Property news in brief

Nigel Howarth
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Property news in brief

Cyprus property news in briefOVER the past week a number of news reports concerning property in Cyprus have appeared in the local media about non-performing loans (NPLs), recent property deals and the bank of Cyprus.

Non-performing loans

The International Monetary Fund (IMF) has urged Cyprus to reduce its NPL ratios, which are the second highest in Europe.

In a statement following the conclusion of its Article IV consultation with Cyprus, the IMF Executive Board said that Cyprus is recovering strongly following the 2012–13 crisis. GDP grew by 4% (yoy) in the first half of 2018, driven by tourism, professional services and foreign investment in construction as well as continued strength in private consumption.

However, the IMF Executive Board warned that “Private and public debt remain large while NPL ratios are still among the highest in Europe. They encouraged the authorities to make further efforts to address these legacy problems and strengthen economic growth over the medium term.”

It said the “Directors emphasized the importance of further measures to facilitate a steady decline in NPLs on a durable basis”.

The IMF Directors highlighted the importance of further measures to facilitate a steady decline in NPLs on a durable basis calling for “steadfast implementation of the amended legislative framework on foreclosure, insolvency, sale of loans, and securitization, supplemented by a strengthening of the court system and removal of uncertainties related to title deeds,” and “the need to enhance the governance and supervisory framework for the recently-established asset management company.”

Property deals worth €450 million

Insider reported on Monday that investors from Russia, Israel, Lebanon, China and elsewhere have made investments in Cyprus real estate worth €450 million.

The ten most significant investments were:

  • A coastal plot of land in Limassol was sold to a Russian investor for €80 million. A residential and commercial development, Trilogy, is planned on the site.
  • A coastal plot of land in Pyrgos, Limassol was sold for some €40 million to a Lebanese investor who is also pressing ahead with a mixed used development.
  • Another coastal plot in Limassol was sold for approximately €30 million to investors from Cyprus and China who will build Cyprus’ first Sofitel.
  • The Kermia hotel in Ayia Napa was sold for €26.5 million to Atlantica. Significant investments were made in renovating and expanding it after the acquisition.
  • Three hotels in the Paphos district (Cypria Maris, Laoura, Cyprian Bay) of a total value of €60 million were bought by the Israel-interest company Fatal which went ahead with renovations and rebranding.
  • The Paphian Sun hotel in Paphos which was closed for an extensive period was bought by the Cypriot hotel company Atlantica for €15 million and is currently under renovation so that it can start operation in the summer of 2019.
  • The former Holiday Inn hotel in Nicosia was recently bought by the Greek company Pangaia for €12.5 million which plans to renovate it.
  • Tourist land in Sotira, in the Famagusta district, was sold for €12m to an Israel investor.
  • A plot of land in Pegeia (Peyia) was acquired for €10 million by a Russian investor.
  • A building on Nicosia’s Makarios Avenue was acquired for €10 million and demolished. The tallest building in the capital, the 360, is currently under construction on the site.

Other smaller deals include the acquisition by the Senior School of the former Bank of Cyprus sports centre, a coastal plot of land in Limassol, land in Phinikoudes, Larnaca and a €6 million villa in Limassol.

Insider also reported that the BoC’s Real Estate Management Unit (REMU) agreed to sell the former headquarters of the Anastasios Stephanides group near the Mall of Cyprus to Jumbo. It also sold the former Orphanides in Limassol, to Jumbo and Alpha Mega.

Bank of Cyprus

On Tuesday the Bank of Cyprus announced an after-tax loss of €37 million for the first nine months of 2018 compared with an after-tax loss of €553 million in the first nine months of last year. The bank posted a €17 million profit in the 3rd quarter compared with a loss of €97 million in the 2nd quarter.

In a statement BoC Group Chief Executive John Hourican said “Our results this quarter reflect continuing delivery against our core objective of balance sheet repair.”

This was accelerated through the agreement for the sale of non-performing loans in Project Helix.

Hourican said Helix was an important step forward in repairing the bank’s balance sheet and stabilising its capital position adding that “we expect execution in the first quarter of 2019, upon receipt of regulatory approval from the ECB.”

Debt to asset swaps

On Wednesday Phileleftheros reported that nine hotels and three golf courses have come into the possession of the Bank of Cyprus in debt to asset swaps, and the bank’s Real Estate Management Unit (REMU) is looking for buyers.

The total value of these debt to asset swaps was €302 million of which €37 million was the value of the hotels and the golf courses €265.

REMU has increased the real estate under management by 1,057 in the first nine months of 2018. In 2017, it had 1,951 properties with a book value of €1.64 billion. At the end of September 2018, the number of properties exchanged for debt was 3,008 with a value of €1.56 billion.

At the end of September 2018, the BoC’s balance sheet had 557 housing properties worth €163 million, 226 offices and other commercial properties worth €221 million, 56 manufacturing units worth €81 million, nine hotels (€37 million), 1,505 plots of land (€585 million), three golf courses (€265 million) and 61 buildings under construction (€78 million).

The paper added that the group completed the sale of properties of €154 million in the first nine months of 2018, generating profits of €32 million.

High rents and homelessness

Editorial
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High rents and homelessness

Cyprus: High rents and homelessnessWITH HOMELESSNESS on the rise MPs and other stakeholders have called for the government to revise its policy on social housing given to 1974 refugees and their family.

The House Interior Committee on Tuesday heard a group of activists claim that the state services are not responding to their calls to help homeless people who cannot afford a roof over their heads due to the rise in rents.

A representative from the “Movement for protection of the right to housing” pointed out to the committee that a person with an income of €500 a month is homeless because “to rent a small place to live they are asked a rent of €600 a month with two months up front and a month’s deposit “.

He indicated that the total cost of moving could reach €2,500.

“You are accountable to these people, you have to assume your responsibilities,” Lefteris Georgiou said, addressing both the MPs and a Ministry of Interior official present at the meeting.

The ministry’s representative confirmed that it had received 130 complaints, regarding homeless people. She said that 50 people involved in the cases reported were taken in by their family while adding that the Limassol Municipality has suggested creating a centre to temporarily accommodate homeless citizens.

She added that 80 persons were housed in reception centres adding that out of these 80 individuals, 60% were third-country nationals.

Individuals needing immediate shelter are accommodated in hotels, she added.

On Wednesday the cabinet approved of a 10% increase on the rent subsidy for vulnerable groups. The increase will be effective as of 1/1/2019 and will be given to some 4,500 beneficiaries.

The previous increase of 15% was approved on 29 November 2017, with this 10% rise being added to it, the total increase has risen to 25%.

As things are today the ceiling for a rent subsidy is €154 per month

A government roadmap is being prepared to pave the way for affordable housing, which will include a series of incentives.

Referring to the strategic housing plan being prepared, the ministry said that it will be more targeted than the previous one, noting that within the next few months the first phase of the plan, which concerns the rural areas, will be put into motion.

Limassol Rents

AKEL MP Eleni Mavrou argues that rents in Limassol are twice as high as the average rent island-wide, while at the same time, citizens’ incomes are not rising.

She said rents in Limassol, and to a lesser extent in Nicosia, are higher than European cities such as Amsterdam and Barcelona.

Quoting data from the statistical services, she said that average rents for apartments rose by 12.5% island-wide in 2017. In Limassol, they jumped by 25%. For houses, rents rose by 9.2% and 10.20% in Limassol.

According to the same data, studio apartments in Nicosia are rented between €250-€500 (near universities €350-€500) while one-bedroom apartments range from €350-€675, two-bedroom €500-€850 and three-bedroom range from €850-€1,300.

Talking to the Financial Mirror, Mavrou referred to tragic cases that have been brought to her attention.

“Just the other day an elderly citizen contacted us, to inform us that she is being evicted from the house she is currently renting as the owner feels that he is entitled to raise the rent. The old woman was evicted because she could not cover the increase asked by the landlord,” she said.

Mavrou added that the elderly lady receives the Minimum Guaranteed Income which is €400 with her rent being 350 while receiving €150 as rent subsidy from the welfare services.

“That means she had to pay €200 towards her rent and get through the month with the remaining 200. How is this person expected to pay her bills and buy her medication?” wondered the AKEL MP.

She believes that rents, especially in Limassol, are being pushed up by expectations created by a property bubble in the real estate sector.

“Euphoria is being cultivated around the construction and real estate industry and a seemingly high demand has led property owners to feel that they are entitled to more rent”.

Mavrou added that she has asked for information on the Ministry of Finance’s study on the implications of the citizenship for investment project, which she said helped to create the bubble.

She said that there are only a handful of areas where demand is indeed high.

Mavrou said the 130 homeless cases mentioned in parliament are just the tip of the iceberg.

“These are the people we know of. There are certainly more that are either staying with relatives or friends”.

She expects the problem of high rents and homelessness to worsen once banks start repossessing homes over the coming months.

Affordable housing

Andreas Frangos, the President of the Cyprus Land Development Corporation’s (CLDC) Board of Directors, told the Financial Mirror that the solutions lie in the revision of state policy regarding social housing.

“Until recently social housing was provided to 1974 refugees and their immediate family on the sole criteria of origin, that is if they originated from an occupied village. We believe that it is due time that we revise this policy. The state should start providing social housing on the basis of financial criteria to help those truly in need,” said Frangos.

He said that by providing social housing at affordable prices for people in need, would go a long way in tackling high rents.

Frangos noted that a lot of young couples are not able to afford to buy a house as banks are still reluctant to give out mortgages.

Acting on President Nicos Anastasiades’ orders, the CLDC has taken on the task of preparing a file with the terms of reference for the expert who is to prepare a study on government housing policy.

Anastasiades announced during his election campaign that the state’s housing policy would be placed under the auspices of the CLDC.

Frangos said that along with the file containing the terms of reference, the corporation has passed on to the president a set of recommendations which could help the state to tackle the problem of high rents and homelessness.

“Unfortunately, the state does not seem keen on our proposals and instructed us not to proceed with any new projects until the study on the state’s housing policy is completed.”

The state could impose on developers of big projects to include at least one social housing unit to be given to the corporation. “In France developers of big projects must allocate 20% of their project to social housing units,” said Frangos.

He also referred to the corporation’s proposal to build premises which can host young professionals wanting to set up their own business.

“These buildings can be used as shared offices for start-up companies which cannot find financing to rent a workstation”.

However, he expressed his disappointment at the stance of the government, as he does not understand why the corporation has not been given the green light.

Agreement close on Airbnb type rentals

Elias Hazou
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Agreement close on Airbnb type rentals

Airbnb rentalsAFTER several weeks of discussion, lawmakers are close to agreeing a bill regulating the operation of short-term Airbnb-style property rentals.

The key remaining question related to short-term rentals of apartments in residential areas.

On Tuesday the House commerce committee said it had narrowed down three scenarios. Under the first, rentals in residential buildings would be permitted in all cases, with the owner/landlord free to charge whatever he or she wants.

Alternatively, the renting out of a flat in a residential building would be subject to the approval of the majority of the tenants.

The third option, which seemed to be gaining ground, would be to give a say to the management committee of a communal building.

In this way, said Diko MP Angelos Votsis, a management committee would either approve or reject the use of a flat for short-term rental if this practice were deemed to cause problems to the remaining tenants.

Where a building lacks a management committee, the matter would be resolved by a vote among the tenants, requiring a majority.

The commerce ministry as well as the Cyprus Tourism Organisation appeared to be on board with this latter proposal.

MPs will decide which is the preferred option at the next session of the committee so that the final draft of the bill can be written up and then tabled to the plenum.

The legislative proposal aims to create a dedicated registry for short-term self-catering accommodation and then taxing that income, bringing cash into state coffers.

The bill covers villas, residences and apartments used for tourism purposes.

Earlier, the committee had heard there are an estimated 40,000 accommodations across the island being used for short-term rentals that are unlicensed and thus not subject to the legislation governing tourist lodgings.

Each property thus registered is to be assigned a number, which will be used in online advertising platforms so that punters may know whether the property in question is registered or not.

Though not opposed to the registry, Akel MP Costas Costa reiterated his concern that self-catering accommodations might not be able to comply with the raft of safety and technical regulations, discouraging many from renting out their properties on a short-term basis.

This, he said, risked defeating the very purpose of the proposed legislation which, while intended to generate tax revenue for the state, could also strip many owners of a source of income.

Is it safe to buy property in Cyprus?

Nigel Howarth
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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.

Where no Title Deed has been issued for a property being purchased, depositing the sale agreement at a Land Registry Office prevents the vendor from selling the property to someone else. (However, a small number of cases have been reported where contracts have been removed from the Land Registry and the property sold to a third party.)

In cases where a contract has been deposited at a Land Registry Office and the vendor fails to fulfil his contractual obligations, the purchaser can apply to a Court demanding the transfer of the property to their name. But, of course, the property cannot be transferred if there is no Title Deed.

Furthermore, Article 10 of the Streets and Buildings Regulation Law, Cap 96, clearly states that “no person shall occupy or use, or cause, permit, or suffer any other person to occupy or use, any building unless and until a certificate of approval has been issued in respect thereof by the competent authority.”

Once completed, buildings are inspected to ensure they comply with the various permits and approved plans for their construction by the planning authorities, fire services, etc. These inspections also ensure fire doors and other vital health and safety measures have been incorporated in the building. Once issued this ‘Certificate of Approval’ together with the plans, permits, etc. is passed to the Land Registry who can then start the process of issuing the buildings Title Deed(s)

In more than 20 years I have not heard of a single case where criminal proceedings have been brought against anyone occupying, using, etc. building for which no Certificate of Approval has been issued. What is the point of having a law that is never enforced? And if it were enforced who is going to wait the many years it takes the authorities to issue this certificate until they can move into their new home?

Further problems arise when developers fail to complete developments, leaving roads, pavements, green areas, etc. unfinished. In these cases, it’s the hapless buyers who have to pay for any outstanding work to be completed before they can get clean Title Deeds. And in some cases, the planning infringements may be so severe that Title Deeds may never be issued!

What property is safe to buy?

It’s usually safe to buy properties that have been issued with their all-important Title Deeds. However, it’s not all plain sailing.

Encroachment, where a property has been built on a neighbour’s land, can be a problem in the villages. I would advise anyone buying an older property or land in a village to have its boundaries checked by a registered surveyor.

And in all cases use an independent lawyer to protect your interests and carry out due diligence on your behalf. By ‘independent’ I mean a lawyer who has no connection with anyone else involved in the transaction and who is licenced by the Cyprus Bar Association. The UK Foreign and Commonwealth Office publishes a list of English speaking lawyers available on their website at Cyprus – List of Lawyers and translators/interpreters.

High rise developments in jeopardy

Editorial
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High rise developments in jeopardy

Cyprus: High rise developments in jeopardyCHANGES to the environmental law could jeopardise luxury high rise developments that are driving growth in the construction industry as delays will have a negative impact on the economy, argue project managers.

The amendments voted in on 31 July 2018, demand that developers of high rises submit a complete environmental study with tall buildings being identified by law as “any building with a floor number of more than 2 above the maximum number of floors specified in the Local Plan and Policy Statement”.

According to the Association of Large Investment Projects, the main issue with the amendments, is that even five-storey buildings will be considered tall buildings and developers will be subject to submitting a comprehensive environmental study.

The amendments are an effort to harmonise Cypriot law with a 2014 European Union directive that aims to protect the environment and public health by assessing the environmental impact of public and private projects.

However, developers feel that MPs have gone beyond the call of duty to protect the environment and have applied stricter criteria than those suggested by the EU.

“It is understood that this new provision will create an additional workload in the Department of the Environment, prolonging the already long delays, which will put more strain on investors wanting to go ahead with any development,” said urban planning consultant of the Association, Yiannos Papadopoulos.

He told the Financial Mirror, that the head of the Environmental Department, Costas Hadjipanayiotou had said that with the existing volume of pending studies, the Department will need more than a year to go through them.

He added that the time needed for each case to be examined will significantly increase as smaller projects will also have to submit environmental studies.

Papadopoulos commented that there is a significant number of luxury tower projects in the pipeline.

“Without any doubt, this new state of affairs will inevitably bring about irreversible negative consequences for the economy, as well as huge damage to businesses, thus discouraging any new developments,” Papadopoulos said.

He added that the new amendments are essentially revoking incentives put forward by the cabinet for promoting big projects such as the high rise accommodation which is a significant source of income for the Cypriot economy.

“We are not questioning the necessity of submitting an environmental study for projects such as towers being built on the Limassol seafront.

As developers we acknowledge that building 20 to 30-storey buildings has an impact on the environment which needs to be assessed. However, we believe that smaller projects being asked to submit environmental studies will only put unnecessary strain on the system,” he said.

Developers are asking the state to revise the legislation so as not to create any additional red tape, adding to the already bad name Cyprus carries with regards to bureaucracy, argued Papadopoulos.

“For the sake of the economy and in order to avoid a freeze in investments, the state should ensure that environmental legislation is amended appropriately so that environmental studies for projects with a significant impact on the environment will need to submit a complete environmental study. As is the case in any other EU member state.”

The urban planning consultant said that in other EU countries only high rises built in environmentally sensitive areas, identified with specific criteria, are obliged to submit an environmental study.

“I really wonder why we are not following the best practices of other European countries on these issues and instead are introducing unnecessary restrictions that may cancel out any incentive plan for development on the island,” Papadopoulos said.

He stressed that the government should also be looking into ways of speeding up red tape processes for development projects.

“As things stand today, it takes 3-5 years for a developer to obtain a building permit. The state needs to minimise this period to 3-5 months and do away with the grey areas in the relevant legislation so as to truly make Cyprus an investment destination.”

Knock-on effect

Chairman of the Cyprus Property Owners Association George Mouskides, acknowledging the need for high rises to submit a complete environmental study, said changing the definition of what constitutes a tall building, will only cause delays which will have a knock-on effect down the road.

“Demanding complete environmental studies from five-story buildings, thus increasing the workload of the Environmental Department and creating further delays, will only increase costs for the developers. A cost which will be reflected in the end-price of the property, pushing prices up and creating a chain reaction in the market,” said Mouskides.

Talking to the Financial Mirror, a high-ranking official at the Ministry of Agriculture and Environment, confirmed that amendments made to the law will see delays increase significantly, but the department believes their introduction is vital for the preservation of the environment.

The official also confirmed that Cyprus has opted stricter regulations than the other EU countries as the island has unique characteristics.

“In a small town like Limassol we have witnessed the concentration of a number of high rises which are putting a strain on the environment. These buildings are close to the coastline and near beaches which are frequented by bathers.”

She said the authorities needed to address the issue of loopholes in the existing legislation which allowed developers of high rises to ‘get away’ with submitting a full environmental study if the project was also of a commercial nature.

The Ministry official said there would be no objection to the amendments being reviewed if evidence is presented demonstrating that they are putting an unnecessary workload on the Environmental Department.

“The Ministry understands developers’ concerns and is doing its best to minimise the time needed to go through the studies,” said the official.

Cyprus real estate sector looking up

Editorial
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Cyprus real estate sector looking up

Cyprus real estate sector looking upA PWC REPORT on the Cyprus Real Estate Market “First Half in Review H1 2018” showed that sale transactions reached 4,470 with the Land registry in H1, creating hopes that sales will surpass 2017’s eight-year high of 8,734.

The number of 2018 H1 sales represent an uplift of 24% compared to the 3,610 sale contracts filed at the land registry during H1 2017.

According to PwC, the messages in the report are clearly positive despite the market still being heavily depended on foreign buyers and the investment for citizenship scheme.

PwC’s real estate advisor told the Financial Mirror that an increase in demand from local buyers has also been recorded “helping the diversification of the market”.

Constantinos Savvides, director of PwC’s real Estate Advisory department said: “We are not talking about only an increase in absolute numbers, but also of an increase in the value of projects for which licenses have been issued in the first six months of the year which amounts to EUR 750 million. In the same period in 2017, projects obtaining licenses were worth EUR 650 million.”

In terms of the number of sale contracts submitted to the land registry in H1 2018, the majority of transactions (37%) were in Limassol, followed by Paphos (23%).

Nicosia district, which is a market predominantly appealing to the local segment, comprised 18% of total transactions. Larnaca and Famagusta districts had 15% and 7% of the market share respectively.

“The investment for citizenship scheme is still playing its role in market growth. Transactions involving foreign investors have more than doubled with Limassol and Paphos having the lion’s share with 70% of transactions involving foreigners,” explained Savvides.

The highest share as regards sale contracts filed by foreign buyers was in Paphos (39%), followed by Limassol (31%).

According to the PwC report, a total of 2,187 out of 4,470 properties sold in Cyprus in January-June were acquired by foreigners.

Savvides said approximately 70% of properties acquired by foreigners relate to non-EU buyers. In Limassol, 82% of foreign transactions relate to non-EU buyers. The respective share of non-EU resident acquisitions in Paphos and Larnaca stood at 61% and 81% respectively.

Demand for high- end residential properties over €1.5 million

Since 2014, following revisions to the scheme for naturalisation of investors in Cyprus, demand for high-end properties has been increasing continuously. During the first half of 2018, the total number of high-end residential transactions was estimated at 131, representing an 8% increase compared to the same period of 2017.

High-end properties sold in 2018 are estimated to have generated more than EUR 500 million, with the average cost of a luxury apartment or villa fetching between EUR 2-3 million.

Limassol continues to be the district with the biggest share of high-end residential property transactions (63% of total transactions in H1 2018), followed by Paphos (29%).

The two districts combined make up 92% of this segment of the market. High-end residential transactions in Famagusta and Larnaca represented 8% of the total (11 transactions), whereas in Nicosia no single residential transaction exceeding €1.5 million was identified during the period.

As per land registry data, during H1 2018, 80% of high-end residential property transactions in Limassol related to apartments, with the remainder 20% relating to villas.

As regards Paphos, almost entirely high-end residential transactions recorded in H1 2018 were villas.

Most of the transactions, 80 out 131, in the high-end residential segment across Cyprus during the first half of 2018 were in the €2million – €3million price band.

While real estate experts feel that developers of high-end projects, and especially the mushrooming towers in Limassol and other coastal areas, may at some point find themselves having difficulties selling their apartments, they do not see this affecting the real economy or destroying the real estate sector.

George Mountis of Delfi Partners said that although pressure is being exercised by the EU and other institutions for Cyprus to limit the investment for citizenship scheme, he does not see the scheme being stopped any time soon.

He added that what he sees is the interest from foreign investors is increasing rather than dropping.

“It is true that we are witnessing a gradual decline in Russian interest for passports and investments as a result of the natural course of a cycle, and Russia’s president Putin’s efforts to repatriate Russian capital. However, there is an ever-increasing interest from investors from China, Middle Eastern countries such as Lebanon and Syria, and the UAE countries,” said Mountis.

He does not see an imminent threat as even in the case that the scheme is frozen for some reason, the damage to the sector and the real economy will be minimal.

“Almost all of the high-end projects are being built with investors’ money who have pre-bought the properties, and with close to zero lending.”

Local demand

Chairman of the Cyprus Property Owners Association George Mouskides said luxury properties have exhibited a dramatic increase in their price, with apartments being sold at prices higher than their real value.

“However, they should be examined separately from the rest of the real estate market, as they do not impact the price of the housing sector,” said Mouskides.

He did note that towers have pushed prices of neighbouring properties upwards, but they have had no impact on prices of the overall housing market.

Mouskides said that the increase in house prices has more to do with the increase in demand from locals.

“In 2016, price index movements recording Residential Property Prices demonstrated signs of marginal improvement and stabilisation. In 2017, for the first time during the 8-year period 2010-2017, both price indices behaved positively. During H1 2018, the Central Bank index demonstrated a 2% growth compared to H1 2017.”

Mouskides found the increase in demand by Cypriots to buy a house is encouraging and commented that he found that prices are recording “a healthy rise”.

“The fact that Nicosia is taking the lead in building permits (39%) leaving Limassol behind with 29% is a clear indication that locals have returned to the market and the sector is becoming more diversified.”

As the PwC report shows, with respect to the types of properties licensed for development during H1 2018, residential properties comprise the majority of permits (81% of total licensed surface area). The share of permits relating to commercial properties seems to have declined from 2017 (H1 2018: 18% Vs 2017: 24%).

During H1 2018, the number of building permits increased by 8% YoY, while the value of new building permits exhibited an annual growth of 20% compared to H1 2017.

In line with the trends observed in prior years, new real estate developments being planned continue to be, on average, of higher value.

Mouskides said that estate agents have recorded significantly high purchases of plots by developers during the year, especially in Nicosia adding that they “expect to see a building frenzy over the next five years on the island”.

PwC partner, Constantinos Savvides said that “building permits continue to grow both in volume but also in size”.

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