Cyprus’ 5% VAT loophole: more than €1bn lost while luxury buyers benefited

Eleftheria Paizanou
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Cyprus’ 5% VAT loophole: more than €1bn lost while luxury buyers benefited

Cyprus has lost more than €1 billion in potential tax revenue through a reduced VAT scheme for homebuyers, according to figures obtained by Phileleftheros. The cost is still mounting as transitional rules keep the old system alive for some projects.

A measure meant to make housing more affordable became a tax break that could benefit buyers of multimillion-euro villas. The state gave up revenue; wealthy investors got a discount. More than 26,000 taxpayers used the reduced rate, according to official figures.

A VAT tax break with no meaningful price ceiling

Under the 2016 law, buyers building or buying a primary residence paid 5% VAT on the first 200 square metres, regardless of the property’s total size or value. The standard rate is 19%.

That meant a buyer could purchase or build a luxury villa and still pay the lower rate on a substantial part of the property. The law’s broad terms opened the door to benefits for affluent buyers, including third-country investors who benefitted from the 5% VAT, some of whom also benefitted by obtaining Cypriot citizenship.

The scheme was supposed to serve a social purpose. Instead, its design allowed the reduced rate to reach far beyond households most in need of help. The cost to the public purse now exceeds €1 billion in foregone revenue, according to the figures obtained by Phileleftheros.

Reform came late – and the old rules linger

After complaints and discussions with the European Commission, Cyprus changed the law. The revised VAT rules restrict the 5% rate to the first 130 square metres of a home valued at up to €350,000. For homes measuring between 131 and 190 square metres and valued at up to €475,000, the additional area is taxed at 19%.

Yet the old rules have not disappeared. Transitional provisions allow some buyers to keep using them if they submitted a planning-permit application between early June and 31 October 2023—even if construction finishes years later.

The transition was meant to cushion the property market. It has already been extended by another six and a half months, reportedly because of local-government reform and changes to planning and building-permit responsibilities. Whatever the administrative explanation, the effect is clear: the flawed system continues to benefit some buyers while the state waits to collect the tax under the revised rules.

No more extensions

The parallel use of the old and new systems is due to end on 31 December 2026. The deadline should stand. A further extension would prolong a costly arrangement after the state has already lost more than €1 billion in potential revenue.

Property-sector interests are expected to press political parties for more time, and some parties have reportedly already received approaches. They should resist. Cyprus cannot keep presenting this as a housing measure while leaving a route open for buyers of luxury homes to benefit from a reduced VAT rate.

The European Commission may have accepted transitional provisions. That is no reason to stretch them indefinitely. On 1 January 2027, the old rules should finally be over.

By Eleftheria Paizanou
Translated and adapted from an article published by Phileleftheros

Property market faces a supply warning as permits surge

Nigel Howarth
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Property market faces a supply warning as permits surge

Cyprus is building more homes, but many local households are finding it harder to afford them. Ask Wire founder and chief executive Pavlos Loizou has warned that a sharp rise in building permits could put pressure on parts of the Cyprus property market in 2027 and 2028.

Speaking on Property Talk by Bazaraki, Loizou said the growth in residential construction does not necessarily mean developers are building the homes local residents need. In coastal cities, he said, many projects are aimed at foreign buyers with greater purchasing power.

That leaves the property market increasingly exposed to whether overseas demand can continue. Loizou sees less risk of oversupply in housing designed for local buyers, but is more concerned about developments aimed specifically at foreign purchasers.

“Both can be true at the same time,” he said of rising construction and worsening affordability. The key question, he explained, is who the homes are being built for—and whether demand from those buyers will last.

Building permits point to more homes ahead

The volume of recent building permits is one signal to watch. Ask Wire’s September analysis found that permits for 8,978 residential units were issued between January and May 2026. That was 63.7% more than the 5,484 units recorded during the same period in 2025.

Larnaca saw a particularly large increase, from 953 permitted units to 2,342. Limassol and Nicosia also recorded substantial growth.

Permits do not mean that every home will be built immediately. But projects approved in earlier years are already progressing towards completion, while the latest approvals could add further supply in 2027 and 2028. Whether buyers absorb those homes may depend in part on continued foreign demand.

Sales are rising, but affordability remains strained

Loizou did not describe the property market as having suffered a general collapse in demand. He cited first-quarter 2026 figures showing apartment sales rose across several price bands compared with the same period a year earlier: by 18% for apartments under €200,000, 36% for those priced between €200,000 and €400,000, and 41% for properties between €400,000 and €1 million.

He said activity weakened in the second quarter amid geopolitical tensions. He also noted a growing divide between new-build and resale homes: newly built apartments are driving more transactions, while older properties are losing ground.

Across the market, 14,969 sale contracts were deposited with the Land Registry during the first nine months of 2026, up 13.6% from 13,173 in the same period of 2025.

Yet higher sales do not necessarily make homeownership more accessible to Cypriot households. Construction materials have become about 20% more expensive since 2021, Loizou said, with labour costs also rising. Developers face pressure to pass these costs on to buyers, making higher-income purchasers a more attractive market.

As a result, coastal developments often focus on smaller apartments, investment properties and homes intended to generate rental income, rather than the needs of Cypriot families.

Nicosia’s domestic property market offers a contrast

Nicosia depends more heavily on domestic demand than Limassol, Paphos and Larnaca. Government departments, semi-governmental organisations, banks, universities and related services help support employment and housing demand in the capital.

Loizou called the city “boringly reliable”, pointing to the steadier base of local jobs and residents. He also warned that developers based in Nicosia are looking increasingly towards coastal cities, where foreign purchasers may offer higher returns and faster transactions. That shift could limit the supply of homes aimed at the domestic market.

The affordability challenge is clear in Loizou’s example of a €250,000 apartment. A buyer could need around €50,000 for a 20% deposit, plus €12,500 in VAT if the reduced 5% rate applied to the full purchase price. That would mean €62,500 upfront, before other costs, with the balance requiring mortgage finance.

For a person earning about €1,700 a month, buying alone at that price would be extremely difficult, he said. Younger buyers may therefore rely on two incomes, stay with parents for longer, build on family land or look further from city centres for cheaper housing.

Loizou calls for more public rental housing

Loizou questioned whether restrictions on foreign purchases would resolve the underlying issues, noting the complexity of distinguishing between EU citizens, non-EU nationals and companies established within the bloc. He also raised concerns about proposed restrictions near strategically important sites, including ports.

His broader concern was how property-sale proceeds are used. He argued that money generated through property transactions often goes towards consumption or further housing, rather than investment that supports longer-term economic growth.

He was also critical of relying on incentives to encourage private development, arguing that such measures can raise land values without delivering enough affordable homes. Instead, he called for a stronger state role in rental housing and better use of publicly owned urban land.

One proposal would see public sites used to build homes for long-term rental rather than sale. Loizou also backed progressively taxing idle land to discourage owners from leaving suitable plots undeveloped while infrastructure and planning capacity are available.

He called for property-related databases held by the Land Registry, planning authorities and tax authorities to be linked. Better data sharing, he argued, could improve transparency, administration and tax compliance while reducing bureaucracy.

Other priorities he outlined included limiting further expansion of development zones, encouraging construction on existing land and creating purpose-built accommodation for workers outside major urban centres. Such housing could help address overcrowding among lower-paid workers and support businesses struggling to find homes for staff.

Better property market data could help decision-making

The discussion also covered the growing role of data and artificial intelligence in real estate. Ask Wire, which operates in Cyprus and Greece, analyses property transactions, listings, development activity and environmental risks. Its Edge platform tracks development projects using information from developers, planning processes and property transactions.

Loizou said the company had mapped 1,752 projects since January 2024 and was adding about 60 to 80 projects each month. He cautioned that AI-generated property assessments are only as reliable as the data behind them.

His warning, ultimately, is about the type and timing of new supply. Cyprus may need more homes that local households can afford, while a growing pipeline of developments aimed at foreign buyers could leave some parts of the market more exposed if demand changes.

Evacuation order issued for prominent apartment block in Larnaca

Vassos Vassos
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Evacuation order issued for prominent apartment block in Larnaca

An evacuation order has been issued for the Dipa apartment block in the centre of Larnaca after inspectors declared the building extremely dangerous.

Notices were served on Friday 9 October, and warning signs have been put up at the building on Grigoris Afxentiou avenue, opposite the Pancyprian Lyceum. Passers-by are barred from entering, while residents and people working in the block have been told to leave in the coming days.

The Larnaca District Local Government Organisation (DLGO) is prepared to give residents and businesses some time to find alternative accommodation and premises. The block contains 64 flats and 12 businesses, making relocation a significant challenge.

Some residents and business owners do not want to leave and have appointed a lawyer to handle the matter.

Structural concerns at the Dipa block

The Dipa is one of Larnaca’s oldest and best-known apartment blocks. Local authorities have warned about its condition several times. In recent years, columns and walls have shown clear signs of deterioration, raising serious concerns about the building’s structural stability.

The DLGO’s president, Angelos Hadjicharalambous, said the block had a history of concerns and was listed in records inherited from Larnaca municipality. A visual inspection confirmed structural problems, leading the organisation to classify it as a dangerous building.

Mr Hadjicharalambous said the DLGO would be satisfied if those responsible confirmed in writing within a few days that they had appointed a specialist to assess the building and plan its restoration.

The block’s management committee has begun arranging the appointment of a civil engineer so that the necessary repair work can be planned.

Second apartment block declared extremely dangerous

The Dipa is the second apartment block to be declared extremely dangerous by the DLGO. The Madona Court block in the Faneromeni area was evacuated last May after receiving the same classification and issued with an evacuation order.

The DLGO has also issued evacuation orders for several smaller buildings. An order was made for the Filanda Court complex because the building was considered unsuitable for occupation. Its managers said they intended to take steps to address the risks, so the organisation allowed them more time.

By Vassos Vassos
Translated and adapted from an article published by Politis

Larnaca property prices soar: where do homes cost most?

Natasa Christoforou
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Larnaca property prices soar: where do homes cost most?

Larnaca property prices have risen sharply, with no clear indication of where they will peak. Strong demand from Cypriot and overseas buyers has pushed sale prices up by 20% to 30% in just two years, according to estate agents. Apartment rents have also climbed to levels comparable with Nicosia.

The trend is raising concerns that housing could become a social problem in Larnaca, as it has in Limassol. Many couples can no longer afford to buy or rent in the city and are looking further afield, where prices have also increased in some areas.

Larnaca rents approach Nicosia levels

According to the Real Estate Agents Registration Council, monthly rents range from €600 to €700 for a studio, €700 to €800 for a two-bedroom flat and €900 to €1,000 for a three-bedroom flat.

“Property prices in Larnaca city have risen significantly and are approaching Nicosia’s levels,” said Marinos Kineyirou, president of the council. He said there were signs that prices in the city were beginning to stabilise.

The picture is different in the suburbs, where prices continue to rise. Values are increasing in areas including Tersefanou, Alethriko, Pervolia and Kiti.

Kineyirou also pointed to the unprecedented development in Livadia, which he attributed largely to the removal of the oil storage tanks from the wider area. In some cases, he said, property values there have tripled in recent years.

He does not expect apartment rents to rise further across the board. However, rents on older agreements due to expire are likely to increase when renewed, bringing them closer to current market levels.

Mackenzie leads, but the former refinery coast could overtake it

Mackenzie remains Larnaca’s most expensive area for flats, although its position may not last. New properties within Larnaca municipality cost an average of about €4,000 per square metre, while prices in Mackenzie can reach €6,000, said estate agent Vassos Zakos, director of Fox’s Larnaca office.

Limited availability helps keep Mackenzie at the top of the market. Prices are also high in the area around Saint Lazarus and across the city centre.

The next major change could come along the coast near the former refineries, where investments worth hundreds of millions of euros are planned. Zakos said there was no settled price level for the area, particularly for seafront plots. Indicative prices supplied for some developments start at €10,000 per square metre, he added, predicting it would become Larnaca’s most expensive area.

Zakos said sale prices across Larnaca had risen by 20% to 30% over the past two years. He is concerned that buying in the city has become almost impossible for many couples.

Some buyers are now looking beyond Larnaca, particularly in Alethriko. Kiti and Pervolia were once more affordable alternatives, but Larnaca property prices there have also risen and are approaching those in the city.

Growing demand from European buyers

Israeli and Lebanese buyers make up a significant part of Larnaca’s property market. But Zakos said demand from Europeans had also increased, including buyers from France, Italy, Poland and Germany.

Some are choosing Larnaca as a European base from which to work and live. Among them are digital nomads, he said, attracted in part by the standard of services in Cyprus.

Building permits rise by 53%

Figures from the Larnaca District Local Government Organisation point to rising demand and a construction boom. In the first eight months of 2026, building permits rose by 53% and planning permits by 42% compared with the same period last year.

From 1 January to August 2026, 3,957 building permits and 2,502 planning permits were issued. During the equivalent period in 2025, the totals were 2,586 building permits and 1,759 planning permits.

Local authorities seek affordable housing

Local officials acknowledge the pressure created by rising property prices and say they are looking at ways to provide homes at more affordable rates.

Larnaca mayor Andreas Vyras said the issue was a concern, but added that a municipality could not solve it alone. The municipality is preparing projects to support people facing serious housing difficulties, including affordable homes and student accommodation.

The municipality plans to exchange land with the Kition Metropolis near the new GSZ stadium to develop homes with affordable rents. It has also asked a team from the Cyprus Scientific and Technical Chamber (ETEK) to prepare the terms for an architectural competition. The aim is to secure funding from a dedicated EU affordable housing fund in the next programming period.

Vyras said the municipality also needed state support. One proposal submitted through the Union of Cyprus Municipalities is for the state to make land available for housing. He said the government had told municipalities it could not lease land for that purpose, a position with which he disagreed.

The president of the Larnaca District Local Government Organisation, Angelos Hadjicharalambous, called for incentives from central government. He said Larnaca district residents have the lowest incomes in Cyprus.

The organisation has recently met with the Cyprus Land Development Corporation (KOAG) to support projects already under way. Hadjicharalambous said a recent Interior Ministry decree on contributions from developments in Larnaca city and district would provide significant funds to KOAG.

The corporation is planning projects in Larnaca, with details expected to be announced at a joint press conference in November. The partners aim to make affordable homes available to residents to buy or rent.

By Natasa Christoforou
Translated and adapted from an article published by philenews

Cyprus apartment construction surges as detached homes become a luxury

Theano Theopoulou
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Cyprus apartment construction surges as detached homes become a luxury

Cyprus’ property market has split into two very different worlds. On one side, rapid growth in apartment construction is reshaping the housing market. On the other, detached homes are becoming fewer in number and increasingly out of reach for all but wealthier buyers.

An analysis of figures by Phileleftheros shows that, in the first half of 2016, apartments were a relatively small part of the market. Just 124,720 square metres of apartment space were licensed across Cyprus.

Ten years later, in 2026, the floor area of apartment blocks has reached an extraordinary 1.51 million square metres – an increase of 1,112% by floor area.

The average apartment has become slightly smaller since 2016, falling from 180 square metres to 174.4 square metres. Even so, that remains a substantial average. Two trends help explain why.

Mixed-use buildings add to the growth

In 2016, mixed-use apartment blocks – with shops or offices on the ground floor and apartments above – were almost unheard of, accounting for just 12,859 square metres.

By 2026, the number of residential units in mixed-use buildings had climbed to 837, a rise of 410%. The growth has added considerably to the volume of new buildings in urban areas.

Demand shifts towards premium apartments

A decade ago, apartments were built largely as an affordable option for students and young couples, so smaller homes were more common.

By 2026, demand was increasingly shaped by international companies setting up headquarters in Cyprus. Their executives often seek larger, high-end homes, including three and four-bedroom apartments and premium penthouses. That demand has helped keep the average apartment size close to 174 square metres.

Detached homes are growing in size

The figures for detached houses point to a marked social and economic shift. While apartment floor area has soared by more than 1,100%, the total floor area of detached homes has risen by a more modest 56%.

Building a detached house has long ceased to be the default choice for Cyprus’ mass-market buyer. One of the clearest signs is the rise in average house size: from 170.5 square metres in 2016 to 222.2 square metres in 2026.

The figures point to the effects of higher building costs and rising land prices. In 2016, middle-income households could still build modest or mid-sized homes of 140 to 160 square metres on the outskirts of cities, making use of cheaper land after the financial crisis. By 2026, the cost of construction materials and plots had pushed many of those buyers out of the market.

Detached homes increasingly cater to affluent buyers

Those who can afford to build a detached home today are mainly higher-earning buyers with demanding specifications, both Cypriot and international. They are building large, often luxury homes of more than 220 square metres, lifting the average size.

The modest increase in the number of new detached homes – from 1,466 in 2016 to 1,760 in 2026 – suggests the market has reached a point of balance. With the mortgage rate at 3.24%, the combined cost of land and construction can make monthly repayments unaffordable for an average couple.

Apartments offer a lower total purchase cost, which can keep mortgage repayments within reach. For many households, they have become the more practical route to home ownership.

Over the past decade, the market’s roles have become clearer. Apartments have become the mass-market product, with 1.5 million square metres in 2026 serving demand for homes, student accommodation and rental investment. Detached houses, by contrast, have become a more exclusive premium market. Their development is increasingly defined by larger homes and plots, rather than a sharp rise in the number built.

By Theano Theopoulou
Translated and adapted from an article published by philenews

Workers forced to sleep on building sites in Cyprus, complaints allege

Dorita Yiannakou
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Workers forced to sleep on building sites in Cyprus, complaints allege

The Labour Department is investigating cases that are shaking the foundations of the construction industry. According to information obtained by Kathimerini, the cases concern allegations of exploitation of foreign workers from countries outside the EU and poor, dangerous living conditions at certain construction companies operating in Cyprus.

This is reportedly not the first time complaints of this kind have been made against the companies concerned and investigated by the department.

Authorities are investigating complaints that foreign workers are working in poor and dangerous conditions and sleeping on construction sites.

One telling example involves foreign construction workers being forced to sleep on building sites because their employers have failed to provide the basic necessities required under the new framework for employing foreign workers. The framework, approved by the Cabinet on Feb. 19, 2025, was intended to better regulate the employment of non-EU nationals in the Cypriot labour market.

Under that framework and the construction industry’s collective agreement, employers may, subject to certain conditions, deduct up to 25% of a worker’s pay for accommodation. This does not mean employers must deduct that amount, nor does it mean accommodation must be provided free of charge.

According to the information available, the owners of the construction companies under investigation appear to have failed to take even basic steps to ensure decent and safe accommodation for their workers, in breach of the framework’s requirements.

The workers were allegedly left to fend for themselves, exposed not only to unsuitable living conditions but also to potential risks to their health and physical safety.

If confirmed by the Labour Department, these conditions would raise serious questions about whether employers are meeting their obligations, both to provide suitable accommodation and to ensure a basic level of protection and dignity for the people working for them.

The conditions described appear to fall short of minimum standards for hygiene, safety and decent living. The complaints therefore require investigation by the Labour Department, with those responsible held accountable if violations are established.

What the framework requires

The new framework requires the employment contract submitted to the Labour Department to specify, at the time of signing, where workers will live and how many people will share the accommodation.

The accommodation must meet specific standards for hygiene, safety and decent living. Bedrooms must provide at least 4.5 square meters of space per person, and each resident must have their own bed and a wardrobe for clothes and personal belongings.

The property must also have heating or air conditioning, electricity, drinking water, a refrigerator, food storage space, a washing machine and a gas cooker.

Minimum requirements also apply to bathroom facilities: at least one shower or bathtub for every six people, one toilet for every four, and a washbasin with hot and cold running water.

Suitable kitchen and dining facilities must be provided, including somewhere to wash dishes and cooking utensils, along with a table and chairs.

Finally, the accommodation must have adequate lighting and ventilation, and entrances and exits must be capable of being securely locked.

Other irregularities

The practice of hiring workers out to other employers also remains widespread in construction, with people recruited for one line of work ending up employed in another.

As Kathimerini reported previously, the practice of hiring out foreign workers in Cyprus is a major concern for trade unions. It has been identified in numerous cases across several sectors of the economy, including construction.

One of the main reasons it persists is that cleaners are paid less than construction workers. Some employers also seek to avoid applying the mandatory collective agreements and the higher pay rates they provide for building workers.

The Labour Relations Department is well aware of the practice and is investigating specific complaints. Meanwhile, undeclared work also remains high in the construction sector.

Cyprus-Egypt agreement remains on paper

Despite severe labour shortages in key sectors, the agreement signed by Cyprus and Egypt in 2024 to recruit Egyptian workers to help meet the needs of the Cypriot labour market has yet to be put into practice.

Labour Minister Marinos Moushiouttas decided this year to expand the agreement to cover more sectors, making it more attractive to Cypriot employers.

Yet, according to information obtained by Kathimerini, not a single Egyptian worker has so far been employed in Cyprus through the agreement. Industry representatives cited several reasons for this.

The limited response from employers is attributed partly to the additional procedures and paperwork involved in recruiting workers from outside the EU.

In construction, in particular, recruiting Egyptian nationals is more difficult than hiring workers from EU countries such as Romania and Bulgaria, industry representatives said.

Businesses also appear to have received insufficient information about how to make use of the agreement—a gap that remains unresolved.

Copyright © Kathimerini

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