ACCORDING to information released earlier today by the European Central Bank, Cypriot banks charge the highest interest rates for housing loans in the euro area. The gap between the average housing loan in Cyprus and that of other countries in the euro area is 239 base points.
The European Central Bank interest rate figures for housing loans in Cyprus was 6.78% in March, down marginally from 7.06% in February. Compared to January 2008, there has been an increase of 114 base points, despite a euro area base rate cut by 275 base points.
The cost of consumer borrowing is also very high. In March, the interest rate was 8.22%, down slightly from the February figure of 8.29%. In the euro area, the cost of consumer borrowing fell to 8.12% in March from 8.39%.
This is the first time in recent years that interest rates have been higher in Cyprus than in the rest of the euro area.
IT is no surprise that the continuing economic uncertainty throughout world markets and the lingering impact of a global credit crunch are seen as the greatest risks faced by real estate companies.
“In this time of great economic uncertainty and lack of liquidity, many real estate companies are looking for ways to effectively manage risk, streamline operations, and enhance their business relationships so they can hit the ground running when markets begin to stabilize,” says Daniel Zaugg, Partner and Real Estate Leader at Ernst & Young Switzerland.
The “2009 Ernst & Young real estate business risk report“, produced in conjunction with strategy consultancy Oxford Analytica, itemizes the ten top business risks faced by the industry as ranked by leading sector analysts. The top ten risks this year in order are:
1. Continued uncertainty and impact of the credit crunch – tighter credit is just one threat to real estate from the crunch; the economic downturn is affecting commercial vacancy rates as well as property valuations.
2. Global economic and market fluctuations – due to capital flows and business expansion, the real estate industry has become a truly global industry and, as such, is increasingly susceptible to global market fluctuations.
3. Impact of aging or inadequate infrastructure – particularly in the US, but also in other markets around the world, a lack of key transit and utility infrastructure is a threat to economic and real estate growth.
4. A global war for talent – globalization of business has also created a worldwide talent pool with countries forced to compete for human capital.
5. Changing demographics – aging and urbanizing populations are changing competitive dynamics and creating new markets in real estate.
6. Inability to find and exploit non-traditional global opportunities – with competition increasing worldwide from sovereign wealth funds and others, many global investors face a tough time sourcing new deals that will meet return expectations.
7. Pricing uncertainty – with few transactions taking place in the real estate market, valuations are a problem for existing owners, as well as buyers and sellers.
8. Green revolution, sustainability and climate change – real estate is at the forefront of the green movement with pressures intensifying to build and operate in sustainable ways and minimize the carbon footprint throughout all types of real estate.
9. Economic vulnerability and regulatory risks in developing markets – developing markets are a key focus for global real estate firms but regulatory risk in these markets is constantly changing as authorities seek to jump start economies.
10. Increasing energy costs – few analysts expect more than a temporary respite from high oil prices as new supply will be unable to meet renewed demand.
Given the risks outlined by analysts in the report, it is time for owners, investors and users of real estate to use the time afforded by this lull in real estate activity to prepare their businesses for the next period of economic growth.
“There will be a fundamental shift back to traditional real estate underwriting principles, including comprehensive cash flow analysis and prudent levels of debt and equity in consummating real estate transactions. This ‘back to basics’ movement will lead to the greater transparency necessary to restore confidence between buyers and sellers“, says Daniel Zaugg.
Top 10 business risks for real estate
The real estate sector has felt the tightening conditions in credit markets perhaps more than any other sector due to its heavy reliance on capital. Financial conditions for real estate projects are undoubtedly worsening and the current financial markets landscape is expected to persist for the next couple of years. “Real estate is typically the second highest cost item on an income statement after payroll and so provides excellent opportunities for companies to unlock hidden value, particularly through a back to basics approach“, says Daniel Zaugg.
On the construction side of the industry, two out of three capital projects are currently over budget or behind schedule, according to Daniel Zaugg, which he adds is a statistic exacerbated by the uncertainty surrounding the economy and the availability of financing. “Yet, deploying risk mitigation or accelerated delivery methods after careful assessment of a project can also reduce risk and cost and bring in projects on time and on budget.”
THE Cyprus Property Magazine has been advised that non-resident EU citizens no longer require Council of Ministers Permit to own property. We hope to be able to confirm this in the next few days.
Background
On its accession to the EU on 1st May 2004, Cyprus revised many of its laws that placed restrictions on property investment by citizens of other EU member states. But to protect its sensitive property market, it agreed a five-year transitional period with the European Union preventing EU citizens who are not permanent residents of the island from owning secondary residences. That transition period ended on 1st May 2009.
From the information we have received, it appears that these restrictions have now been lifted and that EU citizens may acquire as much property as they wish.
We will publish further information on this particular subject as soon as it becomes available.
Update – 11th May 2009
We can now confirm that although the law has not been changed, the practice has. Effective from last Monday, 4th May, all EU citizens require to transfer the ownership of a property to their name is their passport (plus the Property Transfer Fees).
ACCORDING to the latest figures published by the Cyprus Statistical Service (CYSTAT) building permits for the construction of 1,587 dwellings were authorised in February 2009; up slightly on the 1,583 in February last year.
In January and February this year building permits for the construction of 3,172 dwellings have been authorised compared to the 2,812 in January and February last year.
From the CYSTAT figures it is impossible to say whether the number of homes being built in Cyprus is increasing or not. It is common knowledge that developers build properties illegally; i.e. before the authorities have issued the necessary Town Planning and Building permits required for their construction. As a consequence, it is highly likely that these permits have been issued for the construction of dwellings that have already been completed.
LAND developers are optimistic that the real estate sector will recover from the economic crisis by next year provided the necessary measures are taken by the government.
Speaking to The Cyprus Weekly on the sidelines of the annual general meeting of the Cyprus Land & Building Developers Association yesterday, its president Lakis Tofarides was confident that the sector will emerge from the economic crisis.
“Although in the first four months of 2009 sales to foreign investors have plummeted 80% and to locals by around 60%, the sector will come out of the crisis sometime in 2010,” he said.
In its 32-year history, the sector has gone through four to five similar crises which were overcome without any serious problems.
The association’s proposals to tackle the economic crisis include measures to avoid unemployment and state intervention to increasing banks’ liquidity so that they can charge low interest rates.
They also involve making the most of European funds for infrastructure projects and speeding up government projects included in the 2009 budget.
Priority should be given to building permits for major private projects and the state should speed up procedures for issuing Title Deeds.
Tofarides said that ways should be found and incentives given so that foreign buyers will continue to show an interest in Cyprus.
“Let’s not forget that foreign investors are the life blood of our economy and permanent tourism makes a huge contribution to the real estate sector and a number of other sectors of the economy,” he told the meeting.
He noted that the real estate sector is the backbone of the Cyprus economy and land developing supported the Cyprus economy after the Turkish invasion in 1974 and continues to support, without any help from the state.
Property is the traditional form of investment for Cypriots. Land developing last year made a 19.3% contribution to GDP and a turnover of more than €2 billion. Foreign exchange from the sector was more than €800 million.
The land developing sector in Cyprus employs more than 45,000.
On a less optimistic note, the head of the Federation of Associations of Building Contractors Nicos Kelepeshis warned that if the world economic crisis continues for much longer, it will slow down the Cyprus economy, with land developing and tourism affected the most.
“The dynamism of the land developing sector, during 2007-8 boosted the market to an extent during the first three months of 2009 but, unfortunately, this will not continue for much longer,” Kelepeshis said.
Addressing the meeting, Interior Minister Neocles Sylikiotis said the land developing and building sectors were a top priority for his ministry.
Sylikiotis outlined a series of measures taken to support the sector in the wake of the economic crisis, including simplifying procedures for Land Registry checks.
The UK Foreign & Commonwealth Office is advising Britons visiting Cyprus that “there are risks involved with purchasing property on the island of Cyprus” and that those contemplating buying property should “seek qualified legal advice from a source that is independent from anyone else involved in the transaction, particularly the seller“.
Purchasing property
You are advised to proceed with caution and to seek qualified legal advice from a source that is independent from anyone else involved in the transaction, particularly the seller, before purchasing property anywhere in Cyprus.
You should also note that the Cyprus legal system is not the same as that in the UK and that the process of achieving legal redress in Cyprus can be very protracted compared to the UK. A list of English speaking lawyers is available on the High Commission’s website.
There are risks involved with purchasing property on the island of Cyprus. Many British nationals, who have purchased property either in the north or south of Cyprus, face problems caused by; misleading advertising, the failure of developers to complete properties that have been purchased off plan, illegal construction or double selling. Most of these problems can be avoided by taking proper independent legal advice.
In addition, both Cypriot and foreign buyers of around 100,000 properties have not been able to obtain their title deeds. Some people have been trying to obtain them for over 30 years. There are many cases of people without title deeds finding it difficult to sell their property, or whose developer has imposed a sales fee, high property taxes or service charges.
As developers are able to take out mortgages on property for which they hold the title deeds, there is also a risk that a developer could go bankrupt with an outstanding mortgage on the property, rendering it liable to repossession by the mortgage holder.
You should take at least the same steps to protect your interests as you would do at home, and instruct an experienced, reputable lawyer who is totally independent to act on your behalf and ensure that your interests are adequately safeguarded. For further information, please consult our property FAQs.
Attempting to save money on professional fees by cutting corners, or by using the seller’s lawyers, is a false economy that can result in severe problems later.
