Cyprus’ Land Development Corporation (KOAG) has raised more than €20m by selling additional building density to property developers. The money will be used to build 250 residential units, which will either be offered at affordable rents or sold at a reduced price of €1,650 per square metre.
For an 80 sqm flat, the expected purchase price would be about €132,000. That compares with more than €180,000 for similar-sized flats in some parts of Cyprus, depending on the location.
Developers can pay instead of providing affordable homes
The €20m has been raised under Cyprus’ Affordable Housing Units Management Scheme. The scheme allows developers to increase the permitted building density of their projects. In return, they are normally required to provide some homes at affordable prices.
Some developers have instead chosen to pay the value of the additional building density they received. This allows them to sell all the homes in their developments at market prices while avoiding the obligation to provide discounted units through KOAG.
The option may appear more expensive at first. However, rising property prices mean that some developers see a financial advantage in paying the contribution and selling all their homes at market rates.
147 affordable homes expected from the scheme
Developers who use the building-density incentive and meet the affordable housing requirement are expected to provide homes for sale at €1,650 per sq m. KOAG estimates that 147 units will be created through this part of the scheme.
Affordable rental homes will also be offered at a discount. Rents are expected to be 30% below the average market rent in the area, based on market assessments by the Department of Lands and Surveys.
KOAG will also rent out its own homes at 30% below market levels. The organisation is considering an even larger discount in Limassol, where rental costs have risen particularly sharply.
Limassol rents could be cut further
The situation is particularly difficult in Limassol, where rents have risen sharply and many households are struggling to find suitable accommodation. KOAG is therefore considering offering some of its homes at an even larger discount.
The organisation’s director general, Eleni Simeonidou, said the possibility of a 40% reduction was being considered for Limassol. She said the city had its own particular housing pressures and that the level of any additional discount would be decided later.
KOAG is also considering allocating more of its new homes to affordable renting rather than affordable ownership. The reason is straightforward: some households cannot afford to buy a home, even when the property is offered below prevailing market prices.
245 homes are already being built
KOAG currently has 245 residential units under construction. A further 100 units are intended for affordable rental, while the organisation is also expected to make use of 135 plots of land.
KOAG has been looking at different ways to reduce the cost of delivering affordable homes. One option was to buy partly completed residential and tourism developments that had ended up with banks and property management companies.
However, the idea did not move beyond the planning stage. Some of these developments had planning permissions that had expired many years ago. There were also questions about their structural condition and whether they had been built to the relevant earthquake safety standards.
In some cases, demolition and rebuilding could have been necessary. KOAG concluded that starting new developments would be more economical than trying to repair or complete problematic buildings.
Affordable rental homes planned in Strovolos
KOAG has bought land from several property management companies at relatively favourable prices. The sites are in Strovolos and will be used to build affordable rental homes.
The organisation also considered buying good-quality prefabricated homes, but that option was eventually rejected. One advantage was that planning approvals could have been obtained around six months faster than for conventional buildings. However, construction costs would not have been significantly lower, so the proposal was abandoned.
KOAG becomes a key part of Cyprus housing policy
KOAG has become a central part of the Cyprus Government’s housing policy. The organisation, either directly or through its supervision, is involved in delivering many of the state’s housing programmes.
The Government is also relying on planning incentives to encourage private developers to increase housing supply and contribute to the affordable housing market.
Government targets 10,000 new homes
Interior Minister Konstantinos Ioannou recently told MPs that government housing measures and planning incentives could help lead to the construction of 10,000 new residential units.
The target includes homes delivered through state housing programmes and developments by private-sector companies using government planning incentives. One of the measures allows building density to rise by up to 45%.
So far, 47 applications have been submitted under the scheme. They represent more than 2,500 residential units, including around 400 affordable homes.
Developers who do not want to provide the affordable units can instead pay an amount linked to the additional building density they receive. The contribution was initially about €17m but has now risen above €20m.
Thousands of homes could enter the market
The Government has also highlighted its fast-track planning approval programme. Approved schemes include 930 apartment buildings and around 3,000 houses.
If each apartment building were developed with the maximum 20 flats, the potential number of new homes would be much higher. Even using a more conservative estimate of 10 flats per building, the programme could result in around 9,300 new apartments.
Together with the 3,000 houses, that represents more than 12,000 potential new homes. The figures underline the scale of Cyprus’ effort to increase housing supply and make homes more affordable.
For KOAG, the immediate priority is to deliver new homes at prices and rents that are below the increasingly expensive private market.
