Rising rents, and the lack of supply of apartments for rent, do not resolve the problem but will impact the market’s future.
This causes issues for Cypriots and makes it difficult to attract foreign residents, such as high-income managers, staff mainly for the casino (500 expected), and hotel workers.
Adding to the unsatisfactory issue are the students who may have the most financial disability to respond to rising rents.
These and other issues regarding rents (e.g., evictions, tenancy) are an obstacle to the development of the economy; while the government aims to attract international students, a skilled foreign workforce, and host Europeans/ Ukrainians, due to the prevailing situation, it cannot be achieved.
We need to increase the supply of rental units since, in capitalist economies like ours, rent levels are determined by supply and demand.
How do we increase the supply using the private sector, which is the only one that can help mitigate the problem?
Both the Land Development Organisation and the various municipalities that try to offer cheap rents by offering municipal units not only have limited supply possibilities, but they will soon face problems, both in the distribution of the units and in their management (i.e., possible evictions).
An example to avoid is the refugee housing estates that, after transferring the units to the beneficiaries, have huge compliance problems with the management regulations.
The effort of the LDO and the municipalities is certainly welcome.
Although it is presented as a solution, the future of these units, based on our experience, is not rosy and will cause more problems than those it tries to solve.
In order to increase the supply, incentives are needed, which, however, must not burden the state budget (the easiest mistake is the provision of financial assistance, grants, and subsidies, even in particular cases).
Perhaps it could start with, e.g., 1,000 applications for a subsidy, but most likely increase to more than 10,000, with constant pressure to satisfy as many as possible applicants based on political pressure.
We recommend the following:
- Implementation of a new scheme covering residential units/apartments for rent in new or existing units in such applications that will be submitted by the end of 2023 and for new ones that may be erected after that until 2027.
- Projects with this goal (rental) are entitled to an increase in the building coefficient by at least 20% from the prevailing zones and a reduction of the requirement for parking spaces to 50%.
- Units erected for rental purposes have 5% (instead of 19%) VAT on the construction cost, with the condition that they will not be made for sale for 10 years. The difference shall be returned pro rata if sold within this period.
- The so-called minimum areas for renting should be reduced by 30% from the current requirements.
- The units that benefited by these measures should refer not only to new projects but also to individual existing units, which will encourage private projects that can be achieved by expansion.
- Because there is enough land for new developments, we do not believe there is an issue of lack of space/plots. With the low deposit interest rates and lack of alternative investments, it is an opportunity to attract foreign investors (see investments from Israel and developments by companies to offer the house for their employees).
- In areas where the shortage issue is particularly serious, tax incentives may be offered for five years in addition to incentives (even a 30% tax reduction depending on the shortage in the area).
- Student residences failed to attract investors due to the inaction of the authorities to help (not money), while various suggestions that are made from time to time (such as the use of hotels, private room rentals etc.) are a band-aid solution of a serious situation that is getting worse.
- The social problem of non-payment of common expenses, which is an obstacle to supply, is well known. Therefore, I recommend that new units for rent be exempted from the protection of the law with immediate eviction three months after the debt.
I hope the would-be presidents of the Republic will take these suggestions seriously.
By Antonis Loizou FRICS – Antonis Loizou & Associates EPE – Real Estate Appraisers, Real Estate Sellers & Development Project Managers