Cyprus still considering Golden Passport applications

Nigel Howarth
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Cyprus still considering Golden Passport applications

Despite numerous warnings from the European Commission, Cyprus is still considering ‘golden passport’ applications that were pending at the time the disgraced Citizenship-by-Investment (CBI) scheme was ‘irrevocably terminated’ in November 2020.

In October 2020 the European Commission launched infringement procedures against Cyprus and Malta by issuing letters of formal notice regarding their ‘golden passport’ schemes.

The news that Cyprus was continuing to examine ‘golden passport’ applications broke during an interview between Stockwatch and Michalis Zavos, CEO of the Limassol-based D. Zavos Group and member of the Cyprus Land and Building Developers Association (LBDA).

Mr Zavos defended the scheme blaming its collapse on the absence of proper supervision and believes the government will develop a new investment program with stricter terms and conditions.

He went on to say that Cyprus has become a magnet for the rich and spoke of intense interest from wealthy buyers from European countries; in particular, buyers from Sweden, Germany and England, who are looking to buy properties priced at €1 million – € 2 million.

Golden Passport investigations

Former President of the island’s Supreme Court Myron Nicolatos said that, of the 6,779 golden passports issued during the programme’s 13-year run, 53% were issued not to the investors themselves but to family members or top company executives.

The Attorney-General’s Office had warned on separate occasions in 2015 and 2016 that the practice might be unlawful because there was no specific law enabling the government to issue such passports.

Mr Nicolatos said “It’s obvious that the (programme) operated between 2007 and Aug. 17, 2020, with blanks and omissions, without a legal framework and almost without a regulatory framework

“Also absent were those safety valves, the proper legal guidance as well as adequate supervision regarding existing laws and regulations.”

A study by the Cyprus Ministry of Finance estimated that total investment by foreigners amounts to around €9.7 billion.

In addition to the infringement procedures that the European Commission has already launched against Cyprus, the news that Cyprus is continuing to consider ‘golden passport’ applications may lead to further sanctions.

Cyprus property prices continue to fluctuate

Staff Reporter
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Cyprus property prices continue to fluctuate

According to Q2 data processed by WiRE, the effects of the coronavirus pandemic are still felt by the Cyprus Real Estate market, with sale prices recording a quarterly drop across all property types.

The same applies to rental prices, with a few exceptions.

The annual drop recorded in the sale and rental prices for commercial properties in the second quarter is most noticeable.

On an annual basis, there was a rise in the prices for most residential properties.

Quarterly, prices for apartments fell by 0.14%, houses by 0.36%, commercial properties by 0.85%, warehouses by 0.33%, office space by 0.62%, holiday apartments by 0.38% and holiday homes by 0.95%.

Limassol stands out from the districts, as apartment prices rose for the fourth quarter in a row (about 2.5% in Q2 2021), compensating for the significant drop recorded in Q1 and Q2 of 2020.

Annually, there was a significant drop in the prices of commercial properties and warehouses – 5.1% and 4%, respectively.

Compared to the previous quarter, rental prices across Cyprus for apartments recorded the smallest drop by 0.05%.

For houses, rental prices dropped by 1.6%, commercial properties by 2.10%, warehouses by 0.94%, office space by 0.41%, holiday apartments by 0.59% and holiday homes by 1.50%.

On an annual basis, Paphos had the most significant drop in rental prices across all property types.

The biggest drop was recorded for holiday homes and commercial properties, with 5.5% and 8% respectively.

Managing Director of WiRE FS, Pavlos Loizou, said: “The slow progress made in improving the country’s epidemiological profile has festered uncertainty.

“While we have observed an increase in the number of transactions compared to the first half of 2020, we are still miles away from seeing a return to stability, let alone observe an uptake in the market.”

WiRE FS publishes a quarterly index, which records sales and rental prices across all districts in Cyprus and for all types of properties.

Quarterly percentage change in property prices (Q2 2021 with Q1 2021)

Property Type Sale Prices Rental Prices
Apartments -0.14% 0.05%
Houses -0.36% -1.16%
Commercial -0.85% -2.10%
Warehouses -0.33% -0.94%
Office spaces -0.62% -0.41%
Holiday apartments -0.38% -0.59%
Holiday houses -0.95% -1.50%

Source: WiRE Price and Rental Index, WiRE FS

Annual percentage change in property prices (Q2 2021 with Q2 2020)

Property Type Sale Prices Rental Prices
Apartments 0.30% -0.50%
Houses 1.70% 0.80%
Commercial -5.10% -8.00%
Warehouses -4.00% 0.00%
Office spaces -0.80% -3.60%
Holiday apartments 0.80% 0.40%
Holiday houses -3.80% -5.50%

Source: WiRE Price and Rental Index, WiRE FS

Further reading

WiRE Index: Q2 2021

News from the Cyprus banking sector

Nigel Howarth
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2
News from the Cyprus banking sector

Non-performing loans (NPLs) in the banking sector increased in April according to a report that the Central Bank of Cyprus issued on Friday.

NPLs in reached €5.14 billion in April compared with €5.13 billion in March, while the ratio of NPLs to total loans rose to 18.1% and total loans fell to €28.44 billion from €28.63 billion in March.

At the end of April, loans in arrears for more than 90 days had fallen to €3.92 billion from €4.00 billion the previous month.

Total restructured loans at the end of April rose to €3.79 billion (of which €2.33 billion were classified as non-performing) compared with the March figure of €3.53 billion (of which €2.22 billion were classified as non-performing).

Total provisions at the end of April stood at €2.60 billion of which €2.48 billion concerned non-performing loans.

Of the total  €5.13 billion NPLs in April, €2.75 billion were held by households and €2.18 billion were held by businesses.

The high level of NPLs are a threat to the stability of the island’s financial system and the principal stumbling block to strengthening the banking sector.

Banking sector NPL report

See: Aggregate Cyprus banking sector data (non-performing loans data) with reference date 30 April 2021 from the Central Bank of Cyprus.

Negative interest rates

We have also learnt that the Cyprus banks are considering the introduction of negative interest rates for individuals with bank deposits exceeding €100,000.

Currently, people (and businesses) are holding too much money in the banks with the expectation that their deposits will be worth more tomorrow than today. This can result in a sharp decline in demand, and send prices even lower.

The imposition of a negative interest rate is designed to help the economy grow by encouraging consumer spending.

The European Central Bank introduced negative rates in 2014. Its deposit rate is currently -0.5%. More recently, the central banks of Germany, Sweden, Denmark and Switzerland have lowered their rates below zero.

Limassol man duped in house sale

George Psyllides
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Limassol man duped in house sale

A Limassol man paid €60,000 over the internet for a house in Cyprus, which turned out to be a fraud, police said on Saturday.

The man reported to police that on July 13 he had transferred €60,000 as down payment on a village house in the district of Limassol but it turned out that the money went into someone else’s account.

The payment to the owner of the house in the UK, was made through two money transfers from the 65-year-old man’s account to a bank account in the UK.

On July 23, the buyer was informed by the woman’s lawyer that the money had not been received.

It was later determined that the emails between the two parties may have been hacked. The woman’s lawyer allegedly received an email from an address similar to that of his client, asking that the transfers be made to a particular account, which apparently did not belong to her.

The case is being investigated by the financial crime unit, which repeated its appeal to the public to be careful when engaging in internet transactions.

Cyprus first-time home buyers’ market

Nigel Howarth
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0
Cyprus first-time home buyers’ market

LionGlobal reports that the pandemic and the abolition of the Cyprus Investment Programme may have caused a crack in the Cypriot real estate market and intense concern among the business community, but a second reading of the data shows that the picture is not so blurry.

If it focuses on the needs of other groups, the property sector has a lot to offer. Local demand will boost the property market, as it has helped maintain its performance over the last year.

LionGlobal’s recent survey on the first-time home buying market shows that Millennials are expected to be the dominant force in the real estate market in the coming years.

Until now, it was believed that apartments are the type of property most favoured by younger people. But it seems that this impression may have been created by the trends that have prevailed abroad in recent years.

It appears that Cypriot Millennials think differently according to the results of LionGlobal’s survey on “Millennials in the first-time home buying market”, in which men and women aged 25-39 participated.

They want the… American Dream

From the participants’ answers, it is clear that Cypriot Millennials are differentiated, as they have the American Dream in their mind, which is owning a large and spacious home with a garden.

When asked about the ideal type of home, 55% of participants stated that they would prefer a house, with a very large number of them stating that the minimum internal area in which they would wish to live is 166 sq. m.

Similarly, 50% of respondents believe that a garden or a roof garden could affect their decision in buying a house, while two-bedroom apartments were the most popular choice amongst those who indicated they would prefer an apartment.

As for the ideal location of buying a house, 76% of participants mentioned easy access to goods and services as well as to their place of work among the most important characteristics.

Prefer to buy a home rather than rent

Another interesting finding is that, contrary to the widespread impression that this age group is content with renting a property, Cypriot Millennials prefer to buy a home.

More specifically, 34% of participants reported that they would prefer buying instead of renting as this is viewed as a more affordable option. In addition, 67% of participants believe that buying a house at its early phase of construction represents a better option, either because they believe they can benefit from a better price or because they can make some internal modifications.

“Appropriate” prices

Based on the survey, Millennials seem willing to buy a home, but at a much lower price than the existing ones, especially in areas close to the city centre of Nicosia and Limassol.

More specifically, they seem to be tempted to buy a house if it is sold at a price of approximately €270,000. Respectively, they are willing to pay €125,000 for a one-bedroom apartment, €180,000 for a two-bedroom apartment and up to €225,000 for a three-bedroom apartment.

Home prices and down payment pose obstacles

In trying to purchase a home, Millennials seem to be faced with some obstacles, such as the rising property prices and finding the down payment required by banks in order to be granted a loan.

According to LionGlobal’s survey, 77% of participating Millennials who are in the process of buying a home have a down payment of up to €45,000. At the same time, a large percentage of the sampled participants are not aware of the loan terms offered by banks nor of the interest rate subsidy scheme implemented by the Government. At the same time, 59% of participants wishing to buy a home consider high property prices as their main obstacle.

However, 75% of respondents believe that the decision to buy a home is a good investment under the current circumstances.

Moody’s upgrades Cyprus’ rating

Staff Reporter
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0
Moody’s upgrades Cyprus’ rating

Moody’s ratings agency has upgraded Cyprus’ sovereign rating to Ba1 from Ba2 and changed its outlook to stable from positive on a decrease in banking sector risks and the economy’s resilience to the pandemic shock.

The agency said Cyprus also showed a robust medium-term GDP growth prospects being supported by sizeable European funds.

The stable outlook reflects Moody’s view that credit strengths and challenges are balanced at the Ba1 rating level.

National support measures and sizeable EU funding limit the impact of the pandemic on the supply side of the economy and contingent liabilities from the crisis will probably remain contained.

“In addition, Moody’s expects debt affordability metrics to be favourable mitigating the impact of the higher debt burden compared to the pre-pandemic level on Moody’s assessment of fiscal strength.”

The primary driver for the upgrade of the ratings is the material improvement in the underlying credit strength of the domestic banking system, which also reduces the risks of a systemic banking crisis and therefore lowers the risk of a crystallization of contingent liabilities in the banking system on the government’s balance sheet.

The banks’ risk profiles improved in recent years because of the improving loan quality and the strengthening of the banks’ capital buffers. In addition, liquidity ratios improved with the banks being less dependent on confidence-sensitive foreign deposits.

Asset quality has further improved under challenging market conditions in 2020, partly because banks have sold some legacy problem loans and partly because a comprehensive policy response to the pandemic has so far shielded borrowers from defaults.

The nonperforming exposures (NPEs) of the bank’s local operations in relation to total domestic loans and advances improved to 17.7 per cent at end-2020 from 27.9 per cent end-2019 and 47.8 per cent in December 2014.

At the beginning of 2021, repayments started for a number of borrowers that used the broad loan repayment moratorium in 2020 covering at its peak almost half of performing loans being the highest level of payment deferrals in Europe, with indications that a large part of loans under moratorium have resumed payments and inflow of new NPEs will only increase moderately.

The second driver for the upgrade of Cyprus ratings is the relative resilience of the economy to the pandemic shock in combination with the robust medium-term GDP growth prospects. Despite its sizeable exposure to tourism, the economy proved to be more resilient to the pandemic shock.

This was because Cyprus’s non-tourism related services such as business services, public administration and shipping softened the significant pandemic shock on the tourism sector.

In addition, the support measures by the authorities are effective in mitigating the impact of the pandemic shock on the supply side of the economy and therefore materially reduce the risk of lasting impairment on the economic strength of Cyprus. Very effective in reducing the impact of the pandemic related shock on the labour market was the sizeable take-up of the introduced job retention scheme in the form of wage subsidies for affected companies that are required to keep their employees for at least the double duration of the period the scheme was used.

Moody’s estimates that this job retention scheme saved around 26,000 jobs or 6 per cent of employment in 2020.

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