Construction costs hike threaten recovery

Kyriacos Kiliaris
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Construction costs hike threaten recovery

Real estate and construction stakeholders want the government to soften the blow delivered by an “abnormal” increase in construction costs, warning that development could screech to a halt.

A leading developers’ lobby group has warned the government that many projects will be put on ice if action is not taken, halting the country’s recovery following the coronavirus outbreak.

In comments to the Financial Mirror, Secretary of the Federation of Cyprus Building Contractors Associations (OSEOK) Yiannos Poumbouris said there is concern over rising costs of construction, as they argue it will not come down any time soon.

OSEOK believes the construction industry is at a tipping point despite its signs of resilience, as they cannot absorb the shock delivered by the price increase in building materials.

“Building in today’s conditions is at least 20% more expensive after the recent hike in diesel prices, and an increase in the cost of transportation of raw materials caused a domino effect on every material used in the construction sector,” said Poumbouris.

He recalled that crude oil prices have shot up around 80% since October 2020, while the cost of bringing a container has closed in on €18,000.

“What this all means for Cyprus is that the sector will take another blow, with a number of projects in the pipelines being put on hold, while buying real estate will become even more inaccessible for some people.

“When it comes to ongoing projects, contractors will be faced with a serious problem as the majority of units have already been sold. As a result, contractors will have to shoulder the increased cost.”

He said the same should not apply for projects awarded by the state.

“Developers undertook these projects under very different circumstances and had no way of predicting that prices would follow such abnormal growth.

“The state should take action by either extending the deadlines for projects without penalties or finding a way to compensate contractors for the increases.

“Unfortunately, the government does not seem willing to help out contractors by allowing extensions to projects”.

Poumbouris said the government could alter VAT regulations, allowing contractors and developers not to pay tax on building materials immediately but to roll over the VAT to the final consumer.

“At the end of the day, the state will not be losing out, as the VAT would be returned to us after the sale. This is a necessary step to boost liquidity in the market.”

State subsidies

The Technical Chamber of Cyprus (ETEK) – an advisory body – calls on authorities to step in as the increase in construction costs will bring about more inequality.

“Buying a property will become inaccessible for some people, especially young couples looking to buy their first home,” said the chair of the chamber Constantinos Constanti.

ETEK is putting forward a 10-point proposal to the government, which they will discuss with Transport Minister Yiannis Karousos and Finance Minister Constantinos Petrides next week.

Constanti argued the government should take initiatives to compensate for the market imbalance.

“The state should extend interest rate subsidies for the acquisition of a primary home, ending at the end of 2022.

“Furthermore, the government should reintroduce grants for couples wanting to buy a home in the rural areas.”

He also argued the state should expedite approvals of the incentive scheme introduced for people who want to upgrade the energy efficiency of their homes and businesses.

Constanti said the government should also be looking into helping out lower-income families who had to abandon building a home because of the pandemic and costly building materials.

“The state should take the initiative and inform the banks of these cases and instruct them to be more lenient when it comes to issues like credit extension or handing out a larger amount of money than what was initially estimated with more favourable terms.”

There are fears that a construction slowdown will have a knock-on effect in other areas of the economy.

He added that developers should also be supported by early VAT returns and not pay VAT on raw building materials they import.

“This measure should be extended to all construction projects, and not just for the construction of a primary residence.

“The government should also be considering other targeted tax relief measures for developers.

“Developers are hesitant to launch projects for which they have already received licenses.

“If no initiatives are taken or relief measures, the situation is expected to worsen in the coming months, with social implications and an impact on economic activity and employment.”

Inspecting resale properties – part 2

Nigel Howarth
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Inspecting resale properties – part 2

In the first article, I gave some general advice on viewing resale properties. In this second article some advice on checking out their location.

When inspecting resale properties (or any other properties), the first thing to check out is their location and the general condition of the area and neighbouring buildings.

Location is perhaps the most important factor to consider. As well as being Channel 4’s prime-time property programme, “location, location, location” is a common mantra in real estate. But a ‘good location’ means different things to different people; it all depends on your personal needs and preferences. Here are some things to consider:

Visit the area at different times of the day to check out the general environment and conditions and see what local amenities are on offer.

  • Is it a noisy area?
  • Are any farm animals kept nearby? Is their smell likely to be a problem?
  • What is the condition of neighbouring properties?
  • Is there any industrial activity or construction work nearby that is likely to cause a nuisance?
  • Is there land nearby where something could be built at a later date?
  • How close are local amenities such as shops, doctors, dentists, etc?
  • Is there any public transport nearby?
  • Are the local roads good and what are the local traffic conditions (peak and off-peak)?

If you’re looking for a permanent home, restrict your search to resale properties in residential zones. (Properties in tourist zones are usually bought as holiday homes or investment properties for holiday rentals; many are empty outside the main tourist season and you may not have permanent neighbours and some tourists can be noisy.)

Take time to look around before deciding where to buy. Don’t get caught up in the romance of the place; buy with your head, not with your heart.

Think about the longer term. You may be fit and active now but may not be able to manage a large or steep garden, lots of steps, the drive to the shops/doctor/hospital, etc. as the years go by. Remember the proverb: “Buy in haste, and repent at leisure”.

Next week I’ll look at inspecting the outside of properties and the general site conditions.

NPLs accounted for 17.4% of total loans in July

Nigel Howarth
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NPLs accounted for 17.4% of total loans in July

The Cyprus Central Bank (CCB) reports that non-performing loans (NPLs) accounted for 17.4% of total bank loans at the end of July; down from 17.6% at the end of June 2021.

According to the CCB, NPLs amounted to €4.979 billion in July 2021, a fall of approximately €8 million compared to €4.987 billion in June 2021 as follows:

  • Non-financial corporations – €2.073 billion of which €1.712 billion are loans of small and medium-sized enterprises (SMEs).
  • Households – €2.670 billion.
  • Other financial corporations – €236 million

However, total loans rose to €28.528 billion at the end of July, up €137 million from June 2021’s figure of €28.391 billion.

The coverage ratio amounted to 47.8% at the end of July 2021, compared to 46.8% at the end of June 2021.

The value of total loans restructured by the end of July 2021 amounted to €4.133 billion or 14.5% of the total loans compared with €4.008 billion at the end of June 2021. Of that €4.133 billion, €2.383 billion are still classified as non-performing loans, according to the EBA classification.

which €2,383 million are still classified as non-performing loans, according to the EBA classification.

In August, Cyprus started the process of transforming the Cyprus Asset Management Company (KEDIPES) into a national asset management company, also known as a bad bank. As a national asset management company, the bad bank will help the banking system rid itself of non-performing loans (NPLs).

(NPLs are a thorn in the side the Cyprus banking sector. Although it’s anticipated that they will reduce, NPLs pose a risk to the stability of the island’s financial system and they continue to be the primary obstacle to strengthening the Cypriot banking sector.)

EC confirms response on golden passports

Elias Hazou
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EC confirms response on golden passports

The European Commission has received a response from Cypriot authorities regarding the island’s now- defunct ‘golden passports’ scheme, and will continue dialoguing with Nicosia, a Commission spokesman said on Tuesday.

During a press briefing, Commission spokesman for Rule of Law Christian Wigand was asked whether the EU’s executive body has obtained a copy of the interim findings of a Cypriot committee of inquiry that had looked into the citizenship-by-investment scheme.

Wigand would neither confirm nor deny the Commission having received that interim report.

But, he added, the Commission is “following closely” the matter of Cyprus’ passports scheme.

Wigand said the infringement proceedings launched by the Commission are currently in their second stage, following the dispatch of a reasoned opinion to Cypriot authorities back in June.

If the Commission concludes that a country is failing to fulfil its obligations under EU law, it may send a reasoned opinion – a formal request to comply with EU law. It explains why the Commission considers that the country is breaching EU law. A member state can then decide whether to accept or negotiate the opinion or risk that the Commission will bring the case to the European Court of Justice.

According to Wigand, Nicosia has since responded to the Commission’s reasoned opinion.

“We have received the response from Cypriot authorities, and are evaluating it in terms of the next steps.”

The Commission had launched infringement proceedings against Cyprus – and Malta – initially in October 2020. But in November of the same year Cyprus axed its controversial citizenships programme after an undercover Al Jazeera video showed former House president Demetris Syllouris and former Akel MP Christakis Giovanis offering help to an imaginary Chinese businessman with a criminal record to secure citizenship.

Despite terminating the citizenships scheme, authorities in Cyprus continued processing some 1,400 applications filed before the programme was nixed.

That drew the EU’s strong disapproval. In a hard-hitting statement in June this year, the Commission said it had decided to take further steps in the infringement procedures against both Cyprus and Malta regarding their respective investor citizenship schemes.

“While Cyprus has repealed its scheme and stopped receiving new applications on November 1, 2020, it continues processing pending applications,” the Commission said.

“Hence, today the commission decided to take the next step in the procedure against Cyprus by issuing a reasoned opinion. The commission considers that the concerns set out in the letter of formal notice were not addressed by Cyprus,” it added.

The Commission gave Cyprus two months to take the necessary measures to address its concerns – mainly that investors with no links to the country other than their investment were granted passports.

A committee of inquiry here in Cyprus into the citizenship scheme found that 53 per cent of the 6,779 citizenships granted overall were unlawful, and said politicians and institutions had political responsibilities while certain applicants and service providers may be held criminally culpable. The probe covered the period between 2007, when the scheme was introduced, and August 2020.

Inspecting resale properties – part 1

Nigel Howarth
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Inspecting resale properties – part 1

Given the long-standing issues with Title Deeds, more home buyers are restricting their search to resale properties that have been issued with their all-important Title Deed.

(But please note that even properties with Title Deeds may have problems. It’s essential to ensure that the property has not been extended the property, a swimming pool or garage added, etc. without the required authorisation. More on this subject in a later article.)

Some people buy a resale property without visiting the island to see what they’re getting for their money. They often base their decision on flashy promotional literature and marketing hype. To say this is not a good idea is the biggest understatement since Noah said “I think we’re in for a drop of rain!”

Just as you would check out a car before buying it, it is absolutely essential that you visit Cyprus and inspect your potential new permanent/holiday home (inside and out), before parting with your money.

You may have seen those TV property programmes where the potential home-buyer ‘inspects’ a property. You hear them saying things like “This room’s a good size”, “I like the decoration”, “What a lovely view”. So they like the property and its location, but have they inspected it properly?

In the coming weeks, I’ll be publishing a systematic method for inspecting properties.

Viewing resale properties

To get the ball rolling, here’s some general advice when viewing resale properties:

  • Get someone to go with you. Your husband/wife/partner or someone whose opinion you trust. They may spot something you miss and stop you being seduced into buying something unsuitable (see below.)
  • Look at as many properties as you can.
  • View properties after a few days of heavy rain when dampness, leaking windows and doors are easier to detect.
  • Do not let estate agents or vendors rush you through viewing without giving you the opportunity to look in every corner; take your time.
  • List all the features you want in a new home. If you are unsure about the features you want, write down the things you like and dislike in your present home. Take this list with you when you look at properties.
  • Do not allow yourself to be seduced into buying by a spectacular setting, the decoration and furnishings, or by the charm of the agent or vendor.
  • If you find a property you like, go back and check it over more thoroughly. Revisit at different times of the day to see where the sun rises and sets, and the varying traffic conditions in the area.
  • If possible, meet the neighbours.

Next week I’ll focus on inspecting the location of properties and the general condition of the area and neighbouring buildings.

If you’re selling your home and want to know how a home inspection works, check out this video.

And if there’s anything you think should be added to my list, please add a comment below.

Property values continuing to ebb and flow

Press Release
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Property values continuing to ebb and flow

WiRE FS has published its Q3 2021 edition of the WiRE Index for property and rental values. The WiRE Index covers all districts and main property types, with values from Q4 2009.

Sale values

Across Cyprus, on a quarterly basis, sale values increased by 0.9% for apartments, and decreased by 1.1% for houses, 1.4% for commercial properties, and 1.5% for warehouses and offices.

Sale values of holiday apartments and holiday houses increased by 0.3% and decreased by 1.7%, respectively.

Nicosia stands out from the districts, as sale values of houses continued to rise for the fourth quarter in a row (1.1%).

On an annual basis, prices island-wide increased by 0.7% for apartments, 0.1% for houses and 0.5% for holiday apartments, and decreased by 4.1% for retail properties, 3.8% for warehouses, 2.0% for offices and 4.3% for holiday houses.

Rental values

On a quarterly basis rental values increased by 1.1% for apartments and 1.3% for houses, and decreased 1.1% for retail properties, 1.4% for warehouses and 2.5% for offices.

Rental values of holiday apartments and holiday houses increased by 0.3% and 1.0%, respectively.

Paphos stands out from the districts, as rental values of retail properties continued to drop for the fourth quarter in a row (5.3%).

On an annual basis, rental values island-wide increased by 0.2% for apartments, 1.2% for houses, and 0.3% for holiday apartments, and decreased by 6.9% for retail properties, 2.3% for warehouses, 4.8% for offices and 4.8% for holiday houses.

Quarterly change in property values
Property Type Sale Value Q2 2021
 Rental Value Q3 2021
Apartments 0.9% 1.1%
Houses -1.1% 1.3%
Commercial -1.4% -1.1%
Warehouses -1.5% -1.4%
Office spaces -1.5% -2.5%
Holiday apartments 0.3% 0.3%
Holiday houses -1.7% 1.0%

Source: WiRE FS

Annual change in property values
Property Type Sale Value Q3 2021 Rental Value Q3 2021
Apartments 0.7% 0.2%
Houses 0.1% 1.2%
Commercial -4.1% -6.9%
Warehouses -3.8% -2.3%
Office spaces -2.0% -4.8%
Holiday apartments 0.5% 0.3%
Holiday houses -4.3% -4.8%

Source: WiRE FS

Pavlos Loizou, Managing Director of WiRE FS, commented that “the economic slowdown has had a significant impact on commercial properties, retail and offices, affecting particularly small and medium sized enterprises who rely on overseas demand/ visitors or are linked with the tourism industry.

“In contrast, demand for residential properties, spurred-on by lower interest rates, low deposit rates, and a lack of investment options has resulted in significant investments taking place by locals.

“Whilst transaction volume has recovered strongly and prices for selected property types are seeing an uplift, we are still miles away from seeing a return to stability as the economy is reliant on tourism and the impact on the banking sector is yet to unfold.”

Further reading

WiRE Index: Q3 2021

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