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Loan financing further reduced for Cyprus property buyers

David Crowther
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THE Central Bank of Cyprus has stepped in once again to reduce loan financing for those buying property in Cyprus.

In October last year the Bank reduced financing from 70% to 60%; but in spite of this move, housing loans continue to surge, reaching a record €8.26 billion in January this year.

The new measures will affect the sale of new and resale property, but it’s too early to assess their long-term impact.

Last years measures by the Central Bank reduced loan financing for property purchases from 70% to 60% for non-residents. The new measures restrict the amount that can be borrowed even further by excluding VAT and Property Transfer Fees from the mortgage loan calculation.

For example, for a property priced at €350,000 exclusive of VAT, the maximum loan a non-resident can expect to borrow from a Cyprus bank is €210,000. In addition to the difference, €140,000, a buyer will need to find the VAT, €52,500, and the Property Transfer Fees, approximately €21,165, from elsewhere.

So a non-resident buying a property in Cyprus priced at €350,000 will have to find more than €213,600 from other sources; that’s more than 60% of the acquisition cost.

Non-residents planning to make their permanent home in Cyprus are now required to provide evidence that they will live in the property for at least 183 days/year. For those who are not already permanent residents of Cyprus, this condition will be difficult, if not impossible, to meet.

But for first-time buyers who are resident in Cyprus and able to prove that they’ll live in the property for at least 183 days/year, the situation is better; they will be able to borrow 80% of the purchase price (excluding VAT and Property Transfer Fees). For a property priced at €350,000, a resident property buyer will have to find approximately €143,700 from other sources; around 41% of the acquisition cost.

It is essential that buyers take independent legal advice before signing any papers or handing over any money and to budget for the legal fees associated with buying property in Cyprus.

(Note. The Property Transfer Fees above are calculated on the basis of an individual buying a property in Cyprus. If the purchase is made in joint names, the Property Transfer Fees will be lower).

Cyprus property output slows

David Crowther
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ACCORDING to Eurostat data released on 12th March, construction output in Cyprus has slowed, boosting estimates that the island’s economy will grow slower in 2008.

Specifically, construction output in the fourth quarter of 2007 grew by 3% compared to 9% in the third quarter of 2007, 7.5% in the second quarter of 2007 and 4.2% in the first quarter. The growth rate of the construction sector, which is 8.5% of the Cypriot GDP, is smaller than that of economy, which stood at 4.3% in the fourth quarter of 2007.

Eurostat’s figures confirm forecasts that the sector of constructions, which contributed heavily to the fast GDP growth in the past five years, will slow down. Besides, the Finance Ministry expects that GDP growth will decline to 4.6% in 2008, 4.2% in 2009 and 3.3% in 2010. However, the current figures show that slowdown might be larger and steeper than the Ministry’s forecasts.

The construction slowdown is connected with the deterioration of the conditions in the Cyprus property market, market experts support. “The Central Bank’s move to cut the lending ceiling for the purchase of a home has contributed to the negative climate”, they said.

The anticipated slowdown in constructions – especially in Paphos – is more than obvious in the latest CYSTAT data on building permits. The area of the licensed projects in Paphos recorded a drop of 10.1% in 2007.

The sudden slowdown in constructions will spark fresh talks for the state’s development expenditure, which will be re-evaluated according to Finance Minister, Charilaos Stavrakis.

Top 10 pitfalls to avoid when buying property in Cyprus

Louise Zambartas
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When undertaken properly, purchasing a property in Cyprus is a pretty straightforward process. However, I am regularly approached by individuals who have purchased in Cyprus and have encountered some sort of problems with their property purchase and they need me to help them to clean up the mess!

The truth is that almost always, the problems could have been avoided had the purchasers known the process and avoided the pitfalls!

Let me tell you my top 10 pitfalls to avoid when buying a property in Cyprus and hopefully your purchase will move forward smoothly and without hitch.

Pitfall 1 – Not appointing a lawyer

Well I would start with this, wouldn’t I? But I cannot stress enough how very important it is to appoint a lawyer! I regularly meet people who have signed a contract presented to them by the developer and come across major problems because the contract does not protect the buyers. A property is a major investment – would you buy in the UK without legal assistance?

Pitfall 2 – Appointing the developer’s “pet” lawyer

The number one rule for good practise as a lawyer has to be that you cannot act where you have a conflict of interests and acting for both seller and buyer in a transaction is about as big a conflict as you will find! If the lawyer is not independent you can rest assured that the contract that is drawn up will not be drafted in your favour, in fact it will probably be heavily weighted in favour of the developer! Appoint an independent lawyer!

Pitfall 3 – Rushing in

Most developers and agents will put purchasers under considerable pressure to “sign up” as soon as possible. Whilst you do not wish to miss out on the home of your dreams, do take time to consider your purchase carefully and make sure that you make an informed decision about the purchase.

Pitfall 4 – Failing to consider the costs

It is really important to calculate the stamp duty, legal fees, disbursements and transfer fees that will be applicable for your purchase early on so that you can budget your purchase accordingly. If you are buying through a mortgage, you also need to be clear on the cost of the mortgage from the start.

Pitfall 5 – Handing over a reservation fee without written reservation terms

If you hand over a reservation fee to the developer, make sure something is put down in writing (ideally by your lawyer) to say how much was paid, the circumstances in which it will be refunded and that it will come off the full purchase price for the property.

Pitfall 6 – Signing a contract of sale without due diligence having been undertaken

If you are buying a property in Cyprus an encumbrances search and (where appropriate) a Company Search or credit reference search against the selling company are essential. A contract of sale cannot be properly drawn up without taking into account the results from these searches.

Pitfall 7 – Failing to get everything in writing

Your contract of sale outlines your agreement with the seller – make sure everything you have negotiated is put down in the contract of sale, particularly any agreed extras.

Pitfall 8 – Failing to deposit the contract of sale

A Contract of Sale must be deposited at the Land Registry within the timeframe specified by law. You will lose certain (very important) legal rights if this is not done.

Pitfall 9 – Failing to stamp the contract of sale

A Contract of Sale must be stamped within the timeframe specified in the law – otherwise you will be liable to pay penalties.

Pitfall 10 – Failing to make a Cyprus Will

Cyprus Law will govern all immovable property situated in Cyprus. The Cyprus Law includes an element of forced heirship – but certain categories of foreign purchasers are entitled to bypass these rules and make a Will to pass the property as they wish. It is very important to consider your Wills as soon as you buy a property in Cyprus.

Most of the potential problems encountered when buying property in Cyprus could be avoided if you consider (and avoid) the above pitfalls! Above all (and certainly the most important of all steps) is to get some independent legal advice from a lawyer that you trust – a good lawyer should take care to avoid the other pitfalls for you!

By Louise Zambartas LLB (Hons) Law

Louise is a dual qualified practising English Solicitor and Cyprus Advocate and has established The Law Offices of Louise Zambartas; she lives and works in Limassol. I am grateful to Louise for allowing me to publish her article; I urge all Cyprus property buyers to follow her sound advice.

Over the coming weeks, I’ll be publishing more hints and tips by Louise. In the next one, she’ll be giving us her top legal tips on making a Will in Cyprus.

The Law Office of Louise Zambartas is a specialist team of Cyprus Property Lawyers comprising English Solicitors and Cyprus Barristers dedicated to dealing with conveyancing in Cyprus and associated legal work.

Paphos property sold for 66 million

Alan Lawton
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According to Stockwatch Ltd, KEO has sold its property at the Tombs of the Kings in Paphos to a joint venture of Athienitis and Aristo Developers for €66 million.

According to newspaper “Politis”, the development will be uniform but the property will be separated in two parts, the commercial and the housing. Aristo will deal with the housing development and Athienitis with the commercial. KEO secured the additional sum of €6 million.

According to the report, a French company has already expressed its interest in securing the exploitation rights of the shopping centre that will be constructed.

On February 1, 2008, KEO announced its intention to sell a Paphos property (Tombs of the Kings), accepting as a minimum offer the sum of €60 million.

Last month, KEO invited public bids for the 46,200 square metres of prime real estate, setting a minimum bid of €60 million. The €66 million reported purchase was not announced on the CSE website yesterday, while the Group’s directors were unavailable for comment. A representative of Athienitis refused to confirm or deny the deal, saying it was the responsibility of the seller to announce any agreement, not the buyer.

The sale of the plot will fund the transfer of the existing plant in Limassol from the seaside area to another city’s region and will contribute to the enforcement of the Company’s strategic targets, which include the opening of a new brewery, the construction of new central storage spaces and the improvement of its plant via new technology.

Moratorium on golf courses

Alan Lawton
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Ecologists have requested the Cyprus government to impose a moratorium on the issue of new licenses for the golf courses.

In their announcement released today, they demanded the “freezing” of the procedures until the adoption of extraordinary measures to deal with the current water supply crisis.

The Ecologists also requested the minimization of the water supply to the existing golf courses, stressing that it is not fair to impose “tough measures on the farmers and consumers at the same time that the land developers enjoy this valuable good”.

Another scam bites the dust?

Nigel Howarth
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Scam IconDISREPUTABLE Cyprus property developers extort ‘contract cancellation fees’ from buyers wishing to sell their property before Title Deeds have been issued in the buyers’ name.

I have personally heard from some buyers who have been charged as much as CYP 20,000 (€ 34,000) by these ‘crooks’ for the privilege of selling a property they have bought and paid for in full.

It was therefore refreshing for me to read the following article on page 8 of the March 2008 issue of the Grapevine magazine:

“There was shock amongst developers when, for the first time, Paphos District Court ordered a property company to reimburse a British couple monies they were obliged to pay when they sold a house without Title Deeds. The homeowners were never issued Title Deeds and when they decided to sell on their property, had to pay the developer thousands of Euros to be released from a contract to give them the right to make the re-sale.

The ruling could set a precedent for other similar cases.”

Hopefully, this ruling by the Paphos District Court (which was apparently not contested by the property developer concerned) will help put an end to this despicable practice in Paphos and throughout the rest of the island.

Unfortunately, the District Court’s ruling will be of little comfort to those who have already been forced into parting with thousands of Euros for the ‘privilege’ of selling their property. I suggest they seek legal advice with a view to suing the developers for the return of their money.

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