RICS Cyprus property price index published

Nigel Howarth
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6

AROUND eighty people gathered for the launch of the RICS Cyprus Property Price Index in Nicosia earlier today. The Index will be published quarterly and aims to contribute to the transparency of the property market in Cyprus.

Attendees at the launch were addressed by the President of RICS Cyprus, Petros Stylianou MRICS, the vice-President of ?EEOKK Anna Iacovou FCIArb MRICS, and by the ex-Minister of Finance, Dr Michalis Sarris.

Mr Stylianou highlighted the significance of the Index in bringing an identifiable measure of property prices and returns, whilst Mrs Iacovou noted the need for a similar Index on construction costs which identified market trends and the changing economic landscape.

Dr Sarris elaborated further on the importance of clarity in times of economic turbulence in order to instil confidence in investors and the public as a whole.

The Index has been designed to provide reliable indications of trends and broad changes in real estate pricing of apartments, houses, offices, high street retail premises, warehouses and offices and it tracks property prices and rents across 46 locations.

The methodology on which the RICS Cyprus Property Price Index is based was designed by Professor Dr Pat McAllister MRICS and Dr Franz Fuerst from the Reading University Department of Real Estate & Planning at Henley.

Professor McAllister spoke of the important role of the Index in identifying what is happening in the Island’s property market and its usefulness to buyers, sellers, mortgage lenders, real estate companies and associated businesses. He then went on to present the first issue of the RICS Cyprus Property Price Index (click here to view Professor McAllistair’s presentation):

Average Unit Price (Euro)
Nicosia Limassol Larnaca Paphos Famagusta –
Paralimni
Apartments 171,155 177,978 187,590 154,917 153,790
Houses 523,438 496,250 438,750 460,417 412,500
Retail 1,079,167 912,500 550,000 775,000 350,000
Warehouse 2,280,000 2,700,000 1,933,333 1,405,000 1,200,000
Office 758,000 600,000 480,000 523,333 337,500

Source: RICS Cyprus

Average Monthly Rent (Euro)
Nicosia Limassol Larnaca Paphos Famagusta –
Paralimni
Apartments 560 560 502 467 350
Houses 729 1,226 800 677 500
Retail 7,000 4,239 3,433 2,383 1,525
Warehouse 5,500 9,500 8,750 6,500 7,500
Office 2,700 3,050 1,655 1,800 1,300

Source: RICS Cyprus

Initial Yields (Annual Rent/Price)
Nicosia Limassol Larnaca Paphos Famagusta –
Paralimni
Apartments 3.9% 3.8% 3.2% 3.6% 2.7%
Houses 1.7% 3.0% 2.2% 1.8% 1.5%
Retail 7.8% 5.6% 7.5% 3.7% 5.2%
Warehouse 2.9% 4.2% 5.4% 5.6% 7.5%
Office 4.3% 6.1% 4.1% 4.1% 4.6%

Derived from: RICS Cyprus Property Price Index

Outline of the properties used in calculating the index:

Apartments – Two bedroom, 85m2, Medium quality.
Houses – Three bedroom with garden, Semi-detached, 250m2, Medium quality.
Retail – High-street retail, 100m2 ground floor area with 50m2 mezzanine.
Warehouse – Light industrial area, 2,000m2, 200m2 office space.
Office – Grade A, City centre location, 200m2

Commenting on the Index Professor McAllister said that “the values will provide you of the best estimate of what you will be able to sell your property for”.

Speaking about the initial yields (retail, warehouse and office) he said “Compared to other EU markets, initial yields appear low. These may show that rents are being kept artificially low by the tendency of companies to occupy properties with alternative uses (mainly residential) in order to minimise their costs. An alternative explanation is that property prices are too high due to the lack of land supply and the price boom of the past few years.”

On the general subject of property price indexes, Professor McAllister said that indexes produced by banks tended to undervalue property because they used them for evaluating mortgage applications.

Dr Sarris referred to the (now defunct) BuySell Home Price Index. He said that this attempt to monitor selling prices was followed with close interest by the banks which, “wrongly” in his opinion, were lending 100% or 110% of property values on the basis that a rising index provided confirmation that their loan portfolios were secure.

He suggested that a certain approach by the banks had helped to sustain inflated prices, which will be reflected in any index. “Some people would argue that over the last few years, there was an explosion in property prices connected with the profitability of developing. Prices have not been affected (currently) because banks have chosen not to press developers to repay their loans – they have extended more loans to allow the original ones to be paid. So the developers are now saying: why should I reduce my price, if I’m not forced to sell?”

Chairman of the Cyprus Land and Building Developers Association, Lakis Tofarides, said that property prices were 10 to 11 times the average salary because the price of land has rocketed over the last ten years and represented some 40% – 50% of a property’s overall cost. He added that distortions in the market were due to the tax system in Cyprus and that property-related taxes were very high compared to other countries. He also expressed his concern over the government’s intention to reassess the property tax system as it might lead to even higher level of taxation.

Press Release from RICS Cyprus

The RICS Cyprus Property Price Index monitors hypothetical or notional buildings, each having specific characteristics. Details of these hypothetical properties are provided in the University of Reading’s report.

The provided price per square metre is based on the Gross External Area of the property (as defined in the RICS’ Code of Measurement Practice 6th Edition), which includes the living area and covered verandas but excludes common areas.

This is the first publication of RICS Cyprus Property Price Index, a quarterly publication which is based on methodology produced by the University of Reading, UK. The Index has been designed to track property and rental prices across all the districts of Cyprus, and monitors changes in residential properties (apartments and houses), offices, high street retail, and warehouses. This first round of data gathering and processing has produced the base of the Index, i.e. the base prices, on which all future changes in price and rental level will be benchmarked against.

Introduction

The beginning of 2010 finds Cyprus in the midst of the global economic crisis, as the economy begins to feel the brunt of the slowdown in economic activity, a decrease in income from taxation, and a severe reduction in property transactions (circa 50% lower in 2009 from 2008). The latter is attributed to the decrease in overseas buyers (down around 80% compared to 2005-2008) and to the curtailing of loans by banks and other financing institutions for property purchases.

Market Selling Values

The Property Price Index has recorded what can only be described as the anticipated spread of property prices across Cyprus’ major urban areas. The highest prices for high street retail, offices, and warehouses is recorded in the bigger urban centres of Nicosia and Limassol. Warehouses are more expensive in Limassol by 18%, likely due to the presence of the Island’s main commercial port.

House and apartment prices are spread evenly across the Island, with an average price of €1,865/m2 for apartments and of €2,001/m2 for houses. The low standard deviation across all cities of only 9% and 10% respectively shows that, excluding tourist areas and areas of special value, e.g. areas with sea views, “named areas”, etc, the vast majority of homes for locals are evenly priced.

Market Rental Values

The distribution of rents shows an interesting dichotomy between Nicosia and the coastal cities. Compared to Nicosia, rents for office space and for houses are higher in Limassol, by 68% and 13% respectively, probably due the presence of overseas companies. Also, warehouse rents are 78% higher due to the presence of the port. Indeed, Nicosia has the lowest warehouse rental costs across Cyprus.

Investment Yields

Investment yield is a term rarely used in Cyprus as most companies own their real estate instead of leasing it. However, yields are a useful tool showing the relationship between rent and property prices. Initial yields on commercial property stand at 6.1% for retail, 4.7% for offices, and 4.8% for warehouses.

These low yields may show that rents are being kept artificially low by the tendency of companies to occupy properties with alternative uses (mainly residential) in order to minimise their costs. An alternative explanation is that property prices are too high due to the lack of land supply and the price boom of the past few years.

Contributing professional bodies

Profile of  RICS

RICS – the Royal Institution of Chartered Surveyors – is the largest organisation for professionals in property, land, construction and environmental assets, worldwide. The organisation was created in 1868 and now has over 140,000 members in 146 countries. RICS Europe is based in Brussels and represents 17 national associations, with over 8,150 members in Continental Europe. Visit www.joinricsineurope.eu and www.rics.orq for more information.

Profile of ?EEOKK

The Cyprus Association of Quantity Surveyors and Construction Economists (?EEOKK) is the association that represents Chartered Quantity Surveyors and Quantity Surveyors whose main area of work is in Cyprus and they permanently live in Cyprus. Visit www.seeokk.orq for more information.

Index parameters and methodology

Methodology

The methodology underpinning the RICS Cyprus Property Price Index was developed by the University of Reading. UK. The report is available on http://www.joinricsineurope.eu/en/na/view/rics-cyprus

Coverage and Variables Monitored

The RICS Cyprus Property Price Index monitors the urban centres of Nicosia, Limassol, Larnaca, Paphos and Paralimni-Famagusta. The Index only tracks prices in Republic of Cyprus’ government controlled area and not in the occupied North.

In each of these centres, the index monitors the Market Value and Market Rent, as defined in the RICS Red Book, across the four main property sectors – office (CBD), retail (high street), industrial (warehouse) and residential (houses and apartments).

Recognising that there are sub-districts within these urban areas which operate and behave in a varying manner, a number of these is monitored in order to derive the composite index for each category per urban area.

The information provided in this publication is based on the average price and rent of the sub-districts monitored per urban centre per sector. The complete list of these sub-districts can be found in the University of Reading’s report which is available on http://www.joinricsineurope.eu/en/na/view/rics-cyprus

Nature of Notional Buildings

The RICS Cyprus Property Price Index monitors hypothetical or notional buildings, each having specific characteristics. Details of these hypothetical properties are provided in the University of Reading’s report.

The provided price per square metre is based on the Gross External Area of the property (as defined in the RICS Code of Measurement Practice 6th Edition), which includes the living area and covered verandas but excludes common areas,

Frequency

The index is produced on a quarterly basis.

Monitoring Process

The estimation of price levels is carried out by accredited RICS property professionals who are active in the relevant markets.

Final contracts for Limassol marina signed

Editorial
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9
Artists impression of Limassol's new marina

DURING the contract signing ceremony, Mr Paschalides referred to the huge importance that the marina is expected to have for improving the tourist product and attracting quality tourism to the Island.

In his welcome speech, the Minister noted that the government supports infrastructure projects and backs projects that opens new job posts and enrich Cyprus’ tourist product.

“This day signals the start of construction work on the Limassol marina, a landmark for Limassol, for Cyprus and the Mediterranean in general. The marina is a sea settlement with special characteristics”, he said.

“It can host the anchoring of thousands of vessels and includes banking up in the port space, a vessels maintenance spot, shops and a cultural centre. It also provides for free access to the public and a remarkable coastal pedestrian road”, he said.

“With such infrastructure project we can deal with competition, we enrich the variety of experiences and we upgrade the quality of services that we offer. Also, we seal the attraction of quality tourism with increased spending per capita”, he noted.

The Minister thanked all those who played an important role in the achievement of the goal and expressed his confidence that “the marina will host the first vessels when Cyprus undertakes the EU rotating presidency in 2012”.

The marina will be constructed and managed under a BOT (Build-Operate-Transfer) agreement with Limassol Marina Ltd (LML); a joint venture of J&P Avax A.E., Cybarco PLC, Fraggoudi & Stefanou, Joannou & Paraskevaides (J&P), Athena ATE, Cads Holding Ltd and Limassol CCI via the Limassol Marina Development Company.

Plans for the marina complex include 586 berths for craft of various sizes, restaurants, cafes, shops and conference space. They also include 280 units (housing, trading, leisure and cultural) – some 160 of which will have their own private moorings – and luxury apartments, all with the aim of attracting more high-end tourists and a bigger share of the Mediterranean yachting market.

The project is expected to cost more than €350 million and will cover a land area of 100,000 m2, and a sea area of 170,000 m2 and will be able to host up to 1,000 vessels.

E-Clear collapse linked to Cyprus development company

Nigel Howarth
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3
E-Clear collapse brought down Scottish airline Globespan

Elias Elia, the man behind E-Clear, the failed credit card company that brought down Scotland’s biggest airline, Globespan, is set to have his personal assets frozen as administrators to the company try to account for a hole in its finances said to be worth up to a £100m.

According to a report in today’s Times Elias Elia, was also running a property development company in Cyprus.

BDO, the accountants appointed to run the administration of E-Clear have been unable to trace any of the £100 million, including £35 million owed to the collapsed Scottish travel firm Globespan, and are now checking for links between E-Clear and Mr Elia’s personal assets.

These are expected to include Elian Developers, which claimed to be “one of the biggest development companies in Cyprus” and in which The Times has established that Mr Elia has a big involvement. Elian Developments is one of a number of subsidiaries of the Elian Group and currently advertises its London offices at the same address as E-Clear in Berkeley Square, Mayfair.

In 2007, the Elian Group issued a press release listing Mr Elia, a Greek Cypriot, as chief executive and claiming that it employed almost 500 people with offices in Cyprus, the UK, Germany, Sweden and Russia. It also listed Constantine Serafim as head of marketing for another subsidiary, Elian Property Developers. Mr Serafim was also the marketing director of E-Clear.

The administrators are calling a meeting of E-Clear creditors this week. They will be asked, in the absence of any money in E-Clear’s bank accounts, to fund further investigations to try to recover their money.

Ban the sale of mortgaged property

Nigel Howarth
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15
Poll results
Ban the sale of mortgaged property - poll results

A RECENT on-line mini-poll conducted by this magazine revealed that more than 90% of our readers who voted want the Cyprus Government to ban the sale of mortgaged property.

Property buyers in Cyprus are continually being deceived into buying property built on mortgaged land and may be left at the mercy of the banks if the mortgagor (the person who borrowed the money) defaults.

  • Developers often mortgaged the land on which they are building to help finance their development projects. Should the developer go bust, those who have bought properties built on that land will be faced with paying off those mortgages. If a buyer is unable to pay off the mortgage, the bank can repossess their property and auction it to recover the developer’s debt.
  • There are further complications in Cyprus arising from the ??????? ??? ??????????? (antiparochi system). This is an arrangement between a landowner and a developer in which the landowner provides land to the developer in exchange for a number of properties being built on his land. The landowner may also have mortgaged his land to the bank, and if the bank forecloses on the loan for any reason it can seize the land and auction it to recover the debt. And once again, those who have bought property on that land face the very real threat of losing their homes is they do not pay off the landowner’s debt.
  • There are even further complications. Even though property buyers may have paid for their properties in full, developers and land owners can continue to borrow money against land they have mortgaged by rescheduling and extending their existing loans without the agreement or even the knowledge of those property buyers.

All of these ‘scams’ are permitted under the Island’s antiquated property laws. And there is no way a property buyer can force a developer or landowner to pay off their mortgage. There may be recourse through the courts, but this could take many, many years.

The banks

MANY buyers have been granted mortgages to buy homes by the bank that loaned the developer or the landowner the money in the first place. This is a win-win situation for the banks!

  • They receive mortgage payments from developers and landowners.
  • They receive mortgage payments from property buyers.
  • If developers, landowners or property buyers fail to repay their mortgages, the bank has all their mortgage repayments to date plus it can seize and auction the assets of the party in default to recover its debt!

In July last year a senior banking source told the Cyprus Mail “We have been prudent in our lending” – I think that was something of an understatement!

Furthermore, the banks appear to be under no legal or moral obligation to advise possible mortgagors of existing loans on property they are buying. And banks refuse to provide details of any existing loans on properties bought by those to whom they have granted mortgages. (However, I am certain that if a buyer offered to repay a defaulting developer’s or landowner’s loan that the bank would be more forthcoming with this information).

(A number of buyers who have discovered that their property has been built on mortgaged land, have approached various banks offering to repay the developer’s/landowner’s mortgage. But the banks have refused their generous offers telling them that they need the approval of the mortgagor.)

Once again, their lack of transparency and refusal to divulge this vital information seems to be permitted under the Island’s antiquated laws.

Half a million visit Cyprus property news

Nigel Howarth
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6

I NEVER imagined when I launched the magazine in May 2008 that it would turn out to be quite so popular. I would like to thank all of you who have made it the most popular Cyprus property information web site on the Internet.

Half a million is nothing like the number of visitors achieved by the likes of Google, Facebook and YouTube. But for a small, independent website with no paid staff or budget focusing on a very small niche market, it is quite an achievement to be listed in the Google Top 10.

Nearly half of our visitors find us while searching the Internet, while a further third reach us from other websites that link to us.

Perhaps not surprisingly, the most searched for name in our database since the start of the year has been “Orams”, which has accounted for 81% of all new visitors to our site since then.

Since it first appeared, the magazine has undergone two major facelifts and some minor adjustments designed to improve our readers’ experience. And we are gradually adding more features and facilities, such as the ability for visitors to comment on the articles we publish that we introduced yesterday.

Statistics

  • Total visitors: 513,005
  • Visitors this week: 7,073
  • Pages viewed this week: 16,678
  • Visitors so far today (19:00): 1,876
  • Peak day 19th January: 3,141 visitors

Our next target is to achieve a million visitors by the end of this year.

Reactions to the Orams ruling

Nigel Howarth
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8

THE decision of the Court of Appeal of England and Wales, together with the ruling of the European Court of Justice in April last year, mean that the rights of displaced Cypriots to their properties in the occupied areas of the Island are safeguarded and can now be enforced throughout the European Union.

The Cyprus Foreign Affairs Minister, Markos Kyprianou, said the Court of Appeal was especially important for Cyprus, and assured that the government would be following developments concerning the execution of the Court’s decision.

He also dismissed Turkey position that the ruling would complicate the talks for a solution of the Cyprus problem.

The Lobby for Cyprus and the President of the National Federation of Cypriots, Peter Droussiotis, have welcomed the Court of Appeal’s ruling.

“We have all known for a long time on which side justice should be in this case. This has now been confirmed by every court which has considered this matter at a national as well as a European level. The Cypriot courts found in Mr Apostolides’ favour and this was subsequently affirmed by the European Court of Justice. The British Court of Appeal has now drawn a line under this matter by handing down a clear judgment upholding Mr Aposolides’ legal rights,” Droussiotis said in a statement.

According to reports, the property market in the north has gone into freefall. One estate agent dealing in properties at Salamis and Famagusta, was reported to be offering brand new apartments for just £20,000, but insisted that payments must be in sterling cash.

The same agent also had luxury apartments normally priced at £49,000 but would sell them for just £25,000 each – again only for cash.

It is believed that around 8,000 Brits live in the north along with many other EU nationals and they have been shocked by the Court ruling.

“It’s very bad news for everyone… What can they do, pack up and leave? ” asked Marian Stokes, who lives in Kyrenia.

Tuesday’s ruling came as “a great shock,” said Stokes. “The foreigners have done nothing wrong,” she added. “They’ve done everything by the rules. They went to a lawyer and got advice; the title deeds were stamped by the government.”

A Briton with a house in the north criticized the greed of the property agencies and the ignorance of the buyers. “Most expats are not aware of the property problem in Cyprus and are not interested in finding out,” he said, adding that they just accept what the estate agents tell them.

It has also been reported that Greek Cypriots have submitted around 1,500 property claims to the European Court of Human Rights in Strasbourg, according to Greek Cypriot lawyer Achilleas Demetriades.

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