Affordable housing on political agenda

Editorial
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Affordable housing on political agenda

IN A MOVE to counter rising rents and homelessness, the government is drafting a new housing policy to persuade the construction sector to build cheaper flats.

Part of the state’s new housing policy is a scheme dubbed “affordable housing” which sees the government offering incentives to developers in return for cost-price homes for vulnerable families.

The scheme is being prepared by the Ministry of Interior in cooperation with the Technical Chamber of Cyprus (ETEK) and involves incentives for the construction of affordable apartments.

One part of the housing policy will see the government raising the building coefficient by 25% or 30% for apartment blocks.

In the context of the “affordable housing” scheme, developers will be allowed to keep part of the construction built with the additional space, while the remainder will be used to accommodate vulnerable groups.

Stelios Achniotis, ETEK’s president told the Financial Mirror that based on what is being discussed, interested developers will be given an extension on the building coefficient (ETEK recommends 25% while the Ministry prefers 30%) and will have two years to apply for a town planning permit and three more to carry out the project.

Achniotis said 70% of flats being built with the extra coefficient will have to be rented out to vulnerable groups for a minimum of eight years, with the owners having the right to use the flats as they wish after the eight-year period.

“The state will contribute to providing affordable homes by offering vulnerable groups the opportunity to rent cheaper flats, and by adding new flats to the market which, we hope, will bring down rents. We are looking into finding a formula of calculating the rents for these flats that will benefit both landlord and tenants,” said Achniotis.

If developers opt to sell the additional flats built then 60% should be sold at a cost price to people meeting the criteria to be set.

“We believe that extending the building coefficient by 25% will be to the benefit of vulnerable groups of our society as the number of flats will increase. At the same time, it addresses another concern of ours which has to do with using up land for housing purposes at the expense of agricultural land,” said Achniotis.

“We see our cities expanding with no end in sight consuming more land than necessary. Nicosia, with the area it has taken up, could easily have housed 2 to 3 million people, but the way houses are being built, Nicosia can only house around 300,000 people,” he added.

Another part of the government’s strategy is to reduce the minimum size allowed for flats so that smaller apartments can be built. A relevant proposal was tabled at the House by ruling DISY’s chairman Averof Neophytou.

At the time, the proposal was met with scepticism by the opposition parties who said that the reduction in the minimum area allowed for flats will lead to developers building ‘boxes’, resulting in the deterioration of the quality of people’s lives.

However, Achniotis believes, at this point, it is more important for families and young couples to be able to put a roof over their heads rather than having the luxury of space.

Why a Mercedes and not a mini?

Property expert Antonis Loizou, Director of Antonis Loizou & Associates, said that he finds limitations on the minimum area required for flats to be ridiculous.

“According to the current law, a two-bedroom flat must cover a minimum of 80 sqm. With going prices, one square metre of a flat in Nicosia costs around €2,000. Thus, the difference between a 60 sqm. two-bedroom flat and an 80 sqm flat would be a good €40,000,” said Loizou.

“Why should a studio be 50 sqm by law and not 35? The sale price difference between the two is €30,000 and in the rent price around €100 a month,” he added.

Loizou said the Town Planning department insists on preserving the law as it does not want to see Cypriots living in ‘cages’.

“I understand their concern, but on the other hand though, if the citizens of this state are not able to buy or rent a home, what are the alternatives? To me, it sounds like saying that if we are to buy a car it has to be a Mercedes and by no means a Mini. If someone cannot afford a Mercedes shouldn’t they have the opportunity to buy a smaller car?”.

Meanwhile, developers seem to be backing the government’s plans in the belief that it will further stimulate growth in the construction industry.

The Federation of Associations of Building Contractors Cyprus (OSEOK) says that contractors and developers are exhibiting a vivid interest in incentives being put forward by the government as they find them to be attractive.

OSEOK’s Frangos Prokopas said that any relaxation on the building coefficient will mean that the cost of land for building is reduced, and the profit scope will increase. At the same time, it will give developers the opportunity to give back to the community.

“It will certainly create opportunities for a series of projects.”

Prokopas said that developers also support the government’s move to bring down the minimum area coverage for flats as this will also act as an incentive for developers to get on board the government’s affordable housing scheme.

“Building smaller flats, without luxury features, means easier projects which can be completed quicker. That means even lower cost, as developers will have to pay for fewer work hours”.

Prokopas argued that developers will not be building unreasonably small flats as they would want to see their units being sold.

Communal fees – sinking fund

Nigel Howarth
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Communal fees – sinking fund

IN ADDITION to ‘communal fees’ paid towards the annual cost of insuring, maintaining, repairing, restoring and managing jointly-owned properties, some Management Committees (MC) in Cyprus have set up a ‘sinking fund’.

A sinking fund is money collected and set aside to pay for unscheduled maintenance and repair of equipment that is not part of the planned annual maintenance activity. This includes redecoration of exterior walls, stairwells and roof, replacement of swimming pool liners, lift breakdowns, etc.

Although it is sometimes ignored a sinking fund protects the owners of units having to find money at short notice. E.g. If swimming pool equipment fails and needs replacing the owners could suddenly find themselves having to pay hundreds, possibly thousands, of Euros for the replacement equipment and labour costs.

However, to stay within the law, monies collected for a sinking fund should not be combined with the communal fees collected. This will result in a surplus in the account that could lead to legal problems as MCs in Paphos and Famagusta discovered last year when they took no-payers to court. The District Courts ruled that as the communal fund was in surplus there was no need for further contributions to the communal fees.

Setting up a Sinking Fund

As there is no provision in the Jointly-Owned Buildings Law for a sinking fund, the majority of the unit owners have to agree to it by passing a motion at a General Meeting of Owners as described in Part V of the law.

Assuming the majority of unit owners agree the motion to set up a sinking fund, they need to agree a motion setting out the total money to be collected during the forthcoming year.

Once the total money to be collected has been agreed, a further motion setting out each unit’s contribution to the fund has to be agreed. Although there is no requirement for each unit’s contribution to be assessed on the size of the unit as set out in the Standard Regulations contained in the Jointly-Owned Buildings Law, it will probably be more acceptable if the calculation is the same used for calculating  communal fees.

Finally, the MC needs to set up a separate bank account for the sinking fund.

(Note that total money to be collected for the sinking fund and communal fees can be revised at any time at a General Meeting of Owners, including their Annual General Meeting.)

Top ten Cyprus property stories in 2018

Nigel Howarth
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Top ten Cyprus property stories in 2018

CYPRUS Property News has attracted more than 850,000 visitors over the past year and as we approach the festive season.

Here are the top ten stories that have attracted the most interest from you, our readers, over the past 12 months:

Number 1: The Cyprus swimming pool nightmare – A follow-up article on the news that the Paphos Municipality were taking the owners of more than 150 communal swimming pools to court as they did not have a licence to operate the pool, a qualified lifeguard and/or other facilities as required by the 1992 swimming pool law and regulations that came into effect in 1996.

The government has made several vacuous announcements on the subject of public swimming pools over the past decade. Most recently in December 2016 when the Interior Ministry announced that the that the laws and regulations governing swimming pools would soon be revised. This is one of a number of vacuous announcements we’ve come to expect from central government during the past year.

Number 2: Tax shock for British residents in Cyprus – Signed in March, the revised double taxation agreement between the UK and Cyprus, required British residents in Cyprus in receipt of Government Service Pensions (GSPs) to pay income tax on those pensions to HMRC. This would impact retired UK civil servants, armed forces personnel, NHS staff, teachers, local government employees, police etc. whose pensions will be taxed by HMRC once the 2018 convention has been implemented. (Those in receipt of the UK State Pension and private pension(s) would not be affected.)

Although the change would benefit those on lower GSPs, I received many angry emails, predominately from retired armed forces personnel resident in Cyprus, demanding to know why the UK is discriminating against those who served their country in the public service. I passed these on, anonymised, to the relevant authority.

Number 3: Pension Christmas present from HMRC – News that amendments to the revised double taxation agreement between the UK and Cyprus (above) enables those receipt of Government Service Pensions (GSPs) to elect whether to pay income tax on that pension to the UK or Cypriot authorities. The election can be made from 1 January 2019 and will expire on 31 December 2024.

As well as benefiting those with higher GSPs the change will also be welcomed by those receiving more modest GSPs who will be better off if the amendment takes them out of the tax systems in Cyprus and the UK.

Number 4: Is it safe to buy property in Cyprus? – Although changes to the law in recent years have helped to reduce the risks when buying property in Cyprus, significant problems still remain in cases where properties are purchased for which no Title Deed has been issued.

Even in cases where a Title Deed has been issued encroachment, where a property has been partly built on a neighbour’s land can be a problem, particularly in the villages.

Number 5: Paphos marina contract awarded – After nearly three decades of bureaucratic delays and legal wrangles, the contract to build the long awaited Paphos marina at Potima bay between Kissonerga and Pegeia with a capacity of 1,000 berths was finally awarded to Pafilia.

However, in October Pafilia withdrew its interest blaming the indeterminate court procedures, which still continue, have not allowed the tender to be awarded.

Perhaps the grandchildren of those living in Paphos will be able to enjoy the marina, assuming it’s built.

Number 6: Swimming pool owners face court action – Following inspections carried out by the Paphos Municipality, the owners of more than 150 unlicensed communal pools face court action as their pools do not have a licence, a lifeguard, or someone responsible for inspecting the pool on a daily basis to ensure it complies with health and safety regulations. Some pools do not have the required changing rooms, toilets, showers, etc. (which makes you wonder why the developer managed to get a building permit?)

In October the law firm of L.G. Zambartas LLC held a free ‘Complex Management seminar‘ in Paphos, half of which was dedicated to the subject of swimming pools.

A private company set up a petition Calling for a fair and honest review of the Swimming Pool Regulations for apartment complexes and resorts.

The Management Committees of a number of apartment blocks and other complexes with communal pools have closed them to avoid heavy fines.

There are many hotels that operate public swimming pools without a lifeguard, etc.; they merely have signs warning bathers of the risks. But not one of these has been targeted by the Paphos Municipality; I wonder why?

Yet another unwanted problem damaging the island’s property sector!

Number 7: Trapped buyers get Christmas present promise – At the beginning of November political parties said they intended to resolve the Title-Deed-cum-Fraud mess created by nefarious developers who deliberately sold properties built on mortgaged land to their customers. The Land Registry reported that there were in the region of 70,000 such cases.

Problems arose when the bankers (spelt with a capital ‘W’) claimed successfully in the lower courts that the so-called ‘trapped buyers’ law was unconstitutional. This enabled the banks to block the transfer of properties to their rightful owners even though they could prove that they’d paid the developer in full for the property.

It’s now 22nd December and there is only one working day until the Christmas deadline. Yet another vacuous announcement from the politicians! How can anyone believe a single word they say?

Number 8: Is the Cyprus construction boom sustainable? – Some fear that what is happening in the Cyprus construction sector is another bubble, like the one that saw the property market collapse and the banking system virtually decimated – and which eventually resulted in Cyprus going cap-in-hand to Europe for money to bail out the island’s economy.

Recently, Frederick University’s Architecture and Urban Planning Professor Vyronas Ioannou said he feared what he called ‘zombie buildings’ where a number of housing units bought by Chinese investors have been abandoned.

Another expert has warned of an upcoming bubble as mushrooming tower blocks have pushed house prices and rents to previously unseen limits.

Number 9: You would be mad to buy a holiday home in Cyprus – Although it was published more than four years ago, a Fellow of the Royal Institution of Chartered Surveyors said you would be certifiably insane or just plain awash with money to even begin thinking about buying a holiday home in Cyprus; governments have really done nothing to resolve the Title Deeds disaster.

He notes that property in Cyprus is of such poor quality and very expensive, and there is no respect for the customer or understanding of their needs.

Number 10: High-rise developments coming to Paphos – News that the Town Planning Committee of the Paphos Municipality had given the green light for permits to be issued for the construction of two 20-storey high-rise buildings on Poseidonos Avenue next to the Aloe Hotel.

Within a week a 500-strong group ‘Movement to Save Paphos’ had been formed saying there was no need for high-rise buildings in the district and that an expert body should be formed to offer proper advice before it is too late.

Meanwhile Paphos municipality announced that it had received 10 applications for the construction of high-rise buildings of between eight and 20 floors in areas such as Kato Paphos and Anavargos.

May I take this opportunity to wish you a Merry Christmas and a Happy and Healthy 2019.

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Let us all hope that MPs and the Cyprus Government make a New Year Resolution to keep their promises to resolve the Title-Deed-cum-Fraud mess and revise the archaic swimming pool law and regulations!

 

Fighting for Pissouri landslide victims

Stelios Marathovouniotis
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Fighting for Pissouri landslide victims

Peter & Kayt Fields home in Pissouri destroyed by landslideA SLOW-MOVING landslide which has caused damage to the soil and houses is affecting the “Limnes” area of Pissouri, as the village is located in a problematic geological zone, philenews reports.

Pissouri residents have been raising the problem since 2012, when a land slippage first appeared in the village.

Since then, many houses have sustained enormous damage. Georgia-Elina Zoi, lawyer of the Pissouri Housing Initiative Group (PHIG) cited the example of one house which has moved a full metre from its place.

Four families have had to leave their homes, without receiving compensation, as insurers in Cyprus do not cover landslides and it is the government which is responsible for paying compensation for damage from natural disasters.

“The government should stop pretending that it is the fault of the studies and admit that there is a landslide, to compensate those who have sustained damage and to issue title deeds,” she said.

Who are affected?

According to Zoi, Limnes is mainly inhabited by British and British-Cypriot pensioners, as well as young families.

Zoi says that Limnes residents who are not Cypriot citizens have no property back home and no access to the local banking system, in order to receive loans. “If they lose their property, they will lose everything,” she said. Others, have taken out loans to build their houses and are now paying mortgages for houses that are collapsing.

“The government is waiting for the residents to leave or die. It is unacceptable for a state to not take care of its citizens and to expect from them to respond to natural disasters on their own,” Zoi said.

In September, the issue caught the attention of the BBC which highlighted the plight of British families whose homes have been ripped apart.

BBC One’s Inside Out South programme interviewed couples who said they had been abandoned by the government. Zoi told Radio Active that the state is dragging its feet, refusing to pay compensation.

[youtube= https://www.youtube.com/watch?v=f6K3iqFjaQY&w=470&rel=0]

“This is all we have. This was our dream home,” a tearful Katherine Yeomans told the programme. “We can’t go back to the UK because we have nothing there. We have no property there.”

500,000 sqm. are affected and the area’s increasing

PHIG has obtained studies from experts and satellite imaging, at a cost of €25,000, which measures the movement of the land. According to the study, the movement is up to 40 cm per year.

“We have proven the existence of an active slow-moving landslide, which is a natural disaster. The affected area measures around 500 thousand square metres and is increasing. The Republic of Cyprus should contact the competent bodies of the European Union and request financial assistance through European funds for natural disasters,” Zoi argued.

According to Zoi, all studies agree that a major factor in activating the phenomenon is the accumulation of large quantities of water in the subsoil, which comes from two sources: rain water and sewage water.

Lack of infrastructure

Lack of appropriate infrastructure has led to the accumulation of large quantities of water and the destabilisation of the soil, causing the slow-moving landslide phenomenon, the speed of which, however, has more than tripled in 2018, due to increased rainfall, Zoi says.

No evacuation plan

According to Zoi, state authorities have no evacuation plan for a case of natural disaster in the area.

The community and the Limassol District Administration are trying to open new roads through dirt fields as current roads are retreating and holes opening up. People are concerned that these roads, which could provide an escape route in case of danger, will turn into mud and trap cars, as has happened in the past, Zoi said.

“There is no plan to evacuate the area, or a plan to relocate or even temporarily house the residents in the event of a natural disaster. We worry that residents will get trapped in their homes without water and electricity if the winter continues like this. Most of last week the water was cut, while the electricity authority was replacing and expanding cables, trying to improve power supply,” Zoi said.

Proposed solutions

The Technical Chamber said that after it was informed about situation in 2015 it had sought and obtained information from the Interior Ministry as to what was to blame for the problem.

The Interior Ministry study included a proposal for constructing a pipeline network for groundwater monitoring as wells as pumps for the extraction of excess water. The cost of this system has been estimated at €20 million, but it has remained on paper.

In October 2017, the Interior Ministry announced that it will conduct a competition to study the problem and propose solutions.

Residents say that a new study will be conducted by the company that will win the competition. Then, the state will examine the study and decide whether it wants to adopt the proposed solution or to relocate the affected citizens. A process that might take many years.

The main request of the PHIG is the immediate relocation of the residents whose homes are on rift lines.

© In-Cyprus.com

Photographs landslide photographs

Photographs showing some of the ongoing damage caused by the landslide in Pissouri.

KPMG Cyprus real estate report

Nigel Howarth
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KPMG Cyprus real estate report

KPMG has published the 9th edition of the ‘Cyprus Real Estate Market Report – The Insights‘, which summarises the key trends and major drivers of the Cyprus real estate market focussing on Q1-Q3 2018, the latest period for which data is available.

KPMG notes that overcoming the challenges of recent years, the Cypriot economy continued its positive growth in 2018, with GDP year-on-year growth expected to reach 4% (almost twice the EU average) and unemployment dropping to 7.5% in August 2018.

The positive economic growth has led to a series of upgrades of the Cyprus sovereign rating from international credit rating agencies; the latest upgrade to “Investment Grade” with a stable outlook was given by Fitch in October 2018, Cyprus’ first exit from “Non-Investment” grade since 2012.

Building permits continued their upward trend both in volume (+8%) and value (+20%) in the 1st half of 2018. Larnaca saw the biggest increase in volume (25%) and Famagusta in value (86%), when compared to the previous year.

Real Estate activity continued its upward movement in 2018, with Contracts of Sale increasing by 21%. Limassol had the biggest share (37%) of the market, while Famagusta the biggest increase (+37%) in sales. Non-Cypriots accounted for 48% of the overall number of contracts in 2018.

Notable Real Estate Matters, include the increase in the number of transactions for high value properties (more than €1 million) with a Compound Annual Growth Rate (CAGR) of 88% from 2013-2017. New building permits for hotels have grown 219% in terms of their square meterage during the first half of 2018 when compared to the first half of 2017. Bookings through AirBnB showed an increase of 49% for the first nine months of 2018.

Further reading

Cyprus Real Estate Market Report – The Insights

Pension Christmas present from HMRC

Nigel Howarth
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Pension Christmas present from HMRC

CHANGES to the revised Double Taxation Convention between Cyprus and the United Kingdom earlier this year resulted in changes to the tax arrangements for some UK nationals living in Cyprus.

The revised convention changed the way that UK government service pensions are taxed. It meant that government service pensions which are currently taxed in Cyprus will become taxable in the UK from 1 January 2019.

This change impacts the pensions received by retired UK civil servants, armed forces personnel, NHS staff, teachers, local government employees, police etc. whose pensions will be taxed by HM Revenue & Customs (HMRC).

I’ve received the following good news from the British High Commission:

Amendment to the 2018 Convention

The UK government has agreed with the government of Cyprus to amend the 2018 convention in respect of government service pensions. The amendment will allow individuals to choose which basis of taxation they want to apply to their government service pensions. This choice can be made from 1 January 2019 and will expire on 31 December 2024.

What you need to do

If you want your government service pension to be taxed in the country in which you are resident.

You must make an election to the tax authority of the country that is paying the pension. So, if your pension is paid by the UK, you must make an election to HMRC.

You can make an election at any time after 1 January 2019. Your election will apply to all pension payments received for the whole of the year in which your election is made, as well as to pension payments received in every year afterwards until 31 December 2024. So, if you make an election on 30 December 2020 it will apply to all pension payments you receive from 1 January 2020 until 31 December 2024.

Your election must be in writing and should state:

“I elect for my government service pension to be taxed in accordance with the 1974 Double Taxation Convention between the UK and Cyprus. I understand that this election will continue to apply until 31 December 2024 or until I revoke it.”

You should also include your full name and address, your UK Unique Taxpayer Reference (UTR) or National Insurance Number and your tax reference in Cyprus.

You can revoke your election at any time after you have made it. If you revoke the election the 2018 Convention will apply to all pension income received for the whole year in which the revocation is made.

Elections and revocations made to HMRC will automatically be shared with the Cyprus Ministry of Finance (and vice versa).

If you want your government service pension to be taxed in the country that pays the pension

You do not need to make an election. However, you may need to notify the relevant tax authority of your taxable income. So, if you are a Cyprus resident in receipt of a UK government service pension, you may need to let HMRC know about your pension income. Failure to notify HMRC of your income may result in interest and penalties being charged.

Welcome relief

This change will be welcomed by the many retired armed forces personnel resident in Cyprus who sent me angry emails, demanding to know why the UK was discriminating against those who served their country in the public service.

The change will also be welcomed by those receiving more modest government service pensions who will be better off the change takes them out of the tax systems in Cyprus and the UK.

Further reading and guidance

Government service pensions under the UK/Cyprus Double Taxation Convention (further information and guidance).

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