By Charalambos Pitros
The Cyprus real estate market is held hostage by the novel coronavirus, and its performance is going to get worse before it gets better.
The effects on real estate will vary and the extent of the effects will depend upon the duration of the pandemic, development of a vaccine, and how quickly we apply real estate measures.
When it comes to Cypriot real estate, most local experts do reassure public opinion that the real estate market will rebound by 2021.
However, without the provision of property measures, this scenario does not seem realistic.
To date, the only real estate-oriented measure that has been launched by the government is the 4-year subsidy of the interest rate (up to 1.5%) for housing loans with a loan value of up to €300,000.
The fact this measure is applied only for owner occupancy and up to the threshold of €300,000 spark concerns as to its potential effectiveness.
Moreover, for boosting confidence in an industry a combination of measures needs to be launched.
For this purpose, we propose five measures that if launched by the government within 2020, will provide grounds for a rebound of the real estate market by 2021-2022.
An exemption from capital gains tax for properties purchased in 2021
This effective measure was applied in 2015 and it was active until the end of 2016.
The potential re-introduction of this measure will act as an exceptional incentive for real estate investors and first-time buyers.
This tax-benefit should be also transferred from parents to their children for the subject properties.
Current discount in transfer fees to be 70%
The current discount in transfer fees by 50%, initially launched in 2015 is still active.
A further reduction of 20%, thus equalling a discount of 70%, will offer a better transaction environment.
4-year subsidy of interest rate to be extended
Similar help-to-buy schemes in other countries, like the UK, offer support for properties up to £600,000.
Extending the threshold up to €500,000 will make the programme accessible to a greater pool of candidate buyers and different types of homes.
Cyprus Investment Programme must be protected
This scheme is significant for the Cypriot economy since it has positively contributed either directly or indirectly to all sectors and professions of the economy.
Its immediate impact in 2017 and thereafter in 2018 and 2019 can be better understood when we recall that the programme has become really useful only after its updates of September 2016; when several unreasonable investment barriers were abolished.
For instance, in September 2016 the government abolished the provision of collective investment of €12 mln and replaced it by an individual investment of €2 mln.
This modification alone was sufficient enough to provide the Cypriot economy with the necessary boost for eliminating the pessimistic environment of 2013.
This reminds us of the need to shield this programme and the necessity to devote more attention and funds for improving it and introducing it to other continents.
Change the definition of an ‘old’ property
The current classification in Cyprus of an ‘old’ property is any property that is at least 10 years old. However, in other EU countries, this is not the case, for example, in France, an old property (exempt from VAT) is classified as any property that is completed for more than 5 years while other countries have different definitions and different thresholds of even up to 2-3 years.
By changing the Cyprus classification of an old property from 10 years to 4 or 3 years there are several benefits.
First, owners who bought or will buy a home with the reduced VAT will have the option to sell or rent their home well before the lapse of 10 years, without taking the burden of the onerous VAT policies.
Secondly, the developers will be able to sell their unsold stock in better conditions than otherwise. Finally, together with the increasing demand, all buyers will have larger property options and better quality of homes to choose from.
This measure will also smooth-out the negative effects of the existing VAT policies in the Cypriot real estate industry.
The above-mentioned measures are important for creating the necessary real estate conditions for sparking the interest in the Cyprus real estate.
By successfully doing so, we equivalently stimulate the consumption in all sectors of the economy, stabilise and reduce unemployment, minimize the risk of non-performing loans and all of their associate severe consequences and the government increases its revenues.
It is important to recall that back in the 2013 crisis the government introduced its ‘‘boosting real estate measures’’ very late, in July 2015 and September 2016.
However, despite that delay, it became immediately apparent how positively fast Cyprus real estate market responded to those 2015 & 2016 reforms.
The complications of coronavirus in our real estate market should not be underestimated and therefore collective real estate measures need to be launched immediately by the government to make sure that this time we don’t waste another 2-3 years of recession and low economic performance.