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Settling in Cyprus:

Settling in Cyprus

Overcoming the Economic Crisis

For many British expats in Cyprus, or those still contemplating a move to the island, the dream of settling into a new-build home has been a powerful draw. For most of the first decade of the 21st century, the Cyprus property market was healthy, with a particular focus on selling homes to UK citizens. This was a vital sector of the economy, contributing to an overall picture of health, with the construction industry alone contributing 8% of Cyprus’s GDP in 2011. In the years leading up to the international banking crisis, property prices continued to rise, although since then the industry has felt the cold winds of recession with decreased sales and plummeting prices. However, this opened up the market to investors who were able to take advantage of the slump to accumulate a good property portfolio with an exceptionally low initial outlay in the hope of profiting in the long run from the inevitable recovery.

Decline and recovery

After the slump in the UK economy, the property market in Cyprus became more reliant on Russian investors, who now make up 38% of foreign buyers, although the British sector still accounts for 47% of the total. Many British expats with plans to build property in Cyprus had their fingers burnt after the financial clampdown enforced as part of the bailout process imposed by Eurozone finance ministers. Many people with deposits in the Cyprus Bank and Laiki Bank found that they had lost any savings above €100,000 as part of Cyprus’s contribution to the bailout deal. Nobody was allowed to take more than €1,000 out of the country and daily withdrawals from cash machined were restricted to €300. This was a necessary discipline. In a speech at the ECON Committee Hearing on the Troika Report in January 2014, European Vice-President Mr Olli Rehn described some indications of recovery in the European economy that gave an encouraging picture for the coming year, and the importance of the European bailout strategy that has ‘followed the approach of extending solidarity in return for solidity.’ Financial support from the EU alongside harsh local austerity measures seems to have averted total economic collapse.

Changes in the property market, with a fall in sales to Cypriots but a growth in sales to foreign buyers has prompted forecasts of a general improvement during 2014. For many, this has been a long waiting game. During the property boom of the first decade of this century, new villas seemed to be springing up all over the island; it was almost as if you could wake up each morning, look out of the window and find that a new batch had altered the view. This couldn’t last, and when the bubble burst many people became mired in legal arguments over land ownership or planning infringements, which could make the obtaining of a title deed a matter of many years of argument and heartache.

The aim of the 2011 Town Planning Amnesty was to stimulate movement towards a resolution of the crisis, where it was estimated that around 130,000 properties were subject to these sorts of delay. House owners were allowed to legitimise a range of minor planning infringements by a fine only if no third parties were affected, if violations of statutory building ratios were exceeded by no more than 30%, or state property was not encroached upon. In cases of excessive flouting of the regulations, owners were prevented from profiting from the sale of the property, their only recourse being to make a bequest in their will. In 2012 the amnesty was extended for another year, and it has now been extended until 30 April 2014.

New incentives

In Cyprus, the tax advantages, excellent heathcare services, quality of life and low crime rate continue to attract property buyers from overseas. The ease in obtaining a residency permit and the incentives designed to encourage investment by overseas buyers stimulate interest from outside the EU. These include eligibility for an immigration permit if the value of the property exceeds €300,000, which is equivalent to a residency permit to EU citizens. These incentives are designed to stimulate the economy: each property buyer is required to have a secured income earned outside Cyprus of at least €9,568 plus an extra €4,613 for each dependent. Cuts to VAT on new homes from 17% to 5% made in 2011 have been extended to cover the purchase of second homes by buyers from outside the EU. The abolition of property transfer fees in the same year has been extended until 31 December 2014.

Alongside growing confidence in the recovering global economy and a Cyprus housing market already set to improve over the next year, the news on mortgages is encouraging. During the property boom, many British property buyers applied for Swiss franc mortgages in order to take advantage of that currency’s stability and low interest rates. The financial crisis ended that particular dream, increasing the Swiss franc’s value relative to the pound, so that property values fell by as much as 50% while mortgage repayments soared. Consequently, under the 2012 New Limitation of Actions Law, British investors were given until only 31 December 2013 to file claims against developers and lenders. The good news is that this deadline has now been suspended, with a review unlikely before December 2014. Mortgages are now available at a loan to value ratio (LTV) of up to 75%, compared to 80% before the 2012 financial crisis. Choosing a lender always requires careful research into the various mortgage options, and this is certainly true in the current economic climate, despite the various indications of a recovery.

The Cyprus government has also begun a review of the island’s system of property taxes with a view towards consolidation and simplification. The Cyprus Land and Building Development Association’s recommendations for change include a system whereby property owners would be taxed after signing the contract of sale, rather than after the title deeds are issued. This would mean that the buyer rather than the developer would be taxed, which should further stimulate the building sector. Another recommendation to give a 10% discount on tax payments made on time, and a further 5% discount for electronic payments, should speed the process.

Increased investment opportunities have come with the recent signing of an agreement between the UK and Cyprus governments that lifts restrictions on the development by Cyprus residents of private property within the UK Sovereign Base Areas at Dhekelia and Akrotiri. Cypriots were previously unable to make changes to any property owned within these areas. Under the new agreement, Cypriots and UK citizens have the same property development rights, subject to certain safeguards protecting the UK’s military interests. The agreement covers an area of about 198 square miles, or 78% of the base areas, overturning the 1960 Treaty of Establishment that restricted the land to agricultural use only. Most of the affected communities welcomed the move, although there has been some scepticism about whether residents would be allowed a free hand in developing their property. However, President Anastasiades welcomed the agreement as a ‘prompt and decisive’ move in helping Cyprus to recover from the financial crisis.

 

Settling in Cyprus, Larnaca, Paphos, Limassol, Ayia Napa, Protaras

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