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Government measures will push mortgage rates down

Nigel Howarth
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Cyprus has the highest mortgage interest rates in the euro area and the government is not satisfied with the situation. Earlier today the Finance Minister, Charilaos Stavrakis, said that he was confident that the government’s latest measures to support the island’s economy will push interest rates down.

“The high rates must not be connected with the liquidity or not in the banking system. The banks’ liquidity has been strengthened since the latest measures for the support of the island’s economy. The government has secured a rate below 2% for the sum of €50 million in a closed auction. This shows that liquidity is at very good levels“, the Minister said, stressing that the deposits of the state exceed €1.1 billion.

The pound’s slide has stretched the finances of many British property buyers. And this, together with the high mortgage interest rates in Cyprus, means that some of them are struggling to keep up their mortgage repayments.

Cyprus property boom ends as weak pound scares away U.K. buyers

Simon Packard
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Real estate salesman Michael Cartwright wasn’t sure he’d still have a job when he flew back to Cyprus from London in December.

His company, Leptos Estates, is struggling to sell vacation homes on the Mediterranean island to British buyers after the pound lost almost a quarter of its value against the euro and U.K. unemployment climbed to a nine-year high.

Two thousand miles away, Cyprus is feeling the aftershocks of the end of a British housing binge. Prices for apartments in the resort towns of Paphos and Paralimni fell as much as 25 percent in the past four months, after more than doubling since 2002, according to data compiled by broker Antonis Loizou & Associates Ltd. in Nicosia. Building permits for homes on the island, a gauge of future housing starts, declined 2.4 percent during the first 11 months of last year.

“The industry has just stopped,” said Stuart Crouch, who was managing director of Parador Properties until the company filed for bankruptcy in August. Parador was the U.K.’s second- largest broker of second homes in countries including Cyprus.

Britons are pulling out of second-home markets after the deepest recession since the 1980s cut U.K. house prices 20 percent since the August 2007 peak. The economy shrank 1.5 percent in the fourth quarter from the previous three months as the financial crisis led to a collapse in consumer spending and investment.

Bad News

Aristo, the biggest homebuilder in Cyprus, reported a 41 percent decline in sales during the first 10 months of 2008 as demand from U.K. buyers fell by about 75 percent.

At Leptos’s sales office in north London, dozens of customers planning for retirement were unable to sell their homes to finance a move to Cyprus, and investors seeking a holiday home or rental property have similar problems, Cartwright said. As a result, Leptos has reduced prices and slowed its development program, he said.

“Business isn’t good, but we’re surviving,” Cartwright said. “The biggest problem is the value of the pound and the weak U.K. housing market.”

British investors owned 425,000 foreign homes valued at about 58 billion pounds ($83.4 billion) in mid-2008, up from 10 billion pounds in 1998, according to London-based broker Savills Plc. Since last year, purchases of assets ranging from villas in Spain to ski chalets in Bulgaria have almost ground to a halt.

‘Jet to Let’

“Discretionary second-home buyers will put their money back in their wallets for the next two years or so,” said Dominic Farrell, founder of Jet-to-Let Investments and author of the “Jet to Let Bible” on overseas rental property investment.

The pound’s slide has stretched the finances of most British owners, particularly those with overseas mortgages. Foreign Currency Direct Plc, which handled money transfers for 30,000 property transactions outside the U.K., said the number of British customers repatriating money rose by as much as 31 percent in the 12 months through January.

“We’ve noticed a significant increase in the number of our British clients selling property abroad,” Chief Executive Officer Peter Ellis said. “Many are willing to discount the sale price of their property to secure a sale.”

Cyprus, a British colony until 1960, depends more on U.K. buyers than any European property market. In the past five years, the British accounted for about 10 percent of new-home sales on the island and two-thirds of all foreign purchases, according to three brokers on the island. That’s proportionately higher than for larger holiday-home markets, like Spain or France.

Turkish Occupation

Most investment went into the southern part of the island controlled by the Greek-Cypriot government. Northern Cyprus has been occupied by Turkey since 1974. In the build-up to Cyprus’s accession to the European Union in 2004, “people were fighting over properties,” Cartwright said.

Cyprus property prices have doubled since 2004, including a 19 percent increase in 2007, according an index compiled by the MAP S. Platis consulting firm in Cyprus, based on valuations supplied by brokers at BuySell Cyprus Real Estate.

In Paphos, billboards for villas or holiday apartments line the highway from the airport to the town center. Many are named after Aphrodite, the Greek goddess of love and beauty, whose mythical birthplace is a short drive away along the coast.

About 80 percent of new homes built in the area were snapped up by the British at the height of the investment boom, said Antonis Loizou, senior partner of the broker of the same name.

Taxi Drivers

“We didn’t get the guys with the yachts, we got the taxi drivers and fish-and-chip shop owners,” Loizou said in an interview. “These guys aren’t particularly insulated from the economic downturn.”

A 100 square-meter (1,076 square foot) apartment in a standard Paphos complex sells for about 170,000 euros, down from last year’s peak of as much as 230,000 euros, he said.

“People paid far too much money to developers, so if you want to sell what you bought last year, you have to take a loss of 30 percent,” said Daryl Fitzgerald, an Australian national who has sold property in the Paphos area for 17 years.

The legacy is “an oversupply of cheaply built, identikit apartments” that are a turn-off to buyers, said Farrell, who is building two holiday-rental developments near Limassol.

Cyprus’s economy will grow 1.1 percent this year, less than a third of last year’s pace, the European Commission estimates.

Central bank governor Athanasios Orphanides said Jan. 29 that the damage inflicted on the U.K. by the financial crisis is a “source of concern.” Cyprus will have to “wait and see” whether an expected decline in British visitors and purchases of homes is as bad as anticipated, he said.

Dire Forecasts

Construction and real estate accounted for about 29 percent of the country’s 15.6 billion-euro economy in 2007 and the industries employ one in 10 Cypriots, government statistics show.

The Federation of Building Contractors Associations of Cyprus, or OSEOK, told its members last year to brace for “significant performance decreases.” Now, as projects get cancelled and contractors struggle to get paid, “more problems will arise,” OSEOK said.

Cartwright is now seeking clients at trade shows and exhibitions in the Middle East, where Cyprus has previously found a source of investment. Leptos also has offices in Moscow, since the island has traditionally acted as a gateway for Russian investment overseas.

“Cyprus will recover and it will be quicker than in Spain,” said Cartwright.

To contact the reporter on this story: Simon Packard in London at [email protected].

© Bloomberg L.P.

Sales of property in Cyprus nose-dive

David Crowther
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According to latest figures released by StockWatch, property activity in Cyprus slumped in early 2009. The property market has frozen and the sales recorded an annual drop of 72% in January against a drop of 65% in December and 60% in November.

The total number of deeds of sale submitted to the Land Registry reached 452 against 1615 last January; market conditions have worsened in the past few months. In September, before the latest phase of the financial crisis, the number of deeds of sale in the Land Registry stood at 1157. In October their number fell to 1016, in November to 782 and in December to 624.

The drastic drop in activity is obvious even in Limassol, where demand is maintained to a degree by Russian businessmen. The annual drop in Limassol stands at 50%, while in other districts it has reached 70-80%.

The Cyprus government is very concerned about the shrinkage in the sector, since it is a significant source of revenues for the state, which collected €470 million in 2007 and €300 million in 2008 from Capital Gains Tax. The drop of 35% in tax revenues is comparable with the total annual decline in the number of deeds of sale, which reached 31%.

To deal with the latest developments, the government decided recently to allocate €200 million for the purchase of houses by medium and low-income families.

However, those in the property industry believe that the measures are insufficient. “The additional measures that the state has taken – including those for strengthening liquidity in the banking system – will help but they are not enough. The property market needs more support“, Chairman of Nicosia Real Estate Agents Association, Costas Kadis wrote in a memo to StockWatch.

Mr. Kadis supports that the government must promote tax cuts, must grant €50 thousand for the purchase of first home and must strengthen liquidity so that the banks can offer more favourable terms of borrowing to land developers.

According to Mr. Kadis, despite the drop in demand prices are being maintained in Nicosia and Limassol but are under pressure in other areas due to Britons selling their homes at prices 25% lower than the market prices.

Four different surveys carried out by StockWatch between August and December 2008 reflect the general view of the market that there are significant price decreases in all municipalities.

© 1999 – 2009 Stockwatch Ltd.

Developers say building package will create ghettos

Anna Hassapi
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CYPRUS property developers say that the state’s new stimulus package to boost the construction sector by building 500 additional low cost properties in Cyprus will force many young couples and low-income families into ‘government housing’ that will end up as ghettos.

The Developer’s Association also said the stimulus also violated competition laws, giving the government a virtual monopoly on housing.

The €300 million package includes €200 million in housing loans, to be funnelled through the Cyprus Land Development Corporation (CLDC), which was set up 30 years ago as part of the state’s social policy to help low-income families acquire their own homes.

Developers say boosting the CLDC would essentially limit people’s choice and force them to opt for properties that come through the state rather than the private sector.

“The way the measure was announced favours developers who, based on bad calculations, built low-quality houses and buildings in areas that are not appropriate for private housing, and are selling them cheaply to avoid losses,” said Lakis Tofarides, President of the Developers Association.

“Some of these developers have already sent their offers to the Corporation to get rid of properties which they cannot sell,” he added.

Tofarides also claimed the programme would essentially force young couples and low-income families to become concentrated in undervalued areas, creating ghettos.

“The Corporation already determined the price at which it will buy, which is between €1,400 and €1,600 per square metre. That alone indicates that the properties the CLDC will buy are of bad quality, cheap materials and without the essential infrastructure such as central heating and so on. It is not possible to find at this time properties including the land at such prices,” he said.

The Developers Association also claim that the measure violated the principle of equal treatment and the laws on Competition and Public Support. The Association said that legal measures will be taken if necessary.

The state however claims that the developers misunderstood the provisions in the package, which in fact does not limit consumer choice.

“I think they have not studied the government’s decision in depth. There is no restriction and applicants can buy flats or houses either from private developers or from the CLDC’s list of properties. There is no specific criterion and each applicant is free to buy the property of their liking,” said Finance Minister Charilaos Stavrakis.

Meanwhile, AKEL expressed its opposition to the belief that an uncontrolled free market was the solution. “We never trusted the pure -as some may called it- market to solve society’s problems and we don’t trust it now,” said Andros Kyprianou, AKEL general-secretary.

Opposition DISY agreed that the provision of housing loans with positive terms was a good development that could be ruined by procedural requirements. “It is not necessary to go through procedures by which the CLDC must buy from the private sector so that the applicant can get a loan from the Housing Funding Organisation,” said Averoff Neophytou, DISY vice-president.

Copyright © Cyprus Mail 2009

Editors comments

According to the Cyprus Statistical Service, construction costs in 2007 were €803/m2 in 2007 for houses €726/m2 for apartments. (These figures exclude the cost of land). Even when taking the additional cost of land into the equation, it must be possible to build and sell good quality properties for €1,400/m2 and €1,600/m2 and still make a good profit?

Developers optimistic Limassol marina will start soon

Anna Hassapi
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DESPITE recent reports that funding problems were delaying the start of work at the Limassol marina, the company set up specifically to deliver the project is confident that the process will run smoothly.

Being the most ambitious project underway in Cyprus, Limassol Marina is expected to be one of the government’s priorities as a measure of dealing with the financial crisis.

“We are very optimistic after such statements that the pace of implementing procedural, financial and technical loose ends will be speedy, to allow the start of works,” said Nikiforos Bambakas, the spokesman for Limassol Marina Ltd.

However, Bambakas clarified that due to the grand scale and complexity of the project, a complicated and time-consuming procedure must be followed before work can begin. “This is an unprecedented project for Cyprus and internationally. It is a large scale project implemented in a contemporary and new model of development. Because of its size and complex characteristics, there is a complicated process that must be followed,” he said.

“At present we are at the licensing stage, as the town planning approvals are moving on and we can then enter the stage of a comprehensive architectural planning, including funding and design,” he added.

Reports this week suggested the project was being delayed because two banks that initially showed interest in providing the funding were now backing off and asking for additional guarantees and higher interest rates. The total cost for the project amounts to €170 million.

Bambakas, however, said the funding from banks would be given after all the necessary licenses were granted, which has not happened yet. “In order to ensure bank funding we must have all town planning consents in order, but this is just part of the process and we are confident it will be resolved soon,” he said.

The project, characterised as the biggest tourist infrastructure work in Limassol, is expected to boost the town’s tourist sector by attracting quality visitors. Limassol Marina will be located on the west of the Old Port, taking over the entire seaside area from the old to the New Port. It will accommodate up to 1000 vessels and will offer a range of services including dining, residential, shopping and conference space. A green park will surround the marina, while all buildings within it will adhere to old Limassol’s traditional architecture standards.

The marina will be constructed and managed by the Built Operate and Transfer (BOT) method which involves a strategic investor building and managing a project for a number of years, and then transferring it back to the state. In this case, the strategic investor will execute the plan and manage the marina for 53 years, and retain profit rights for 37 additional years.

Limassol Marina Ltd comprises J&P Avax A.E., Cybargo PLC, Fraggoudi & Stefanou, Ioannou & Paraskevaidi, Athena ATE, Cads, Holding Ltd and the Limassol Chamber of Commerce and Industry (EBEL) through the Limassol Marina Development Company.

Copyright © Cyprus Mail 2009

Cyprus golf courses get the go ahead

Nigel Howarth
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IN THE face of much opposition, the cabinet has finally approved the creation of fourteen new golf courses in Cyprus, which will bring the total number on the island to seventeen. Although the decision was finalised at a cabinet meeting on Thursday, it was only announced yesterday.

But in light of the protests over water shortages, each golf course will be required to have its own desalination unit, which must be powered from renewable energy sources.

Spokesman for the Cyprus government, Stefanos Stefanou, said the actual decision had been taken by the previous government.

“It was taken for the purpose of strengthening the tourism product in Cyprus and boosting economic activity,” he said.

Adding that “In accordance with the decision, no water supplies will be given over by the government to meet the needs of these facilities“.

Those opposing so many golf courses say they will ruin the natural environment, and not only in relation to the water shortage issue. Each golf course will be accompanied by tourist units.

It is expected that courses will be built in the district of Limassol at Ayios Ambrosios, at Paramali and Fassouri, at Polis Chrysochous, in Paphos and Ammochostos-Larnaca.

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