Optimism in the construction sector

Angelos Anastasiou
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7
Optimism in the construction sector

Optimism in the Cyprus construction sectorFOLLOWING a crushing crisis in recent years, the land-development and construction sector shows signs of strong growth, sparking optimism for the future, President Nicos Anastasiades said on Tuesday.

Addressing the annual general assembly of the land-development and construction business association, Anastasiades said the property market is performing satisfactorily “at all levels”.

“Both in sales and number of building permits, we note that property sales have bounced back to pre-crisis levels, with even brighter prospects,” he said.

The president added that this has an important social dimension, since it directly impacts employment in the construction sector.

“The particularly encouraging results recorded in your sector are the result of your ingenuity and entrepreneurship, and the strong mobilisation the construction businessmen have shown,” Anastasiades said.

In addition, government-sponsored measures also contributed substantially, he claimed.

“Today, a large part of economic activity in our country is owed to new investments, either with domestic or foreign funds,” Anastasiades said.

Incentives offered by the government included zoning regulations and taxation on new developments, the president noted, have helped spur growth, although there is still a long way to go in simplifying procedures, expediting licensing projects, and making it easier to do business.

Land-development and construction business association chairman Pantelis Leptos said the sector has “proven its resilience and strength”.

According to association and government estimates, foreign investment in the property market over the last three years has exceeded €4 billion.

Cyprus investment promotion agency chief Christodoulos Angastiniotis urged caution on the issue of citizenship-for-investment schemes, noting that attracting foreign investment is of paramount importance.

“I warmly urge all association members and everyone else involved in the sector to promote these schemes strictly within the laws and regulations,” he said.

“Because if we lose these schemes as Cyprus due to poor handling and short-sighted practices, the consequences on all of us – not just your sector – will be extremely negative.”

Property prices rising says RICS

Nigel Howarth
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1
Property prices rising says RICS

Cyprus property prices from RICSTHE TWENTY-NINTH publication of the RICS Cyprus Property Price Index reports that the average price of residential apartments and houses across the island rose by 0.7% and 1.7% respectively during the fourth quarter of 2016.

During the fourth quarter of 2016 the Cyprus economy showed further signs of stability, with a seasonally adjusted quarterly GDP growth of 0.7% and an annual seasonally adjusted GDP growth of 2.9%. Unemployment remained at relatively high levels, on a downtrend to ca 13% (from the high levels of 17%).

Given prevailing economic conditions and the marginally improved confidence in the Cyprus banking system, there were relatively higher transactions during the quarter.

Financial institutions, despite their NPLs, have been more willing to provide access to finance and there is a sluggish interest from locals.

Property prices

The Cyprus Property Price Index has recorded increases in almost all cities and asset classes, with significant increases being recorded in Larnaca area, whilst other cities are progressively bottoming out.

Larnaca recorded the biggest quarterly increase in apartment prices (3.3%), while the largest rise in house prices (1.8%) was recorded in Limassol.

The value of holiday homes rose 2.3% for apartments and 2.2% for houses.

Compared to the fourth quarter of 2015, apartment prices have risen 3.7%, house prices have risen 3.4%. Prices for offices, retail and warehouses have risen 4.7%, 2.1% and 1.9% respectively.

Since RICS (Cyprus) launched its property price index in the fourth quarter of 2009, the value of residential apartments has fallen by approximately 38%, while the value of residential houses has fallen by roughly 28%.

Rental values

Across Cyprus, on a quarterly basis rental values increased by 1.8% for apartments, 2.9% for houses, 5.3% for retail, 4.6% for office and 4.4% for warehouses.

Compared to the fourth quarter of 2015, apartment rental values have risen 6.6% and house rental values have risen 8.7%. Rental values for retail, offices and warehouses are up 4.9%, 7.9% and 3.5% respectively.

All asset classes have shown a consecutive quarterly growth.

Gross yields

At the end of the fourth quarter of 2016, average gross yields stood at 4% for apartments, 2.1% for houses, 5.3% for retail, 4.4% for warehouses, and 4.6% for offices.

The parallel reduction and/or stabilisation in capital values and rents is keeping investment yields relatively stable and at low levels (compared to yields overseas). This suggests that there is still room for some re-pricing of capital values to take place, especially for properties in secondary locations.

Further reading

RICS Cyprus Property Price Index Q4 2016

Larnaca marina and port progressing

Nigel Howarth
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0
Larnaca marina and port progressing

Larnaca marina and port projectAFTER visiting Larnaca on Monday Communications and Works Minister Marios Demetriades announced that the process of preselecting the successful bidder for the development of the Larnaca marina and port should be completed before the end of the week.

The announcement follows more than 25 years of delays caused by legal wrangles and bureaucracy and the withdrawal of the consortium awarded the contract in 2008 because it failed to find the necessary funds.

Last month it was announced that five proposals of interest from various joint ventures had been received although the interested parties were not named.

A new plan for the Larnaca marina and port was announced by the Transport Ministry in January 2017 and the marina is set to be the largest in Cyprus hosting up to 1,000 vessels.

The project will involve the development of up to 510,000 square meters and could include the construction of a large number of small to medium-sized apartments, a few luxury villas, a hotel, offices and a commercial centre.

BOC intends to sell restructured loans

Stelios Orphanides
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5
BOC intends to sell restructured loans

Bank of Cyprus to sell restructured loansBANK OF CYPRUS has agreed to sell a small number of restructured non-performing loans of developers and construction companies to a smaller undisclosed lender, a banking source said confirming a report in Politis on Monday.

Bank of Cyprus, the island’s largest lender, which will be the first so test the 2015 legislation that allows the sale of loans to third parties, is already informing borrowers about its intention in accordance to the provision of the law, which gives borrowers the right to buy back their loan, the banking source said.

“The buyer is a small Cypriot bank,” he continued adding that the total amount of loans the bank is intending to sell slightly exceeds €20m.

“They have all been restructured,” the source continued. “If the transaction goes ahead, they will be booked by the buyer as performing”.

The source said that while borrowers and guarantors have the right to buy back their loan, they will still have to pay back the loan to the fullest. The buyer on the other hand will acquire the new debt at the book value.

The completion of this type of transaction which implies a reduction of both the bank’s non-performing loans, seen at €11bn in December, overall loans and provisions, a cash inflow and no book loss as the sale will be completed at the loans’ book value, will unleash resources that can be employed to carry out additional restructurings, Politis reported.

As per legislation, the introduction of which was part of Cyprus’ adjustment programme, borrowers and guarantors have the right to buy a loan after submitting an offer 45 days after the bank’s intention becomes public in the press and the government gazette.

Small drop in non-performing loans

Cyprus News Agency
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2
Small drop in non-performing loans

non-performing loansAT THE END of January 2017 non-performing loans stood at €23.66 billion; a fall of €180 million compared to €23.84 billion at the end of December 2016.

The number of non-performing loans recorded a drop in January this year compared to the last month of 2016, but remained the same as a percentage of total loans due to deleveraging, data released by the Central Bank shows.

According to the data, total non-performing facilities stood on January 31, 2017, at €23.66 billion compared to €23.84 billion on December 31, 2016. Total loans however were recorded at €50.13 billion compared to €50.53 billion which left bad loans as a percentage of total loans the same as the previous month at 47.2%.

Total restructured non-performing facilities were in at the end of January this year €13.38 billion compared to €13.45 billion at the end of December 2016. On a prospectively positive note however, €9.7 billion of those restructured at end January continued to be classified as non-performing compared to €9.76 billion in the previous month.

As a percentage of total loans restructured facilities increased marginally and were recorded at 26.7% on January 31 of this year compared to 26.6% in December 2016.

Households continued to hold the lead on both total loans and bad loans at the end of January, with total loans for households recorded at €21.56 billion and no performing facilities recorded at €12.06 billion. This makes household debt accounted for 55.9% of bad loans.

Small to medium enterprises (SMEs) had loans of €15.89 billion on January 31 2017 while their non performing facilities reached €9.72 billion. Bad loans to SME`s accounted for 61.2% of bad loans.

Total accumulated impairment provisions as of end January this year were at €9.69 billion or 41% of total non-performing facilities. In December total accumulated impairment provisions stood at €9.92 billion. Total provisions at end December 2015 stood at €10 billion and at end December 2014 at €8.97 billion.

– Cyprus News Agency

Imposing VAT on land sales

Elias Hazou
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Imposing VAT on land sales

VAT on land sales in CyprusMPs ON MONDAY continued discussion of a government bill which would impose 19 per cent VAT on land sales for commercial property transactions, amid concerns that this would lead to a cooling off in the property market.

Officials warned that Cyprus is liable to hefty fines from the European Commission unless it transposes into national law the EU VAT Directive of 2006.

On acceding to the EU in 2004, Cyprus was granted a derogation from the directive, allowing the island to continue exempting the supply of building land until December 31, 2007.

At present, when any plot of land is sold it is not subject to VAT.

George Panteli, the finance ministry’s economic director, said a retroactive lump-sum fine from the EU should be expected for the period of non-compliance (nine years), plus anywhere from €100,000 to €300,000 per day of continued non-compliance.

The penalty from the EU would be substantial, he added, but could not give a precise estimate.

The government bill, submitted last June, exempts farm land, protected areas and forest land from the imposition of VAT.

MPs and interest groups said the 19 per cent VAT will have a knock-on effect on the property market but also on banks that hold land as collateral.

For example, where land held as collateral against a loan is worth, say €1 million, were VAT to be levied, the market value of the land will not be €1.19 million. Rather, the value will remain €1 million, but inclusive of VAT.

In turn, this means the bank would need further collateral against the loan. On a national basis, the deficit could run in the hundreds of millions.

Lawmakers asked the Institute of Certified Public Accountants of Cyprus to come up with proposals for offsetting measures in two weeks’ time, when the House finance committee is due to discuss the matter again.

The EU directive imposes VAT on the supply of building land, which affords national governments some leeway in their interpretation of ‘building land’.

MPs are thus contemplating placing a restrictive definition so as to exempt as many land transactions as possible.

Tax commissioner Yiannis Tsangaris said land sales would be examined on a case-by-case basis to determine whether the 19 per cent tax should be levied.

Legislators also discussed other ways of alleviating the impact of the VAT, such as introducing the option for tax leasing/letting of immovable property for commercial purposes.

Another offset measure being mulled is to bring back affected businesses’ exemption from capital gains tax.

This exemption expired on December 31, 2016. There are now thoughts on re-introducing it for one to two years.

Another matter raised was whether incidental transactions in land can be exempted from the VAT. For instance, if a non-taxable person, who does not engage in an economic activity for VAT purposes, chooses to sell a plot of land inherited by him, would this be considered to constitute economic activity and thus subject to VAT?

Last year, parliament passed a law slashing IPT payable for 2016 by 75 per cent. Additionally, MPs voted to scrap IPT altogether thereafter.

Further reading

Imposing VAT on sale of land in Cyprus by Panayiotis Panayi, BA, ACA

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