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Developers ‘scamming buyers’ over property tax

Jean Christou
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Scam IconTHE CYPRUS Property Action Group (CPAG) has obtained a legal opinion which concludes that developers are effectively scamming buyers by overcharging them for Immovable Property Tax (IPT) and pocketing the difference.

“This is a massive fraud,” said the CPAG’s Denis O’Hare. “We want this money back and we want prosecutions“.

The CPAG said property developers were charging owners hundreds of euros per year for IPT, when they themselves were paying as little as €25 per owner to the Inland Revenue.

“In this way, the Developers realise a substantial profit from the purchasers, i.e. they receive from them money they did not pay or much more than what they paid,” said the legal opinion.

IPT is a tax imposed by the government on property owners annually.

The calculation is based on the 1980 total value of a property, so the average home owner does not generally need to pay, as most homes were unlikely to have been worth as much as the threshold €171,000 at that time. Property under that value has a zero IPT rate.

The IPT on property worth more than €171,000 goes up in varying degrees to a maximum of 4.0 per cent, if the property was worth €850,000 or more in 1980.

Large property developers, however, would have had land worth between €171,000 and €850,000 at 1980 prices, which have now been built on and sold to foreigners.

The developers are still liable for the IPT because they still hold the Title Deeds if the total property remains mortgaged.

They then calculate how much they need to pay to Inland Revenue based on the total value of the land, and divide the charge, based on the number of home owners on the property development.

Owners are then charged individually by the developer, who deposits the much-lower IPT charges with Inland Revenue. Effectively, the buyers are being asked to fork out for the IPT, even if their individual homes would have been worth less than €171,000 in 1980.

Imposition of IPT can go on for years, depending on how long it takes for the developer finally to hand over individual Title Deeds.

Owners are allowed to claim six years’ worth of IPT back from the Inland Revenue once they have obtained their Title Deeds, but according to O’Hare the owners could end up paying 10 or 15 years’ worth by the time the developers hand over the Deeds.

What’s more, they are only entitled to get back the amounts paid to Inland Revenue by the developer, and not what the developer charges them. The difference is huge in most instances, according to O’Hare.

O’Hare cited one instance where a developer asked buyers for €1,700 for IPT, when he himself was paying only €25 per owner to Inland Revenue. In another case, a developer was charging each buyer €600 and paying €17 per buyer to the tax department.

“This fraud is being carried out in the name of the government,” said O’Hare, adding that the whole issue was confusing for foreign buyers.

There have been suggestions on other property forums that some developers are charging buyers based on the value of the house as stipulated in the buyer’s contract. On top of that, some charge 9.0 per cent interest if payment is late, and yet others wait until they issue the Title Deeds and then ask buyers for a lump sum, which could run into thousands if the issuance of the deed takes ten years or more.

Cyprus property consultant Nigel Howarth said on his website Cyprus Property Buyers: “In one case in which I was recently involved, these ‘unpaid’ taxes amounted to 50 per cent of the property’s purchase price. Imagine buying a property for €350,000 and then, some years later, receiving a demand from the developer for a further €175,000 for ‘Immovable Property Tax’!“

O’Hare said that according to the feedback from CPAG clients, most developers were charging 4 per cent per £1,000 on the value of the property. He also said that in the case where the developer waits until the Title-Deed handover, they often threaten to withhold until the buyer pays the lump sum for IPT.

Based on the legal opinion they obtained, the CPAG has now sent out updates to buyers telling them not to pay anyone until they are given proof of how much is being given to the Inland Revenue, or proof of how the charge was calculated.

He said one buyer had already challenged a requested IPT charge of €2,500 from a developer, who then “offered to reduce it” to €850. The buyer still refused without seeing proof that this was how much he had to pay.

The legal opinion obtained by the CPAG states that the purchaser “may ask the developer to provide him with evidence on the IPT he paid for the property“, and “may refuse to pay more than what he will be entitled to recover from the Inland Revenue, without committing breach of his agreement“.

O’Hare said the full legal opinion would be published in due course. “We at the CPAG are unaware of anyone being supplied with proof of payment to the Inland Revenue by developers of any amounts, even though we have asked buyers in specific instances to request this. They were all refused this information,” said O’Hare. “However, lately, some developers are dropping their demands for IPT after the client quotes from our emails to them explaining the true situation.”

Copyright © Cyprus Mail 2008

Related articles: Immovable Property Tax scam warning

Conor O’Dwyer stages UK protest

Jean Christou
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Scam AlertBRITISH home buyer Conor O’Dwyer will begin a three-day protest outside one Britain’s biggest property fairs in a move that could seriously damage the lucrative industry in Cyprus.

O’Dwyer, 38, told the Cyprus Mail yesterday that he and his wife would protest outside The Homebuyer & Property Investor Show at ExCeL in London, which begins today and runs until Sunday. They will distribute leaflets warning people of the pitfalls of buying property in Cyprus, he said.

Conor O’Dwyer’s protest leafletThe fair usually attracts around 15,000 prospective property buyers and numerous Cypriot developers will be represented among the 250 stands.

“I said if my recent trip to Cyprus didn’t bear any fruit that I planned to stage a protest,” O’Dwyer said. “There will be many estate agents there and all of the property magazines”.

In his leaflet O’Dwyer says Cyprus is a beautiful country with lovely people but is being spoilt by greedy developers and unscrupulous lawyers. He outlines the basics of the ongoing case he has with a Cypriot development company, which are detailed in full on his website lyingbuilder.com and on YouTube.

The British ex-soldier spent a week in Larnaca hospital in January after he was beaten up in Frenaros when he went to take pictures of the house he had bought and over which later came into dispute with the developers.

He says they unilaterally cancelled his contract and kept his money, some £75,000 sterling because he had pulled them up over what he saw as a violation of the terms of the contract. The case is pending at court. The developers have accused O’Dwyer of allegedly masterminding a plan to extort a newer, more expensive property, and exorbitant damages from the company.

They have, however, been charged by police in connection with the attack on O’Dwyer in Frenaros, but the case has yet to reach the courts. “My case has been treated disgustingly by the CID in Paralimni,” O’Dwyer said yesterday. “They charged them with the lesser crime of actual bodily harm when it was clearly grievous bodily harm because I spent six days in hospital.”

O’Dwyer said he has been left with little choice now other than protesting in the UK as he has managed to get nowhere towards solving his case in Cyprus over the past three years.

He and dozens of other buyers, stung by Cyprus property developers, are also planning a later demonstration outside the Cypriot High Commission in London, possibly during a visit there by new President Demetris Christofias who has been invited to London by Downing Street.

In a written statement issued later yesterday, O’Dwyer said he had been “saddened by the outrageous lack of action taken by the Cypriot authorities” in both the assault case and the property dispute.

“Throughout the case, the authorities have reacted indifferently and unsympathetically,” he said.

“This protest outside The Homebuyer & Property Investor Show in London will be the first of many.”

Copyright © Cyprus Mail 2008

Conor & Michaela O’Dwyer

Conor & Michaela O’Dwyer protest outside The Homebuyer & Property Investor Show at ExCeL in London

Links to earlier articles about Conor O’Dwyer’s struggle

Developers charged over assault

Property buyer recounts horror of Frenaros assault

Two remanded over brutal beating

British property buyer still in hospital

British property buyer brutally beaten

Top 10 property investment tips

Nigel Howarth
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THERE ARE many reasons to invest in a property in Cyprus – and probably twice as many pitfalls or reasons why you shouldn’t be buying here. So what do you need to do before taking the plunge?

Here are my top 10 property investment tips for those thinking of buying property in Cyprus.

Tip 1 – Visit Cyprus

I’m surprised by the number of people who email me who have bought property in Cyprus without even having visited the island. In my experience, far too many people feel they’ve been ‘conned’ or end up being disappointed with their purchase. Would you buy a property in the UK without visiting the area? Of course not!

Some property developers and overseas marketing companies offer low-cost property inspection trips from the UK. If you take one of these, you may be given very little free time to carry out independent viewings. Under absolutely no circumstances should you allow yourself to be pressured into buying something without doing some independent research & seeking independent legal advice.

Do your own research, visit the island independently and assess the true situation for yourself.

Tip 2 – Don’t sign any papers or hand over any money without taking independent legal advice.

Under no circumstances use a lawyer who’s been introduced or recommended to you by the developer or estate agent. There’s no rush to buy and if the sale falls though because you’ve asked for time, then you’ve had a lucky escape.

Tip 3 – Don’t believe the hype

What looks ideal on some of the overseas property TV channels, may not suit you in the slightest. Many of these programmes get their expenses paid by agents and developers touting for business.

There is a very well known property marketing company that publishes a number of glossy overseas property magazines and has its own television company. As you may appreciate, the costs of running a TV company, making TV programmes and producing glossy magazines are huge – all paid for by their customers who swallow the marketing hype hook, line and sinker.

Remember that overseas property magazines rely on advertisers to pay their running costs and salaries. They will therefore paint very rosy pictures of owning investment properties in Cyprus to keep their advertisers happy and the money rolling in.

Have you seen those TV programmes in which Mr & Mrs X have been flown to a country to find their dream property? How many times have they decided not to buy the property they liked, but said they’d like to visit the country again for a better look around.

The next big thing – If you think this describes Cyprus, I’m afraid you’ve missed the boat by seven or eight years. So now when you open up your Sunday supplements and read about Cyprus being the “new pearl”, “hidden treasure”, “unspoiled landscape”, “step back in time”, etc you can bet your life that it’s a journalist angling for a free holiday in return for an article.

Tip 4 – Exhibitions

These are fast becoming a waste of time for everyone; lots of hype, hard selling and glossy brochures. (I was recently contacted by someone who’d been to one of these exhibitions and was interested in buying an off-plan apartment in Limassol. Not only was the apartment hugely overpriced, it was bordering on the Linopetra industrial estate and on top of the Limassol/Nicosia motorway!)

The Internet is a treasure chest of research material. There are Internet forums, including the ‘Cyprus Property Forum‘ where you can ask questions of those people who really know about the island – those of us who live and own property in Cyprus.

And you can find many non-property websites about Cyprus covering local tourism, business, sport, politics, etc, etc.

Tip 5 – The biggest myths

(apart from those of ancient Greece and the Arthurian legends)

Guaranteed rental returns – invariably, these are built into the price you’re paying, so you’re actually paying over the odds but being made feel you’re doing very well out of the deal. Some property developers are so desperate to find buyers, they are even offering buyers a ‘free’ car!

Long rental seasons – Cyprus is always touted as an all-year-round holiday destination; this is a fallacy. And if you think you’re going to rent out your holiday home for 10 months of the year and cover your mortgage payments, think again!

The best you can reasonably expect is 10 to 15 weeks rental – and that’s assuming you’ve got a top-of-the-range property in an ideal location. If all you have is a ‘typical’ holiday apartment, your chances of covering even your basic running costs are extremely small.

The number of British tourists visiting Cyprus has been in decline for a number of years. At the moment, there are just too many holiday homes for the people wishing to rent them. Even hotels are closing down and being converted (illegally) into ‘prestigious’ beach front apartments.

Prices certain to rise – yes, Cyprus property prices have been increasing for a number of years. Since the start of 2004, prices have risen by an average of just under 10% per annum. However, recent price hikes and bad publicity are taking their toll; property sales to Brits are reported to have dropped by 20%. (And as they say with shares and investments, prices can rise as well as fall).

Tip 6 – Be clear on what you want from the property

Be aware that buying a property for your own use and buying a property to rent are two totally different things. It’s better to decide before you buy what you want the property for; investment or personal use.

Tip 7 – Put together a realistic budget

Don’t waste your time looking at properties that are well within, or well outside, your actual budget. Have a good idea of local prices; be realistic and add in a contingency of 10% to 15% to cover legal expenses, cost overruns, unexpected problems or extra paperwork.

Tip 8 – Don’t believe the “We have someone very interested and have to move fast” line

Call their bluff ask what the price being offered is. Be relaxed and top it by €100 and wait for a reaction. If none, then the interested party might never have existed.

Tip 9 – If you’re using an Estate Agent, make sure they’re registered members of the Cyprus Real Estate Agents Association

There are many unregistered estate agents operating illegally in Cyprus, but the authorities seem unwilling or unable to close them down. Although using a member of the Cyprus Real Estate Agents Association isn’t a cast-iron guarantee that you’ll have no problems, they are required to check out the properties they’re selling and they also carry professional indemnity insurance.

A common way for agents to brainwash you is to show you twenty properties in a day. You view one or two nice properties early on, then get dragged around the second-rate ones, and finally with a couple of more attractive properties that look good around sunset. Although it is important to view many properties to get a more informed choice, a good and honest estate agent will have taken on board your specifications and will only show you properties that meet your criteria.

There are also many middlemen dealing in property. These receive a commission or finders fee from the developer or agent when they introduce a client. Property middlemen who receive a commission and who are not directly employed by the developer or estate agent are acting illegally.

Some of these middlemen will insist on taking you to their homes to meet their family and enjoy some of the famous Cypriot hospitality. And will also find many retired Britons acting as property middlemen who prey on the fears (and wallets) of their fellow countrymen.

It makes no difference whether you get conned by a generous and affable Cypriot or a silver-tongued British expatriate, the end result will be exactly the same.

Tip 10 – Size doesn’t matter

Don’t assume that the bigger the company, the better service you’ll get. In my experience, the size of a company is no guarantee that it will do a good job. So don’t rule out a company just because it hasn’t got flashy offices, glossy promotional material or fluent English speaking staff. And you will often find that the service you get from companies that target the expatriate market to be generally lower than those that target a wider buying audience.

That concludes my top 10 property investment tips for those thinking of buying property in Cyprus. Feel free to contact me if you have any questions.

Top 5 legal tips for property buyers

Louise Zambartas
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BUYING a property in Cyprus can be a daunting experience, particularly if you are unfamiliar with the system here.

You need to find a lawyer you can trust, who will act for you independently and make sure that your position is fully protected… the problem is – how do you know if your lawyer is acting in your best interests?

My top five points below should give you a good idea of whether your lawyer is on the right tracks.

These are the top five points I believe your lawyer should follow:

Tip 1 – Check that you can buy this property!

There are still certain restrictions on the number of properties you can transfer into your name in Cyprus in certain situations. In short, as an EU citizen you can buy any amount of land/property in Cyprus if you are permanently resident in Cyprus. If you are not permanently resident here – you can buy any number of fields/plots and the title deed to one house/flat. A non-EU citizen can only buy one apartment, which is under construction or built on an area not exceeding 4,014 sqm.

All restrictions are due to be lifted by 1 May 2009 for EU nationals, but consideration still needs to be given to your position until they are lifted. It is potentially disastrous to sign contracts to buy property which you cannot have transferred into your name.

Tip 2 – Get a Fixed Quotation

Legal fees are often linked to the price of the property you are purchasing in Cyprus. In addition to fees, the lawyer will charge you disbursements (in other words out of pocket expenses incurred on your behalf). You will also need to pay for the contracts to be stamped and (when you transfer the title into your name) you will need to pay transfer fees.

You need to know the cost of all of these steps from the start so that you can budget your purchase effectively and your lawyer should give you this information.

Tip 3 – Check the Title

This is a crucial step! An encumbrances search at the Land Registry will confirm that the person selling the property to you is actually the owner and will reveal if any other contract of sale has already been deposited at the Land Registry.

Any encumbrance (for example a mortgage) will also be revealed – and this information is needed in order to prepare an appropriate contract.

Tip 4 – Check the developer is not on the verge of bankruptcy!

The financial standing of the developer is important to ascertain, in order to ensure that the company is secure and should not encounter any financial difficulties during the construction of the property.

Your lawyer should check this at the Companies Registry before you sign a contract.

Tip 5 – Get copies of Planning Permission and Building Authority Licenses

If you are buying a new or recently built property, you will need to be sure that planning permission and building authority licenses have been complied with fully.

If there are any problems with non-compliance this could prevent you from transferring the title into your name in the future!

Of course, there are many steps involved in buying a property in Cyprus and each individual case is different. However – you should check that as a minimum your lawyer carries out each of the above steps.

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 clauses to be contained in your contract of sale.

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.

New Cyprus president elected

Alan Lawton
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LEFT-WING Cypriot leader Demetris Christofias has won the presidential election, defeating rival right-winger Ioannis Kasoulides.

In a victory speech, he promised to work on re-uniting the divided island.

Mr Kasoulides congratulated him on his victory and offered to help find a solution to the division of Cyprus.

Cyprus has been divided since 1974 when Turkey sent troops into the north after a coup by Greek Cypriots designed to produce union with Greece.

Cypriot hopes

The two men had emerged neck-and-neck from the first round of the election, which saw the defeat of President Tassos Papadopoulos.

Official figures showed Mr Christofias, who heads the communist AKEL party, won 53.36% of the vote to Mr Kasoulides’ 46.64% in Sunday’s second round.

AKEL supporters celebrated victory outside the party headquarters in Nicosia, chanting slogans and waving flags. Car horns could be heard across the city.

“Tomorrow is a new day and there will be many difficulties before us,” Mr Christofias, 61, told supporters. “We need to gather our strength to achieve the re-unification of our homeland.”

Earlier, while casting his vote, he said he was sending a message of friendship to Turkish Cypriots in the north of the island.

Sensitive issues

The ‘Turkish Republic of Northern Cyprus’ is only recognised by Turkey. UN forces patrol a buffer zone across the island.

The new president is likely to find that any progress on re-unification will be slow and difficult, says the BBC’s Tabitha Morgan in Nicosia. Many sensitive issues remain unresolved including the return of refugees, security and the constitution.

Mr Christofias also made an alliance with the party of the defeated Mr Papadopoulos – the man who firmly rejected the last UN plan to solve the Cyprus problem.

In his concession speech, Mr Kasoulides offered his support to the new president.

“I assured him I would stand next to him in his efforts to find a solution to our national issue,” he said in an address to supporters.

Story from BBC NEWS

Illegal hotel conversions

Jean Christou
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THE Cyprus Technical Chamber (ETEK) yesterday accused the government of standing idly by while ailing hoteliers illegally convert their hotels into residential properties.

ETEK has compiled a list of 30 hotels which have converted to apartment blocks without permission from the Town Planning Department.

Six of the hotels are in Limassol and one was selling its converted apartments for nearly €1.5 million each.

“Bear in mind that although we may be talking of a very small number of hotels, but this itself is only a small percentage of the number of illegal buildings that really exist,” said ETEK’s Linos Chrysostomou.

He said if the authorities were asked what they were doing about it, they would likely say they were acting on the issue.

“But the reality is they really can’t act because there is no political will to act,” said Chrysostomou.

Chrysostomou said millions of euros were being made from the illegal conversions, and he questioned how owners were being allowed to break the law.

ETEK said the safety specifications for hotel buildings and residential buildings were different and in some cases the conversion could pose a danger to new residents.

The organisation expressed concern that many of the hotel properties when they were converted were not complying with anti-seismic regulations.

Twenty tears ago during the Cyprus tourism boom, the main concern was the illegal conversion of residential properties into hotels but tourism has slumped in recent years and many hoteliers are trying to leave the business.

Two years ago the government and the Cyprus Tourism Organisation came up with a scheme for the withdrawal of some 10,000 lower standard tourist beds from the market in an attempt to upgrade the product.

This would leave around 90,000 beds on the market in total.

However hotel occupancy has become so low that some three and four star hotels have joined the exodus. New estimates say that as many as 30,000 beds could be withdrawn.

In addition, the incentives for withdrawing the beds have not yet become available due to government red tape. Tired of waiting, fed-up owners have turned to the property boom to offload their ailing businesses, and developers are more than eager to pay up for prime beach locations.

Only last year one estate agent had five hotels for sale on his books in the space of a week.

But Chrysostomou said using the delay in incentives to illegally convert was a “cheap excuse” and the lure of easy profit.

“There is no excuse to break the law,” he said. “We are a country with laws and we need to abide by them. It seems we only abide by the laws we want to abide by“.

Under the law, the owners of the converted buildings could be fined up to €17,000 depending on the nature and gravity of the offence. They could also be fined up to €170 per day.

The Cyprus Hoteliers Association PASYXE said yesterday that to date they had struck off 20-30 properties from their list of registered approved hotels.

“Authorities accused of inaction over illegal conversion of hotels“

Copyright © Cyprus Mail 2008

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