Construction sector feeling the squeeze

Kyriacos Kiliaris
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Construction sector feeling the squeeze

Following the demise of Cyprus “golden passports” scheme compounded by coronavirus the construction industry is suffering but has options.

The sector is relying on housing developments and offices for companies attracted to Cyprus post-Brexit.

Although the sector is in for a turbulent year, experts say it can be saved by housing demand, especially in the Nicosia and Famagusta district while authorities try to convince large firms with UK bases, to relocate to Cyprus.

Construction saw its overall activity decline in October with approved building permits dropping 15.5% to 583 from 690 in the previous month of 2020, although Nicosia and Famagusta districts made gains from Cypriot buyers.

According to official data, the value of building permits rose to €279.3 million in October from €201.6 million in the previous month.

The total area covered was 239,300 square metres to build 903 homes from 201,600 square metres in September.

The rise in both the value and total area attributed to more large projects for which permits were issued in October.

For the 10 months to October 2020, 5,689 building permits were issued, down 3% compared to 5,864 in the same period of 2019, reflecting the pandemic.

The total value of these permits decreased by 24.3%, total area by 9.8%, the number of dwellings increased by 1.3%.

Building permits in the capital Nicosia for the 10 months to October rose by 7.1% year on year with 2,217 building permits issued from 2,070.

Permits also rose in Famagusta by 5.03% with 271 issued compared with 258 in 2019.

Larnaca registered the largest annual decrease in building permits with a 14.5% dip year on year as permits issued dropped to 768 from 898 in January – October 2019.

Permits issued in Limassol declined by 7.4% dropping to 1,648 from 1,780 while building permits in Paphos fell annually by 8.5% to 785 from 858.

Building permits constitute a leading indicator of future activity in the construction sector.

In comments to the Financial Mirror, Constantinos Savvides, director of PwC’s Real Estate Advisory department, said increased building permits for Nicosia, a market dominated by local interest, indicate demand for housing projects.

“There is clearly a satisfactory demand from the domestic market, especially for housing projects of up to €400,000,” said Savvides.

He attributed this activity to government subsidising part of the interest rate of new housing loans.

The real estate-oriented measure launched by the government last year foresees a 4-year subsidy of the interest rate (up to 1.5%) for housing loans with a loan value of up to €300,000.

“This is backed by reports of an increase in housing loans given out by banks in the past year,” argued Savvides.

The Brexit effect on construction

He added that the sector is also betting on firms relocating their headquarters along with their personnel.

“Foreign Direct Investments are extremely important for the Cypriot economy.

“The success of efforts put forward by the authorities to attract foreign firms to Cyprus, luring them with incentive schemes, will be decisive for the future of the industry,” noted Savvides.

He said these companies will need ‘Grade A’ offices while their staff will need homes which means business for the construction sector.

“However, this factor is the great unknown for the future of the industry.

“Working from home during the coronavirus crisis has added a new element to corporate life, which no one knows how it will play out.

“For sure remote work is here to stay in one form or another.”

Savvides said stakeholders have to be patient and monitor the market over the next couple of years, to have a clear picture of where the industry is moving.

Panos Danos CEO of Danos / BNPRE Group said 2021 could be a positive year for the real estate market with new opportunities for investments with pent-up demand for travel and leisure.

He said real estate prices and sales contracts, decreased in Cyprus, mainly because of the pandemic that caused national lockdowns and movement restrictions worldwide.

There are still big-ticket projects that add significance to the depth and calibre of the Cyprus property market.

“Some of the biggest projects include the City of Dreams Mediterranean Casino Resort, CYCLOPS, Del Mar, Hadassah Hospital Centre, Ayia Napa Marina, Larnaca Port and Marina, the TRILOGY, BLUE MARINE,” said Danos.

Despite the citizenship scheme ending, Danos said this does not mean that Cyprus does not have other options to attract foreign investments.

“By no means should we revive the passport scheme. However, we can draw in businesses with our relocation incentives, with Brexit creating some opportunities.

“Companies doing business with the EU, but headquartered in the UK, will be looking into relocation options, with Cyprus having a lot to offer.”

A real estate analyst Nigel Howarth argues that it’s going to be a difficult year for the property market, mostly due to uncertainties surrounding the pandemic.

“But once COVID has been suppressed and travel starts to return to normal maybe the market will start to recover during the third quarter.”

Commenting on the impact of cancelling the Citizenship by Investment Scheme that had property sales at its core, Howarth argued it may not be such a big problem.

“It is possible to obtain Permanent Residency in 2 months by buying a new property from a developer valued in excess of €300,000, plus some other conditions.

“There’s no obligation to live in Cyprus, just need to visit every two years. If they want citizenship, they can apply after seven years of residency.”

Howarth said rumours in the real estate world, point to many British firms and nationals thinking about moving to Cyprus to escape Brexit.

“That’s another opportunity.”

Limni bay golf resort project cancelled

Nigel Howarth
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Limni bay golf resort project cancelled

Earlier today, the company Limni Resorts and Golf Courses, part of the Shacolas Group, announced that it does not intend to proceed with the controversial Limni Bay project.

In a statement to the Cyprus Stock exchange, the company said:

“The Public Company Cyprus Limni Resorts and Golfcourses Plc, wishes to inform the investing public the following:

In view of the disposal of the property in the area of Limni, Polis Chrysochous, an area that covered the licenses issued for the creation of two golf courses and other developments, our Company does not intend to proceed with the development of the ‘Limni Bay’ project.

The Company is assessing the possibility of utilizing and developing remaining immovable property belonging to the Company, part of which is located in Limni, as well as in the areas of Kinoussa and Lysos, with a total area of approximately 300,000 sq.m.”

Implementation efforts by the company date back to 2008, but the project faced many obstacles from environmental groups and organisations. In 2014 the European Commission launched an infringement case against Cyprus, following a complaint filed in light of the sea turtle nesting beaches of Chrysochous bay.

Limni bay is considered a major nesting site for the Mediterranean Loggerhead sea turtle (Caretta caretta), which is an endangered species, along with the Green Turtle (Chelonia mydas) which nests in the Lara/Toxeftra area of the Akamas Peninsula.

Major sources of concern were the cumulative effects of lighting impact and human disturbance on the turtles, which were inevitable if the development went ahead.

The now abandoned Limni Bay resort project foresaw the construction of two 18-hole golf courses designed by Jack Nicklaus and Gary Place, two clubhouses, a 160-room luxury hotel, 800 villas and other housing units, leisure facilities, bicycle routes and a historical and cultural heritage museum.

Cypriot buyers only constant in property market

Pavlos Loizou MRICS VRS
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Cypriot buyers only constant in property market

The repeal of the Citizen by Investment Programme (CIP), the consequences of the pandemic – economic and social – and the general prevailing uncertainty render any predictions extremely difficult.

However, an in-depth analysis of data from previous months can help draw some important conclusions that can steer the market when making relevant decisions.

Following WiRE FS analysis, when looking at the volume of transactions, it is safe to assume that Cypriot buyers constitute a constant, which shows an upward trend.

While the average of the sale contracts submitted by Cypriots in the first quarter of 2018 stood at 48% of the total, an upward trend has been recorded since then, exceeding 60% from June 2020 and onwards.

In fact, in the last four months of 2020, the volume of contracts for sale submitted by Cypriots corresponded to 66% of the total.

The increase is not only attributed to an upsurge in purchases made by Cypriots, but also to a decrease in the purchases made by foreigners coming from countries outside the EU.

Indicatively, the percentage of sale contracts submitted by non-EU foreigners presents a substantial decrease.

While the average percentage in the first quarter of 2018 was at 36%, it fell to 20% in the last three months of 2020.

The sharp decline was first observed in July and it is more likely to be related to the events surrounding the Cyprus Investment Programme rather than the consequences of the pandemic.

In October, for example, the last month in which the investment programme was in effect, the contracts for sale by third-country residents soared by 81%.

As far as the sale contracts submitted by foreigners coming from outside the EU, their percentage over the total has historically been fixed at around 15%.

The recent shortcoming of the Nicosia district to attract foreign buyers seems today to have become an advantage since the total volume of transactions is constantly increasing.

Despite the lockdown, more contracts for sale were submitted in 2020 than in 2019.

On the other hand, in Limassol, if we compare the average of sale contracts submitted by non-EU foreigners in the first quarter of 2018 (91) with the last quarter of 2020 (66), a decrease in the region of 25%-30% is recorded.

What is more, at the end of 2020, the average is substantially increased by the sale contracts submitted in October (last month of the CIP programme), reaching 104, while they fell to 60 and 34 in November and December, respectively.

The Larnaca district portrays a similar situation, where for the same period, the decrease in purchases from non-EU foreigners was also in the region of 25%-30%.

However, in Larnaca, a steady increase has been recorded during the entirety of 2020 except for the lockdown months.

In the Paphos district, submitted contracts for sale by non-EU foreigners present a decrease in the region of 40%, in comparison to the average of the first quarter in 2018.

The situation in the Famagusta district is also similar, however, the numbers are quite small to draw any firm conclusions.

Sale transfers remain stable

When it comes to sale transfers of properties, from the start of 2018 to the end of 2020, the value of transfers recorded amounted to €9.1 billion.

It is important to note that while there were more transfers in Nicosia (15,276) than in Limassol (13,777), their value was substantially higher in Limassol; almost €2.5 billion in Nicosia, over €3.2 billion in Limassol.

The comparison between Larnaca and Paphos is also interesting to observe since while the number of properties transferred was relatively close, the value of transfers in the Paphos district was substantially higher.

Specifically, the average value of transfers in Paphos was €175,000, while Larnaca was €127,000.

Regarding sale transfers, a return to pre-pandemic levels, or even an increase, was observed after the April/May lockdown influences optimism, a trend that could be justified on the basis that buyers temporarily froze transactions or because of delays in procedures.

What can we expect from 2021?

The 1-million-euro question has no easy answer, nor can any substantially accurate predictions be made.

The time it will take for normalcy to return to society and the economy is also an important consideration.

What it will be safe to assume, considering the data analysed above, is that the situation will be more stable in the areas where the market depends more on Cypriots.

In contrast, there will be a great deal of uncertainty in areas where foreigners traditionally constituted the biggest percentage of buyers.

The pandemic, the repeal of the CIP, the poor reputation the country has once more managed to acquire and of course Brexit promise another tumultuous year for the real estate sector.

Average Sale Contracts

 
Buyers Locals EU Countries Non-EU Countries Total
January-March 2018 349 106 254 710
October-December 2020 553 122 166 841

Data from the Department of Lands and Surveys, Processed by WiRE FS

About the Author

Pavlos Loizou is Managing Director, WiRE FS

Cyprus to expand mortgage relief scheme

Staff Reporter
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Cyprus to expand mortgage relief scheme

Cyprus is looking into ways of expanding a relief scheme subsidising borrowers with toxic mortgages to cover borrowers who failed to make the first cut, as they were found unviable.

Acting government spokesperson Panayiotis Sentonas said on Wednesday that Finance Minister Constantinos Petrides has been tasked by the cabinet to draft a plan for borrowers who were rejected by a state-backed mortgage relief scheme after their loans became toxic.

The homeowner rescue scheme, known as ESTIA was introduced by the government to help loan repayments of defaulted borrowers with non-performing loans up until September 30, 2017.

The plan was launched in September 2019 in an attempt to reduce Cyprus’ bad debt mountain.

The scheme only covers vulnerable borrowers whose market value of their home does not exceed €350,000, thought to be viable under loan restructuring with the government contributing to monthly instalments.

In comments to reporters following a cabinet meeting on Wednesday, Sentonas said the new scheme could involve a higher debt write-down, or a higher contribution by the state, or a combination so that vulnerable borrowers can protect their primary residence.

“Today’s cabinet decision confirms the government decision to support borrowers who, despite meeting the basic criteria of the ESTIA scheme, could not be included because of failing the viability criterion.”

The Finance Minister has been tasked with preparing a policy framework of a scheme that could cover borrowers dubbed as credit poor.

The ESTIA scheme provides that the state pays 33% of defaulted borrowers’ mortgages, valued at below €350,000, on condition that the debtor agrees to make regular repayments to the bank who take on part of the bad debt by restructuring loans.

It will cost a total of €815 million over a 25-year period.

This means an average of €33 million a year will need to be included in the state budget to cover the scheme.

Meanwhile, reports have Bank of Cyprus working on a similar ESTIA scheme for vulnerable borrowers who did not apply or did not qualify before.

Reportedly, the lender’s initial plans concerned its customers but leaves a window open to expand the scheme if the Finance Ministry gets involved.

What is a property boundary dispute?

Elizabeth Michael
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What is a property boundary dispute?

A property boundary dispute normally arises between registered owners when ownership of a section of a common boundary or an entire common boundary is contested.

Although the Department of Lands & Surveys in Cyprus retains all relevant immovable property information/records including title registrations and mappings indicating the legal ownership of property boundaries in Cyprus, boundary disputes nevertheless do occur, usually resulting in possible asset value depletion and an adverse financial impact.

In accordance with Law Cap.224, Section 58, an application needs to be made to the Director of the Department of Lands & Surveys to carry out a local inspection of the property boundary and to make a final decision to resolve the dispute. The Department of Lands & Surveys’ requirements for the settlement of the boundary dispute is that for one of the neighbouring properties to hold a title (developed on a plan drafted by the Director of Lands and Surveys) and that the dispute in question should not have been decided by the Director in the past.

The Department of Lands & Surveys will instruct the Land Surveyor/Technician Engineer of the Department to undertake the survey and place the land markings to show the precise line of the boundary. If any of the parties disagree with the Director’s decision, an appeal can be lodged with the relevant District Court in which the property is located within thirty (30) days from the date of the decision. The Court will then decide as to whether to uphold or overturn the Department of Lands & Surveys’ decision.

The Director of the Department of Lands & Surveys is obligated under the law to issue a recognized decision on the legal boundary and ownership of the properties even if the owners have reached an amicable settlement of the boundary line themselves through choosing not to remove the registered common boundary or by readjusting the boundary.

The Director is duty-bound to resolve all dispute applications made between parties in accordance with Law Cap. 224, Section 58 and to make a definitive decision on all boundary disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The author

Elizabeth Michael
Executive Assistant of the Paphos Office of the Law Firm of
Michael Kyprianou Advocates & Legal Consultants

Greens concerned over high rises on Paphos coast

Bejay Browne
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Greens concerned over high rises on Paphos coast

An existing Paphos hotel on the seafront of the town is earmarked for demolition with three nine-storey buildings due to take its place, the local green party announced on Monday.

An announcement in a newspaper three days ago stated that anyone requesting information or wishing to submit proposals should do so within seven days.

“This is the first step towards creating a ‘concrete wall’ on the coastal front of Paphos. We only found this out due to information in the press. Three, nine-storey buildings will just be the beginning, this is very sad and as Green’s we believe everyone should have a chance to view an opinion, but this is a negative move, it will be the first, then another and another,” Andreas Evlavis said, speaking to the Cyprus Mail on Monday.

He stressed that a wall of concrete will spring up in the wake of the three nine-storey buildings, that will be built in the place of Asimina Suites, as other similar buildings are sure to follow.

“The supposed advantage that Paphos had over the other tourist destinations is lost. The citizens of Paphos will also see the beach with binoculars,” he said.

“What is certain is that in a few years, everyone will be wondering where all of the authorities and bodies were, and what politicians, scientists, Etek and the architects were all doing as this was happening,” he said.

However, supporters of these buildings, such as a number of Paphos architects, suggest that predictions from the World Health Organisation suggest that 70 per cent of the world’s population will be living in cities by 2050, so it makes sense to build vertically, freeing up land for agriculture and greenery.

“Imagine suddenly you realise that in front of you a nine floor building is going up and no-one did anything about it, how would you feel?” said Evlavis.

Proposals and comments should be made to the mayor of Geroskipou, or to the developers Constantinou Bros, he said.

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