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Creating affordable rents

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There is a good initiative by the Cyprus Land Development Corporation (CLDC) to offer residential properties for rent at affordable levels.

The announcement by this public organisation and others (i.e., Limassol Municipality) to help with the difficulty that especially lower income groups face in paying high rent is noteworthy. However, the supply is not enough to address the problem.

In addition to this effort, I suggest my views on the matter.

  • No matter how good the effort of the CLDC is to help the situation by offering new units after 2-3 years for this purpose, it is impossible to satisfy the demand in terms of numbers and location in the immediate future.
  • The management of common expenses by the CLDC is a good suggestion, as non-payment and tenant misconduct or illegalities are a serious “curse” in dysfunctional tenancies and one of the main deterrents for interested income-seeking buyers.
  • For this public sector development to have any hope of economic viability and success, it needs large-scale developments in various areas; otherwise, this may result in the ghettoisation of development, similar to what happens in post-war refugee housing estates with the known results.
  • The private sector could, however, help in the above effort, and this should also include individual units wherever they are located. The market is available for apartments to rent or lease existing units from existing owners. In other words, why should existing owners not offer their units for rent if they know the collection of the rents will be certain and avoid the issue of the collection of common expenses?
  • The determination of the affordable rent can be based on a rate of 2-3% on the market value and/or the determination of rents by area or quality based on a pre-existing rent listed in the area. Further discussion is needed on this alternative.
  • The purchase of a rental unit subject to VAT should have the VAT reduced from 19% to 5%. However, in the case of a purchase for rent, the unit has an increased cost of 19% for VAT. Therefore, for an apartment of even 100 m2, the cost will increase by (100 m2 x €1,500/m2 x 19%) about €29,000, with an expected rent yield of 3% per year, and the rental cost will increase by about €75/month.
  • Immediate eviction for non-payment of rent/compliance with rental conditions within three months from non-compliance with the tenant’s obligations. There is now some progress for statutory tenants only, but what about the others?
  • Minimum rental period of at least three years with an annual inspection by the owner/CLDC for the property’s condition.
  • The terms of the rental stipulate the owner must cover insurance and maintenance other than natural wear and tear.
  • In the case of a purchase with VAT reduced to 5%, the buyer/owner will be able to sell the unit after the 8–10-year period and return the proportion of the saving to the state.
  • Units that will be offered for rent at an affordable rate, either as a project and/or as an individual unit, are to be automatically entitled to their extension by 10-15%, with immediate issuance of a title deed.

The CLDC has a very important role to play in this approach, whether it is their project or from third-party owners.

Allocation

The allocation of such units is to be independent from politics and other interventions and the applications for rent must be reviewed based on social criteria.

Of course, the issue will not be solved in its entirety, but this is a start with the involvement of the private sector and the increased supply that will be immediate.

The time is right for this type of investment.

Unfortunately, these numerous problems exist in the rentals (problems that the CLDC will take over), while the various subsidies received by (single) parents are likely to take advantage of the system.

There is the claim that it is not financially “beneficial” to rent to an (unmarried) couple with children, and there is blatant exploitation here.

A solution exists, creating a Deputy Ministry of the Interior with new people.

New people with non-political affiliations and with an appetite for work, who with boldness can attempt to provide solutions to chronic issues that remain unsolved for years.

I have expressed great displeasure about issues in the construction industry that respective governments, and especially the Ministry of the Interior, barely understand and, even less so, act accordingly to deal with the poor or improve the functioning of the real estate market.

 

Antonis Loizou FRICS –  Real Estate Appraiser, Real Estate Seller & Development Project Manager