CYPRUS: Tackling new drivers in real estate policy

7 mins read


Leaving behind the political turmoil and economic pessimism seen during 2010 – 2015, the message from real estate professionals is now clear: there are plenty of reasons to be optimistic for 2019 and 2020.

Real estate fundamentals remain strong, and global asset allocations to real estate are expected to continue. 

While political confrontations, the NPL situation and Turkish aggression can sometimes make us look inward, the liquidity, transparency and accessibility of the Cyprus real estate market, as well as the strength of opportunity in the Citizenship scheme, through Investment, continue to attract capital from overseas investors, and Cyprus remains a top five destination across Europe. 

Looking forward, housing affordability and its impact on business remains a significant impact factor for the real estate market, along with growing momentum towards environmental sustainability and the needs of an ageing population, which continue to fuel investor appetite in retirement and later living schemes, along with other alternative asset classes in Europe. 

We are at a crossroads of change with enormous opportunities presented by Big Data, smart cities and new technologies that are changing the way we live, work and play, fuelling trends in urbanisation and migration, and shifting the epicentres of business and population growth.

Taking advantage of these opportunities requires a shift in gear and a consideration of the new drivers of change impacting on real estate decisions.

The government recently unveiled a plan aimed at creating affordable housing for vulnerable groups of the population based on eight pillars, including the introduction of building incentives and simplified schemes for certain areas.

“The new, well thought out policies that will be implemented by the interior ministry and the labour ministry, as well as the land development organisation and the home financing organisation, constitute a comprehensive approach that will yield immediate results for targeted groups of the population but also gradually resolve the structural problems in the housing market,” Interior Minister Constantinos Petrides told a news conference.

Affordable housing is housing which is deemed affordable to those with a median household income or below as rated by the national government or a local government by a recognised housing affordability index.

Housing choice is a response to an extremely complex set of economic, social, and psychological impulses.

Subsidised housing is government sponsored economic assistance aimed towards alleviating housing costs and expenses for impoverished people with low to moderate incomes.

Forms of subsidies include direct housing subsidies, non-profit housing, public housing, rent supplements, and some forms of co-operative and private sector housing.

For affordable housing, there must be an in-depth understanding of the financial viability position of development proposals; the subsequent obligations and the affordable housing packages that these can support; and how this lines up with the plan requirements. 

The twin pressures of undersupply and affordability in Cyprus housing market has made a policy seeking affordable housing an inevitable consequence for the majority of residential development schemes.

It is therefore essential for landowners, developers and planners when establishing the feasibility of any scheme to understand what is required by the policies of the government and local authorities concerned. 

It is equally important for planning authorities to be assured that schemes provide an optimum level or mix of affordable housing.

Housing subsidies are a government's financial assistance to help provide housing.

The largest housing subsidy known is the home mortgage interest deduction, which allows homeowners with mortgages on first homes, and even second homes.

Some countries also have the mortgage interest deduction provision. Some housing subsidies are also provided to low income tenants in rented housing.

These subsidies are often defined by whether the subsidy is given to the landlord and then criteria are set for the tenants they can lease to or whether the subsidy is given to the tenant, typically as a voucher, and they are allowed to find suitable private housing.

The subsidy amount is typically based on the tenant's income, usually the difference between the rent and 30% of the tenant's gross income, but other formulas have been used.

When the government formulates the Action Plan, it must consider the following: 

· Countries and municipalities require transparent and effective systems for estimating housing needs and demands, and the consequential resources likely to be required for the construction of new supply and the improving of existing stock. 

· Affordable housing should be an essential component of any country or municipality’s housing system; in addition to delivering significant health, well-being and economic benefits to citizens unable to afford market prices, significant benefits to economic growth and productivity can also be identified.

· The Cyprus government should consider promoting the role of “Not for Profit “providers of affordable housing such as housing associations, co-operatives and publicly owned companies, not only for those unable to afford market prices, but also as a valuable mechanism for government to utilise at times when counter-cyclical investment measures are required.

· The need to improve domestic energy efficiency is a common issue throughout EU countries – in the context both of addressing and reducing carbon emissions and improving comfort and living conditions for citizens through well insulated homes.

· Affordable housing can also be provided by the private sector, but the term as broadly understood must also imply something about the costs, quality and standard of housing accommodation, and of landlord management services in rented accommodation.

· We may well require policy prescriptions which seek to redress a fiscal imbalance in favour of owner occupation, in taxation and subsidy terms.