repairs Landlord
Insurance Landlord
Periodical upgrading Landlord
So, the net income could be much less than the quoted returns above, especially bearing in mind the unforeseen expenses (the non-payment of rent by tenants and vacant periods apart).
Those who decide to buy must bear in mind that their finances should have some sort of room for elasticity from the costs involved.
This is important bearing in mind the still high unemployment rate (down from 16.7% to ±10% when originally 3.5%) and the insecurity of long-term employment which now plays an important role in order to assess the sustainability of one’s income and capability of loan repayment.
