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Investing in Cyprus property is a risk worth taking

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By Antonis Loizou

As bank deposit interest rates are going down (now ½% – 1%) but more importantly with the expected negative charge on them, the rumours prevail about the sustainability of local banks.

A sharp increase in rents over the last couple of years for residential units has directed investors towards real estate for income.

At present the prevailing returns are as follows:

Apartments        3%-4%

Houses                 2%

Shops                    5%-6%

Industrial units  4%

Hotel projects   10%

To clarify, the returns (yields) in this context refer to the value/acquisition cost of a unit in relation to the total overall gross income.

Unlike other countries, in Cyprus, the gross returns are adopted and not net (i.e. after expenses/ taxes/void periods) are taken into account.

These returns also relate to the eviction/repossession of statutory tenants (i.e. buildings completed before the end of 2009 and it refers primarily to municipal areas/towns).

This is a serious problem since eviction/increase of rent cannot be easily obtained and it requires time and cost to succeed.

A pending proposal on the statutory tenancy is now under review at the House and we expect that to an extent, landlords will be spared lengthy legal procedures/cost that is currently required.

The new enables evictions for non-payment of rent to be processed within 1-2 months via an application to the court registrar.

Rental income must also take into account the common expenses (if any) which relate to comprehensive development projects since the payment of such common expenses has been difficult causing all sorts of problems.

This quite serious issue is upsetting free market transactions, causes animosity amongst co-residents and on many occasions leads to buildings falling into disrepair.

A government proposal has addressed the issue of the common expenses and we hope by the end of the year (2019) or early next year, a more workable solution will come into effect.

The popular Airbnb way of lettings produces a good income, but it requires on-the-spot management and increased hassle.

The buy-to-let price for these types of units has increased considerably over the last couple of years and it is still on the up.

Again, a new proposal to regulate these short-term lets is under discussion at the House, but the measures suggested are lukewarm and as such we do not believe that it will make any serious difference to their existing unregulated operation.

A slump in the real estate market from 2008-2016 saw a lack of new developments and the depression of prices.

This did not encourage the construction of new projects of a suitable nature, leading to a shortage of supply with rents (mainly for residential) increasing by around 30% over the last 2 years.

This increase is not related to high-end units, however, whose market demand comes mainly from the foreign buyers with no predictable time frame.

As the economy improves, allowing banks to provide more loans in the market, demand will increase soon, sustaining the prevailing level over the next few years.

Regrettably, our past experience with the Cyprus Stock Exchange bubble, scared away investors, basically leaving real estate income as the only “solid” alternative for such investors.

Nothing is certain for any type of real estate investment and careful monitoring of the property market is needed.