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The subject of subsidence has troubled the Cyprus real estate market for several years with no easy solution to be found. In a previous article of ours we raised the issue who was responsible for the damage.
The developer, the contractor, the supervising architects/engineers and/or the Government who approved the development plans? Not an easy subject to address and at the end those who bear the burden, the buyers, are the least at fault, but then who is?
We came up with one solution of compensation, but with the main goal to offer some sort of compensation/relief to the unfortunate buyers, but without any major cost to the Government.
Our Suggestion
For those buyers who have suffered serious damage to their homes which become uninhabited and provided the damage is not covered with insurance (if so we refer to the balance of the reinstatement cost) we suggest.
The houses to be demolished but the land to be retained by the existing buyers.
The building density that the existing plots have, to remain in the ownership of the buyers, who can sell it as such to any location in Cyprus.
No capital gains etc to apply in such cases in the event of a sale.
The density to be transferred as is with no adjustments in the sales value giving those buyers a head-start against others (preserved buildings etc).
If redevelopment is undertaken by a new buyer, who will be called upon to finance the repairs/reestablishment of the land and build a new house, the new buyer to be exempted from local property taxes for 5 years.
Legal issues regarding the developers/architect’s negligence etc (save that of the Government) to be an additional right of the original buyer.
It needs a lot of discussion, but it is a start. The above assumes that the buildings are erected based on an issued building permit and any illegal structures/extensions are to be ignored.
So, in a case that the house plot is around 200 sq.m. and the building on it is 150 sq.m. we will have the following financial picture (a theoretical example).
Land plot to remain in the buyer’s ownership say at a value of €50,000 (as is).
Sale of 150 sq.m. of building density at a fixed rate of;
€1.000/sq.m. = €150,000
Total income (+ €50,000 land) €200,000
Tax benefit (??) €20,000
Total compensation €220,000
In this way the Government will possibly give a solution to a chronic subject, which touches a humanitarian problem. As we have recorded, this is a start since there are a lot of circumstances to consider, such as if a project accommodates 10 units but only 3 of them are damaged, but if the infrastructure is destroyed how is the compensation going to be calculated? Who will pay for the infrastructure cost etc. If a house is partly developed (?).
Food for thought?
