German lesson for Cyprus in real estate transactions

Sandra Nebritova
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German lesson for Cyprus in real estate transactions

Cyprus is one of those countries that actively advertises its real estate market and offers additional perks that can come with the purchase – such as residence permit or even a passport.

Unfortunately, sometimes, this attracts the wrong people.

It has already been reported, that even the “Golden Passport” due diligence process had way too many flaws.

Or how many times have we heard of arrangements with the developers, paying certain amounts under the table.

All these practices may put the whole sector at risk as there is a chance that the funds used might be of a criminal source.

Looking at recently introduced practices in Germany and their anti-money laundering (AML) framework, and particularly how they are dealing with money laundering threats in the real estate sector, gives an excellent example on how things could be done in Cyprus.

One of the reasons why Germany decided to implement strict rules on buying real estate was the result of the investigations into the Frankfurt real estate market that dominated news headlines for many months.

The investigation clearly showed that bribes, tax evasion and fake invoices were “business as usual” in the world of real estate agents and construction companies.

This prompted the lawmakers to review their legislation and implement changes in their AML framework and their tax law in order to make real estate less attractive for money laundering.

So, what kind of procedures have they implemented?

In Germany, no real estate transaction can take place without a notary, therefore Germany has chosen to put quite a lot of responsibilities regards to prevention of money laundering specifically on notaries.

A special guideline has been issued to notaries on money laundering risks and how to mitigate them, as well as how to submit suspicious transaction reports.

The guideline is written in the best of German traditions – extremely precise, dotting all the i’s and crossing all the t’s.

It gives detailed descriptions, course of action and shows step by step how to submit a suspicious transaction report through the official FIU system.

It should be noted that the system used for submission of such reports, is the same as the one being used in Cyprus.

Notaries are now required to assess the risk, understand the control structure, and identify the ultimate beneficial owner (UBO).

This should be done of all the parties that are entering the agreement (e.g. buyer and seller).

The UBO should always be known and in the event that the notary is having difficulties obtaining that information – no further services can be provided.

In the event that the UBO is a politically exposed person or falls under high risk for other reasons, the notary should also obtain the source of funds, which would in turn, show where the funds are coming from and whether there could be any doubts about their legality.

Should Cyprus follow the same path?

While we do not have a practice of using the services of a notary, perhaps this could be substituted by another body, that would play a similar role.

Surely, this would require a lot of work and law amendments that always seem to take a long time; however, the result would be worth waiting for.

About the author

Sandra Nebritova is a Certified AML specialist

Famagusta to finally get its golf course

Kyriacos Kiliaris
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Famagusta to finally get its golf course

FAMAGUSTA could have its first golf course within three years, as the €100 mln Ayia Napa Forest Golf project is expected to get the green light from environmental authorities after being rejected four times over eco concerns.

Local hoteliers behind the venture feel they are closer than ever as reports say environmental authorities have no objection this time around as public consultations begin.

The golf course is to be built on land owned by the Forestry Department.

In comments to the Financial Mirror Ayia Napa hotelier Christos Kitazos said latest developments indicate that the project will get the all-clear as no authority or stakeholder has posed any objections during the forestry department’s initial contacts.

The development has been denied permission since 1997 and just last year was shot down by the environmental department as the project, based on previous plans, fell within a protected Natura2000 area.

The developers are now trying another area, the fourth over the years, this one located in Paralimni municipality on public land to be leased by the Forestry Department.

“On May 25, the Forestry Department sent a letter to the relevant government departments, asking them for their view regarding the lease of forest land within Paralimni municipality and the application by the company Ayia Napa Forest Golf Ltd,” Kitazos said.

He noted that prior to sending an official letter out, the Forestry Department was in communication with authorities over the project.

“Any objections would have emerged during these consultations.”

Kitazos said the area was one of the two alternative solutions proposed by the government after being rejected by the environmental department in 2019.

The consortium is also encouraged by statements from high ranking government officials made in the past year that this time around the course will take off.

President Nicos Anastasiades in a speech in February 2019 during the inauguration ceremony of the Famagusta Police Department, listed the golf course among the major development projects to be implemented in the area.

The President expressed the hope that “the government will soon be able to announce the construction of a golf course, which will surely be licensed this time”.

Anastasiades said local authorities and the state “will work together to make this project a reality soon”.

Golf course will create 500 jobs

Kitazos said that the construction alone would create 500 local jobs.

“While the Famagusta region hosts approximately 40% of foreign tourists and approximately 50% of local visitors, it has the shortest occupancy season, as compared to the all-year destinations such as Limassol and to a lesser extent Paphos.

“The Ayia Napa Golf course is to contribute immensely towards extending our short occupancy season as it will be an all-year attraction for foreign and local tourists.”

The company’s plans are mainly based on the Study for the National Tourism Strategy 2030, which is being implemented by the Ministry of Tourism.

One of the priorities given by Cyprus tourism authorities is the promotion of golf, as one of the new types of leisure activity, it hopes to build up.

As stated in the National Tourism Strategy, “the development of golf courses is an effective way to develop the quality of the tourism product.”

On February 16, 2005, at a meeting of the Council of Ministers, it was decided to create 14 golf courses in Cyprus, of which 12 would be in Paphos and Limassol, one in Larnaca and one in the region of Famagusta.

Meanwhile, the consortium plans to put Ayia Napa and the wider Famagusta region on the international golfing tournament map.

Kitazos said Ayia Napa Forest Golf is already in contact with one of the world’s largest golf course design companies to create a course of international standards, which will attract not only tourists but professional golfing events.

“The sky’s the limit. Our aim is to build a world-class golf course, which can attract the big names in golf and, why not, put a Cyprus Open tournament on the calendar? This would be an attraction for tourists on its own.”

The local hotelier added that combined with the Ayia Napa and Paralimni Marina projects, the Ayia Napa Forest Golf course will breathe life into the area’s winter tourism.

He said this would greatly benefit local communities, as it would create non-seasonal jobs which are hard to come by in the tourist resort which lives off its summer season.

Apart from creating 500 jobs during the construction period, hundreds of jobs will be created to cover the needs of the golf course and the adjacent hotel.

He added that private plots of land which fall within the area of the course will increase in value with their owners being compensated accordingly.

“At the same time, the value of the neighbouring property will increase significantly.”

Hotel and villas

Kitazos said he expected the golf course to be completed towards the end of 2023, coinciding with the conclusion of works on the two marina projects.

The area covered by the project, which is outside the “special protection zone”, is expected to be about 771,000 square metres, including the course, residential, commercial, and tourist development.

The consortium says the aim is to develop a golf course with respect to the environment and to contribute to the sustainability of the tourist product, increasing seasonality, which will go a long way in upgrading the area.

The €100 mln project is to include an 18-hole golf course, a clubhouse, tourism and commercial development and a 150-room five-star hotel and other residential developments including villas.

Initial plans included some 188 villas but revised plans, drawn after the latest relocation allow fewer buildings.

“Usually such developments take up around 150,000 square meters. However, as we have limited space to build as part of the area falls in a protected zone, we only have 50,000 square meters available.”

Currently, there are four golf courses fully operational in Cyprus, all in the Paphos district (two in Kouklia, one in Paphos and one in Tsada).

Cabinet extends town planning incentives

George Psyllides
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Cabinet extends town planning incentives

THE CABINET on Wednesday decided to extend existing town planning incentives and introduce new ones in a bid to boost growth, Interior Minister Nicos Nouris announced.

Speaking after the cabinet meeting, Nouris said beyond the existing plans, the cabinet approved two new targeted actions.

The plans include incentives to people to legalise certain structures like pergolas, which had been constructed without permission or correct mistakes, or build on existing developments. This had been extended until the end of 2021.

There is also the scheme aimed at the tourist industry, which has also been extended until the end of 2021.

The scheme allows hotel owners to keep the original building coefficient if they decide to demolish the unit and build a new one.

The government has also extended the duration of town planning and construction permits that expired between March 17, 2020 and June 30, 2020 until the end of the year.

Also, people would no longer have to provide evidence for information already in the hands of public services.

The minister said from July 13, people would no longer have to attach copies of their title deeds or an immovable property search certificate when filing applications to the land registry, the town planning department, district administrations, and any other departments under the interior ministry.

The same applies for official copies of cadastral plans accompanying property development applications, which can be replaced with unofficial copies downloaded from the land registry portal.

Larnaca port and marina project delay to end soon

Kyriacos Kiliaris
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Larnaca port and marina project delay to end soon

LARNACA port and marina redevelopment project has hit a four-month delay in signing contracts with MPs demanding an update from the government but officials said the wait will soon be over.

Larnaca’s biggest facelift will change the town’s future landscape, bringing it up to speed with the rest of Cyprus.

While local authorities, businesses and other stakeholders look forward to seeing the €1.2 billion development take-off, there are fears it might go south.

The deal has yet to be officially signed by the parties, following a final agreement with the chosen investor on 17 February.

Fears are fuelled by memories of previous failures, while negotiations between the state and Israeli-backed consortium took a couple of years to be concluded.

Larnaca Mayor Andreas Vyras told the Financial Mirror the project is likely to get back on track in the coming weeks as the government is expected to send the investor the final documents of the agreement to be signed.

“The Transport Ministry has committed to sending the investor who submitted the winning bid a formal letter informing them of their success, and the documents to be signed are to be prepared within the coming weeks so that the consortium awarded the contract will be made aware of the next steps they will need to take,” said Vyras.

He noted that that the four-month delay since the signing of the initial agreement was signed is due to the deal being tangled in red tape, with a further delay caused by the coronavirus outbreak.

Asked whether the delay has caused the investors any annoyance, Vyras said that the consortium had complained as the final agreement should have been signed a couple of weeks after the sides shook hands in February.

“However, the important thing is that the project is being put back on track, with the town of Larnaca will reap the benefits of this multimillion project once it gets off the ground.

“This area has been underutilised for so long, but there is now a new vision for Larnaca which took over three years to negotiate, it is finally materialising.”

Vyras said the project will directly benefit the local economy with 4,000 new jobs created.

Larnaca DISY MP Annita Demetriou welcomed the fact that the project “is much closer to going ahead than ever before”.

“The joint project of developing the town’s port and marina is the largest development and infrastructure project in the city and province of Larnaca, it’s close to becoming a reality.

Moving forward

“The process is finally moving forward as a result of the consensus approach required to address this kind of essential issue for Larnaca and Cyprus’ growth”.

She noted that the project enjoys the support of the government, the Transport Ministry, but also of all involved parties.

Demetriou said parliament was told the legal services have completed the review of the documents involved and submitted them to the Ministry.

“The government will submit the roadmap for action to be taken by the investor and the state itself.”

Opposition AKEL and Larnaca MP Evanthia Savva said her party was particularly concerned over the delay as this is a make-or-break project for the town.

She told the Financial Mirror that AKEL MPs had tabled the issue for discussion as there was an inexplicable delay in signing the contracts for a done deal.

“We discussed the matter, a day after being told that the deal had just been approved by the state’s legal services and is going ahead.”

She argued that her party tabled the matter for discussion not with the intent of getting into a political row with the government, but out of genuine concern.

“We are also concerned about some particular aspects of the project, such as the environmental impact on the area, which will need to be looked into.

“This cannot be known without actually seeing the deal in writing. That is why we have asked the government to submit the documents to the House, which they have declined.”

She said Larnaca’s six MPs are on the same page when it comes to the marina and port project as it is vital for the future development of the town.

“Unfortunately, past delays and failures have made us extremely wary when it comes to such sensitive projects,” said Savva.

Cyprus had reached an agreement with Israeli investors for the long-awaited €1.2 billion redevelopment of Larnaca port and marina, the island’s largest infrastructure project of its kind, in February.

The tender was won by Cypriot-Israeli consortium Kition Ocean Holdings.

The project covers the restructuring of Larnaca marina for 650 berths, the port and surrounding land development over an area of 332,449 sqm which is expected to see the consortium invest more than €1 billion.

As part of the marina development, there will be a yacht club with a retail park, a passenger terminal at the port plus hotels, a private island and residential properties.

The unprecedented scale of the project includes residential and commercial development with innovative architecture, streets, and parks.

Cyprus property sales expected to stabilise

Andrew Rosenbaum
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Cyprus property sales expected to stabilise

Industry experts expect property sales in Cyprus to stablise, as the country emerges from the novel coronavirus crisis.

The number of property sales dropped 71 per cent in May in terms of number of transactions recorded at the Land Registry.

“But there is every indication that sales will gradually return to pre-crisis levels,” comments George Mouskides, chairman of the Cyprus Property Owners Association.

“During the months of March, April and May, the Land Registry, which is usually open all day every working day, was only available by appointment. The process of registering a sale, which is normally quite rapid, became protracted. Similarly, banks were working at very slow speed, and many processes were delayed with people working at home. All of this drastically reduced the number of sales,” he explains.

“But overall demand was not affected, and should come back,” Mouskides says. “Foreign sales will also increase once it becomes easier for foreigners to arrive in Cyprus again. There is still considerable interest in the Cypriot Investment programme (Invest for Passport scheme).”

There were, in fact, a number of obstacles to sales during this period, comments Thomas Dimopoulos, head of the Cyprus branch of the Royal Institute of Chartered Surveyors.

“Another issue was that the vast majority of property professionals could not visit the sites of places on sale and were working from home. This was also a factor reflected in the decrease in the number of transactions,” he notes.

Dimopoulos is confident that demand for Cyprus properties remains at a firm level. “And I expect that the number of transactions will see an increase in the near future, reaching the same level as in previous years,” he adds.

He also attributes the decline in interest from foreign buyers to the travel restrictions.

“It is widely accepted that a foreign buyer prefers to visit the property before he makes a purchase. However, due to the travel restrictions, this is obviously not possible and so this decline is expected. The number of foreign buyers will increase as soon as air carriers return to their regular flight schedules. Many developers and local funds are targeting buyers from specific countries.”

It is a fact that lately many foreign buyers are expressing interest from countries which previously showed little interest in Cyprus. “Many are from the broader Middle East area including Saudi Arabia, Israel and Lebanon,” Dimopoulos notes.

Are Cyprus property sales are volatile at the best of times, or are there periods of stability?

Says Dimopoulos: “The number of property transactions, as well as the price range of the properties, fluctuates during the years, not only in Cyprus, but even in more mature markets, such as in the UK, Germany etc. The phenomenon is called the property cycle and it is similar to the business cycle. In general terms, I can say that the period from 2017 through the first months of 2020 was a stable period.”

There were only about 450 sales during the period, according to statistics from the Cyprus Department of Lands and Surveys. Sales in Limassol plunged 79 per cent from the same period in the previous year; Paphos was down 70 per cent, Famagusta, Larnaca and Nicosia were down by more than half as well.

Upward trend in property price index slows

Cyprus News Agency
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Upward trend in property price index slows

The Cyprus Residential Property Price Index (RPPI) continued its upward trend albeit with a declining pace, affected by the reduced demand from foreign investors due to stricter provisions introduced to the Cyprus Investment Programme (CIP), the Central Bank of Cyprus (CBC) said.

Moreover, the CBC says that the reduced both domestic and foreign demand for housing in the first quarter of 2020 “shows the uncertain course in the real estate sector due to the expected impact of the lockdown measures aiming to contain the spread of the coronavirus pandemic.”

According to the CBC the RPPI in the last quarter of 2019 continued its upward trajectory, marking a quarterly increase of 0.3% compared with an increase of 0.7% the previous quarter, with the slowdown affecting both houses and apartments.

The slowdown is more pronounced in the apartments index which in the last quarter of 2019 increased by 0.5% over the previous quarter, compared with an increase of 1.5% in the third quarter. The index for house prices in the last quarter of 2019 remained essentially unchanged marking an quarterly increase of 0.2% compared with 0.3% in the previous quarter.

According to the CBC data, the largest quarterly reductions were marked in the prices of apartments and houses in the district of Paphos with 3.0% and 0.9% respectively, while prices in the districts of Larnaca and Famagusta marked quarterly reductions following the increase in the last quarters.

On annual basis the RPPI increased by 2.2% in the last quarter of 2019, albeit in slower pace compared with the two previous quarters which marked an increase of 2.8%. Apartment prices rose by 4.1% and house price rose by 1.5%. The largest annual increase was recorded in Famagusta with 3.3% and for apartments in Limassol and Larnaca with 7.6% and 7.4% respectively, the CBC said.

“The slowdown in the RPPI is associated with the decline in demand from foreign investors due to stricter criteria to the CIP,” the CBC said, adding that “Cypriot buyers gave significant backing to the real estate market in 2019 which will is expected to continue due to the impact of the coronavirus pandemic.”

(Cyprus News Agency)

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