Changes to Citizenship scheme approved

Editorial
-
3
Changes to Citizenship scheme approved

Changes to Cyprus Citizenship scheme approvedCYPRUS on Wednesday approved a series of changes to its much-criticised Citizenship-by-Investment scheme, so it becomes “more targeted and trustworthy”, said Finance Minister Harris Georgiades.

The Cabinet approved new criteria which will see a Cyprus passport being granted in exchange for an investment of €2.5 million, raising it from €2 million, including the purchase of a residency.

Provision were also made for a mandatory donation of €75,000 to the Research and Innovation Foundation and a second €75,000 contribution to the Cyprus Land Development Corporation to be used for affordable housing.

In addition, the applicant must have a Cyprus residence permit for at least six months before being naturalised as a Cypriot citizen and has to maintain the required investments for a period of at least 5 (five) years from the date of naturalization, instead of 3 (three) years.

In cases where the investment relates to the purchase of real estate or property as well as in the case of a permanent home-owner, a planning permission, a completion certificate and a bank waiver will be required.

Georgiades said the results of an economic impact study of the scheme was presented before the Cabinet.

He said the scheme was launched in the aftermath of 2013 banking crisis, since then 1,864 citizenships were granted within the framework of the scheme, bringing in €6.6 billion.

“But what emerges from the study, is that trade and investment with a positive contribution to the growth rate of an economy are two different things,” Georgiades said.

“The scheme is quite important for the real estate and construction sector, but with little overall impact on the economy,” he added.

The Minister stressed that despite 24% of transactions in the real estate sector were made in the scheme’s framework and the sector has recovered partly because of the scheme, however the economy and its growth rate are not dependent on the specific sector.

For the three-year period 2016-2019, the total contribution of the programme to growth is 1.2% GDP out of a total of 13 percentage points, which is the growth rate over the last three years.

The Cabinet decided to alter the scheme’s criteria in order to protect the financial benefits making it more reliable at the same time, said Georgiades.

“I believe that the mandatory contribution to the Foundation for Research and Innovation will further encourage the creation of an eco-system of business innovation, while the mandatory contribution to the Cyprus Land Development Corporation is to go to financing housing programs mainly for affordable housing,” said Georgiades.

He said, stricter criteria have also been adopted to ensure due diligence procedures are more stringent and effective, such as the measure of thorough scrutiny of each applicant carried out by an independent international house, the obligation for investors to obtain a Schengen visa and the exclusion of applicants who have been rejected by others Member States with similar schemes.

The changes come after an EU report ‘Investor Citizenship and Residence Schemes in the European Union‘ said Cyprus was not doing enough to ensure transparency to combat illicit and criminal activity.

Cyprus is only one of three EU countries selling passports for investment including Malta and Bulgaria which says it will stop.

Cyprus banks awash with properties

Nigel Howarth
-
4
Cyprus banks awash with properties

Cyprus banks awash with propertiesBANKS IN CYPRUS have acquired over 14,000 properties comprising commercial, residential, tourist, small apartments, small shops, farmland and building plots from businesses and households through foreclosures and debt-to-asset swaps according to a report in Phileleftheros.

The number represents around 40% of the total number of properties sold in the past five years, based on the number of contracts deposited at Land Registry offices.

The Bank of Cyprus has the largest portfolio of properties of all types, with its Real Estate Management Unit (REMU) reported as having 3,008 properties of small and high value, of all types of real estate.

In addition to properties acquired through debt-to asset swaps, the bank has sold more than 14,000 loans secured by real estate collateral to Apollo Global Management. According to Phileleftheros these involve 9,065 properties.

In further efforts to further reduce its NPLs, the Bank of Cyprus is reported to be preparing a project codenamed ‘Helix 2’. This project is to include loans with a book value of more than €2 billion, including the bank’s most problematic loans. If successful this project should enable the bank to reduce its percentage of non-performing loans to less than 10% of the total.

The bank is also reported to be in the process of foreclosing on hundreds of further properties.

The Phileftheros report also noted that between January and August 2018, Altamira acquired 1,389 properties with a total value of €185 million and that the Hellenic Bank has around 650 properties up for auction.

APS, which took over the Hellenic Bank’s toxic loans in 2017 and to which the Bank of Cyprus sold a portfolio of non-performing loans codenamed ‘Velocity’ currently has 814 Cyprus properties for sale on its website.

Warnings of further rent rises in Limassol

Lizzy Ioannidou
-
1
Warnings of further rent rises in Limassol

Warnings of further rent rises in LimassolTHE LIMASSOL Chamber of Commerce and Industry (Keve) warned this week that rents in the city will continue to spiral, ironically because of the thousands of construction workers needed to complete the many development projects underway, and all requiring housing in or near the city.

The head of Limassol Keve, Costas Galatariotis, told the media he expected around 6,000 workers to burst into Limassol in 2019, further boosting an already heightened demand for housing by students and foreigners, resulting in a renewed hike in rental prices.

He said that five foreign companies involved in development projects in Limassol over the next 20 months will be needing a total of 3,000 construction workers, while an additional staff of around 2,500 will be needed for the city’s casino and another 800 to work in the two new hotels.

The initial labour force needed for the casino will actually be higher, according to Kypros Hadjiathanasiou from Gnora Communications which represents the integrated casino resort, City of Dreams Mediterranean. The construction phase which is set to begin in the coming months will require 4,000 workers, he said.

It is only once the casino resort is fully opened in 2021 that the number of permanent staff will fall to 2,500, Hadjiathanasiou told the Sunday Mail, adding that most of its workforce is local.

Currently around 800 employees work in the existing satellite casinos in Nicosia and Larnaca, and in the temporary casino in Limassol.

According to Yiannis Markides, the head of the Limassol branch of the construction workers’ association, Galatriotis’ warnings were valid but signs of an influx of workers into Limassol were not there yet.

“In fact, there is still a shortage of specialist construction workers in the industry,” Markides said.

Demand is particularly high for certain levels of expertise, such as formwork workers and ironsmiths, as many of the projects underway are new to the island and the local workforce.

“The bringing of construction workers from abroad would be a gift for us,” Markides added, recognising that this would however bring a new rise in rental prices.

However, should specialised workers be needed from abroad, as Markides contends, or should the local labour force not suffice for the construction of planned developments, soaring rent prices will pose a problem.

In addition to the new price hike from the resulting increase in demand for housing, as predicted by Galatariotis, production costs will also rise as the cost of accommodation will need to be shouldered by the construction company.

According to the Rics Cyprus Property Price Index as at June 30, 2018, across Cyprus on an annual basis flat rental prices increased by 18 per cent, houses by 17.7 per cent, and offices by 14.3 per cent.

In November, MPs were shown data, according to which rents in Cyprus were comparable to – sometimes even higher than – some of the most expensive cities in Europe, like Amsterdam and Barcelona.

The average rent in Limassol for a single-bedroom flat, where the tenants are typically college students, was €590. In Nicosia, it averaged out at €560.

A number of citizen action groups have been formed in Limassol, staging multiple demonstrations last year, to protest the sky-rocketing rental prices that have accompanied the construction of high-rise after high-rise, which target the higher budgets of wealthier foreigners, while local salaries remain stagnant with tenants often struggling to cope.

To tackle the issue of high rents, Galatariotis said, the interior ministry has agreed to adopt a proposal tabled by Keve, according to which incentives will be offered to encourage the construction of apartment buildings, which will be available for rent only to young couples and workers.

In residential zones at the peripheries of Limassol, which are relatively cheaper areas, Galatariotis explained, the allowable building area will be increased by 30 per cent, while the minimum area for a studio will be reduced from 70 square metres to 30, resulting in lower rental prices.

Further, the owners of the buildings will be prohibited from selling for a period of eight years, in order to prevent competition amongst contractors, which would raise rental prices.

Despite the focus of the conversation being on high rental prices, Markides said that there is a certain level of misinterpretation at play, as “it is not that rent is expensive in Limassol, it’s that wages did not come to meet this increase in the price of rent.”

As a rule of thumb, Markides said, “EU statistics show that for rent to be at a viable rate, it must be around 25 to 30 per cent of a tenant’s salary. Who do you know that makes €2,400 a month?”

Trapped buyers still at banks’ mercy

Nigel Howarth
-
4

Cyprus: trapped buyers still in the poopOVER THE YEARS we have come to expect promises made by politicians that they have no intention of keeping and it seems their intention to resolve the ‘trapped buyers’ mess by Christmas was just another vacuous announcement.

For readers who have not heard the term ‘trapped buyers’, they are people who were deceived into buying property in Cyprus built on land that its developer had earlier mortgaged to a bank.

Back in 2015, as part of the bailout conditions with the Troika of Cyprus international lenders, a ‘trapped buyers’ law was introduced. This aimed to help some 70,000 who had paid for their properties in full but could not get their Title Deeds because the developers had mortgages on the properties. (Developers’ land and buildings are counted as assets that need to be offset against their debt to banks. This gives banks first claim on properties mortgaged by developers, including those they’d deceived home buyers into purchasing.)

However the banks, who naturally wanted to protect their interests, challenged the law in court. Judges ruled that the law was unconstitutional as it violated the article in the Constitution that gave people the right to enter freely into contracts. As a consequence, many ‘trapped buyers’ remained trapped.

But there appeared to be a breakthrough at the end of June last year, when it was reported that a ‘gentlemen’s agreement‘ had been reached; MPs would approve laws making it easier for banks to collect their dues in exchange for banks not raising objections to trapped buyers getting their Title Deeds, providing that the purchase was done in good faith.

(The obvious problem, of course, is that a gentlemen’s agreement must be made between gentlemen.)

The law making it easier for banks to collect on their dues was subsequently approved; no action from the banks.

At the end of October chairman of the house finance committee Averof Neophytou promised to come down hard on the banks if they went back on their pledge not to oppose the implementation of the trapped buyers’ law.

But earlier this week it was announced that the Estia scheme will be launched officially in March. This is a debt-relief scheme for vulnerable homeowners whereby the state contributes towards the repayment of their loans on primary residences that have become non-performing.

Rather than coming down hard on the banks as Neophytou promised, this scheme actually helps banks reduce their non-performing loans while the tax-payer picks up the bill. As we reported on Wednesday the Bank of Cyprus alone said that €900 million of its loans are eligible for the Estia scheme.

If only the government would keep its promises and bankers act like gentlemen, the trapped buyers mess would be resolved by now!

The Property Consultant …or NOT!

Angelos Georgiou FRICS FCIArb
-
1
The Property Consultant …or NOT!

AT A YOUNGER AGE, I used to consider my mother a very wise ‘doctor’ when she advised a painkiller (the usual ones) for a headache. Some years later, I myself knew what painkiller to take for a simple headache without the need of advice from the ‘particular doctor’. Well, surprise surprise, that doesn’t make me a doctor either!

That being said, there seems to be a misunderstanding as to who is considered, or better said, ”declares himself”, a Property Consultant. We have come across many who are professionally marketing/declaring themselves as ‘Property Consultants’. We don’t usually seem to request some kind of proof of this. On the other hand, how does one prove to another that he is a ‘property consultant’? Well, a 2-hour seminar on a property related subject definitely doesn’t make you one.

The fact that one is simply marketing to sell/rent an apartment, or two, or a few, does not make him a property consultant or expert in the field but merely one who is selling a apartments. In practice though, the interested party/client would probably consider him an expert in the field when he is being marketed a property to buy/rent. Now that would be a marketer’s issue to explain if one may call himself a marketer doing so.

I would assume the declared ‘property consultant’ will be describing the property, its characteristics, other nearby properties for sale/rent, explanation as to how good the price is (based on…. whatever) etc. He may even throw in a ‘this is the chance of a lifetime’ quote to his client. I’m sure market analysis, demographics, primary and secondary trade areas, rent and yield/cap rate analysis, risk analysis etc. were included in the property consulting agenda (….or not). The above factors are all based on analysis (verified analysis) and explained along with all the risks associated with the above factors. Suggestion: Believe…but Verify!

The ‘property consultant’ will also probably provide the client with a calculated rent to be received which will also assist in providing information as to the return on investment based on the selling price. Of course, this needs to be verified based on comparable rents of similar properties in the area (this is only one way of verification) to provide the return on capital. Would that be the gross or net return though? Hmm….This where more analysis is necessary. An example of further analysis would be the calculation of common area costs along with a void period of no rent to be received. The net cash flow factor consists of the rental income actually received less the non-recoverable operating costs. I wouldn’t think anyone would be buying a property assuming 12 month full rent, for life, right?

Simple property consulting example

Question: How would my property value be affected if cap rates are decreased or increased?

Answer: With a decrease in cap rates the value of a property would rise as investors are willing to pay a higher price for a reduced risk. With the increase of cap rates, investors are willing to pay a lower price for a property for the increased risk.

Of course, the ‘property consultant’ will explain how cap rates have been calculated. Would that be based on comparable rents received? Or is that based on the Net Operating Income instead? I believe the below table provides us with a sufficient answer.

Net Operating Income
Source: Understanding Net Operating Income in Commercial Real Estate

In simple words, NOI is equal to all revenue from the property minus all reasonably necessary operating expenses.

I am also assuming the declared ‘property consultant’ is providing you with information and consulting as to the Debt Service Coverage Ratio and Loan to Value. No???… I wouldn’t believe it in a million years! Well, in general terms, The DCSR will measure the ability of an investment to produce enough cash to cover the debt payments. The higher the ratio, the easier it will be to acquire a loan (this is only a general explanation). Banks usually have a minimum acceptable DCSR ratio in order to review a loan request. Loan to Value (LTV) ratio represents the amount borrowed compared to the market value of the property.

The consultant provides consulting to the client as to the highest and best use of a property. The mere suggestion of say ”….develop an office building on the site and I will sell it for you as I have sold a couple this month” by the ‘property consultant’ doesn’t seem a very sufficient or convincing answer, if not considered negligent too.

The consultant provides information as to the highest and best use of a property which in general terms is considered as the legal use of a property that yields the highest present value. This is processed through evaluating zoning laws in order to explain the legally permitted uses of the property as well as the physical possibilities within the particular zoning taking into consideration the physical characteristics of a property (e.g. size, layout etc).

The consultant then usually proceeds (himself or outsourcing) with a feasibility study of all permissible uses of the property and the financially feasible use that produces the highest financial return will be considered the highest and best use.

The property consultant has the ethical and professional responsibility of informing the client of most of the above factors, if not all, or at least represent the market and property, based on the best of his ”knowledge”. Ignorance is bliss as they say; until ignorance is the reason the buyer (now property owner) figures out all the property problems that may occur, by experience. I believe it is called ‘duty to care’ for your client.

Representation is a very important factor when consulting a potential buyer/seller or owner/tenant. The representative should be transparent and inform the client of any information regarding the property which may not be available to him.

A professional real estate agent/broker/property consultant has the necessary knowledge and experience of the real estate market and is familiar with factors of local zoning, probably tax laws and financing information. Agents and brokers can help parties find a suitable space based on their needs, advice when a deal is fair, overpriced or underpriced and help negotiating the transaction (including the terms of a contract of sale or rent).

Depending on the party the agent is acting for (tenant or owner, buyer or seller) the agent can further negotiate to improve the terms and/or rental rates of a contract.

Agents consult parties as to buying/selling or renting a property as well as to the most suitable type of occupancy (e.g. long-term/short-term) as well as assisting the parties to compare various offers (based on similar properties).

It has been mentioned above that at least proper training in the related field is necessary for one to be considered a property consultant, which I clarify, is not a 2-hour training program; don’t get me wrong, but neither is a 2-day or 2-month training program considered sufficient.

Most countries have regulations and minimum requirements for property related professional titles. Of course, in some third-world countries, your neighbourhood butcher may also be available to take one of your teeth out if you requested him to.

Final thoughts: I’m not a doctor…and my dentist isn’t a property consultant, I’m sure he will agree.

About the author

Angelos Georgiou FRICS, FCIArb
Chartered Valuation Surveyor
Fellow of the Royal Institution of Chartered Surveyors (RICS)
Fellow of the Chartered Institute of Arbitrators (CIArb)

Property sales continue to rise (update)

Nigel Howarth
-
4
Property sales continue to rise (update)

CYPRUS property sales continued to rise in January, with the number of sales contracts deposited at Land Registry offices in the Republic rising by 10 per cent compared to the same month last year.

With the exception of December 2018, when sales fell by 48 per cent due to the rush to buy land in December 2017 before the government introduced VAT on land sales, the number of property sales has increased for the 21 consecutive months.

January 2019 saw a total of 766 contracts deposited at Land Registry offices for the sale of commercial and residential properties and land compared with 695 in January 2018; a rise of 10 per cent.

Of those 766 contracts, 409 (54%) were deposited by Cypriots and the remaining 357 (47%) by non-Cypriots – 107 by EU citizens and 250 by non-EU citizens.

The figures show a continuing improvement in the economic conditions, together with government incentives designed to boost property sales and drive foreign investment. Unemployment is also falling; down to 8.8 per cent in December 2018 from almost 17 per cent in 2013. (Across the EU 28 the unemployment rate stood at 6.6 per cent in December 2018.)

Property sales up in all districts

In percentage terms, Paphos lead the way with sales up 14 per cent followed by Limassol, where sales rose by 12 per cent. Meanwhile sales in both Nicosia and Famagusta rose by 10 per cent, while sales in Larnaca rose by 2 per cent.

Total Property Sale Contracts – 2018/2019 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2018 146 96 126 117 153 146 176 91 118 145 161 131
2019 161
Famagusta 2018 48 52 40 52 79 61 61 50 45 57 47 48
2019 53
Larnaca 2018 112 99 116 83 113 133 112 94 121 116 143 103
2019 114
Limassol 2018 225 256 314 246 282 338 314 262 251 289 344 290
2019 251
Paphos 2018 164 163 172 157 201 180 233 156 152 204 230 230
2019 187
Totals 2018 695 666 768 655 828 858 896 653 687 811 925 800
2019 766

Domestic sales

Domestic sales rose 33% in January 2019 compared with the same period last year, with sales rising in all districts with the exception of Larnaca, where they fell by 10%.

Sales in Paphos, Limassol and Nicosia rose by 67%, 55% and 1% respectively. Unfortunately the January 2018 figure for Famagusta cannot be calculated as the Department reported that overseas buyers deposited 3 more contracts than the total number of contracts deposited.

Domestic Property Sale Contracts – 2018/2019 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2018 126 84 104 93 135 123 155 84 97 126 141 108
2019 127
Famagusta 2018 -3 18 18 12 34 27 18 29 21 36 14 29
2019 32
Larnaca 2018 60 44 67 41 55 61 41 47 60 46 82 52
2019 53
Limassol 2018 107 152 199 162 169 207 194 174 175 176 196 201
2019 166
Paphos 2018 18 8 43 21 43 55 62 48 32 24 64 60
2019 30
Totals 2018 308 306 431 329 436 473 470 382 385 408 497 450
2019 409

Overseas sales

Property sales to the overseas (non-Cypriot) market during January 2019 fell 8% compared to the same month last year with 357 contracts of sale deposited compared with 387 in January 2017.

Although sales in Nicosia, Larnaca and Paphos rose by 70%, 15% and 8% respectively, they fell by 59% in Famagusta and by 28% in Limassol.

Total Overseas Property Sale Contracts – 2018/2019 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2018 20 12 22 24 18 23 21 7 21 19 20 23
2019 34
Famagusta 2018 51 34 22 40 45 34 43 21 24 21 33 17
2019 21
Larnaca 2018 52 55 49 42 58 72 71 47 61 70 61 51
2019 60
Limassol 2018 118 104 115 84 113 131 120 88 76 113 148 89
2019 85
Paphos 2018 146 155 129 136 158 125 171 108 120 180 166 170
2019 157
Totals 2018 387 360 337 326 392 385 426 271 302 403 428 350
2019 357

Sales to EU nationals

Property sales to EU nationals rose 19% compared with the same month last year.

With the exception Famagusta, where sales declined 40%, they rose in all the other districts.

Nicosia led the way with sales rising by 40% followed by Paphos, where sales rose by 37%. Sales in Larnaca and Limassol rose by 33% and 7% respectively.

Foreign (EU) Property Sale Contracts – 2018/2019 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2018 10 8 8 10 9 8 11 5 10 8 7 15
2019 14
Famagusta 2018 15 24 8 12 19 16 20 9 0 7 13 6
2019 9
Larnaca 2018 9 9 9 6 9 20 15 11 15 13 11 19
2019 12
Limassol 2018 15 17 32 17 19 22 25 24 11 27 38 20
2019 16
Paphos 2018 41 58 55 49 70 60 79 55 49 91 74 73
2019 56
Totals 2018 90 116 113 94 126 126 150 104 85 146 143 135
2019 107

Sales to non-EU nationals

Sales to non-EU nationals fell 16% compared with January 2018.

While sales in Nicosia doubled and sales in Larnaca rose by 12%, they fell in all the other districts.

Sales in Famagusta fell by 67%, while sales in Limassol and Paphos fell by 33% and 4% respectively.

Foreign (Non-EU) Property Sale Contracts – 2018/2019 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2018 10 4 13 14 9 15 10 2 11 11 13 8
2019 20
Famagusta 2018 36 10 14 28 26 18 23 12 24 14 20 9
2019 12
Larnaca 2018 43 46 40 36 49 52 56 36 46 57 50 32
2019 48
Limassol 2018 103 87 83 67 94 109 95 64 65 87 110 69
2019 69
Paphos 2018 105 97 74 87 88 65 92 53 71 89 92 97
2019 101
Totals 2018 297 244 224 232 266 259 276 167 217 257 285 215
2019 250

Analysis of property sales since 2000

Cyprus Property Sale Contracts 2000 – 2019

Year Overseas Sales Domestic Sales Percentage
Overseas Sales		 Total
Sales
2000 450 12,214 3.6% 12,664
2001 1,207 12,849 8.6% 14,056
2002 2,548 14,111 15.3% 16,659
2003 3,981 15,294 20.7% 19,275
2004 5,384 11,947 31.1% 17,331
2005 6,485 10,106 39.1% 16,591
2006 8,355 8,598 49.3% 16,953
2007 11,281 9,964 53.1% 21,245
2008 6,636 8,031 45.2% 14,667
2009 1,761 6,409 21.6% 8,170
2010 2,030 6,568 23.6% 8,598
2011 1,652 5,366 23.5% 7,018
2012 1,476 4,793 23.5% 6,269
2013 1,017 2,750 27.0% 3,767
2014 1,193 3,334 26.4% 4,527
2015 1,349 3,603 27.2% 4,952
2016
 1,813 5,250 25.7% 7,063
2017
 2,406 6,328 27.5% 8,734
20181 4,367 4,875 47.3% 9,242
2019 (Jan)
 357 409 46.6% 766
Totals
 65,748 152,799 30.1% 218,547

1 The Department of Lands & Surveys has advised that overseas sales in 2018 and subsequent year should not be compared to sales in previous years due to changes in the methodology used to classify ‘Aliens’ (foreigners).

1...251252253...697Page 252 of 697