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Buying Land in Cyprus

Nigel Howarth
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Buying Land in Cyprus

Many thanks for the information about the roof for our property in Cyprus. In your reply, you say that our architect will be able to advise us of the costs of the various options. We don’t have an architect, but we’ve seen a plot of land we like and the person who’s selling it says he’ll design and build the house for us. Will he be able to give us the costs?

Answer

If the person from whom you’re buying the land insists on having a clause in the contract of sale stating that he will build the property for you; do not buy the land. There are two issues – quality and price. Let me explain.

  • Some land owners realise that they can make a bigger profit by selling their land complete with a property to unsuspecting expatriates. Most of these people have about as much knowledge of building a house as I have of brain surgery! A couple at the eastern end of the island fell into this trap – it took the ‘builder’ 3 years to build their house. The build quality was appalling and the couple sold it as soon as they could and moved elsewhere.
  • I know of at least one property developer in Cyprus who is playing this game. A couple of years ago, I was contacted by someone from North America who bought a plot of land from a very well known developer in Paphos. One of the conditions in his contract was that the developer would start building his house no later than 3 years after he’d signed the contract. When the time came, the property developer wanted 375,000 to build an extremely modest 3 bedroom house of 150m2. Eventually, they negotiated a settlement whereby the developer bought the land back at the same price he’d sold it for (even though the value of the land had more than doubled in the 3 years).

If you’re planning to build a custom property in Cyprus, I strongly advise that you engage the services of an architect to design your home and oversee its construction.

One of the things architect will do is get several competitive quotes for the construction through a competitive tendering process. You and he will then evaluate the tender responses by inspecting properties built by each of the contractors to assess quality, speaking with the owners of those properties, etc, etc, etc.

If you want more information on how to go about buying land and building a custom home in Cyprus, there are several pages on my website at www.cyprus-property-buyers.com

Some vendors of land try to make it a condition of sale that you employ their services to build your property. Your lawyer must ensure that any such conditions are excluded from the contract of sale; they are most definitely not in your best interests!

Capital Gains Tax on the Sale of Property in Cyprus

Nigel Howarth
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Due to our increasing age and failing health, my wife and I have decided to sell our property in Cyprus and return to the UK. Someone has told me that we’ll have to pay Capital Gain Tax. Is this true?

Answer

Thanks for your email, I’m sorry to hear that you’re having to sell up and I’m afraid that you will be liable for Capital Gains Tax resulting from any gain you’ve made on your property. This is how the system works here:

The Capital Gains Tax systems in Cyprus and the UK are different. When you sell your main residence in the UK, you are not liable for Capital Gains Tax. However, when you sell a property in Cyprus, even though it may be your main residence, Capital Gains Tax is charged on its disposal.

Capital Gains Tax is imposed at the rate of 20%. This includes gains from the disposal of shares in companies that own immovable property but excludes shares that are listed in a recognised stock exchange.

Exemptions

Certain disposals are not subject to Capital Gains Tax:

  • Transfers arising on death.
  • Gifts made from parent to child or between spouses or between up to third degree relatives. (A third degree relative is one with whom an individual shares about one-eighth (12.5%) of their genes. Third-degree relatives include your great-grandparents, great-aunts, great-uncles, and first cousins).
  • Gifts to a company where the company shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the date of the transfer.
  • Gifts by a family company to its shareholders provided such property was originally donated to the company. The property must be kept by the recipient for at least three years. For gifts that were made by the company to its shareholders that took place before 28 May 1999, the exemption applies irrespective of how the immovable property was originally acquired by the company.
  • Gifts to charities and the Government.
  • Transfers as a result of reorganisations.
  • Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws.
  • Expropriations (for example, if the property is compulsory purchased).
  • Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property. The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property.

The base date for calculating the acquisition cost of property is 1st January, 1980. If the property was built after this date it is calculated backwards.

Allowances

The chargeable gain as adjusted for inflation, but certain lifetime exemptions apply to individuals for the disposal of their main residence:

The first 10,000 (€17,086) of a gain is exempt. This rises to 50,000 (€85,430) if the property has been the main residence of the tax payer for a minimum of five years.

Further allowances are granted for ‘Allowable Expenses’:

  • Property transfer fees.
  • Stamp duty.
  • Estate agent’s commission – but only if the estate agent is licensed by the Cyprus Real Estate Agents’ Association.
  • Legal fees.
  • Accepted capital additions and improvements – planning permission where necessary.

Indexation can be applied to the above expenses as well as the initial purchase price and must be submitted with invoices and receipts for the costs incurred.

Additional allowable expenses are also granted for:

  • Immovable Property Tax.
  • Interest on loans used to buy the Property, assuming that the interest payments have not been used to offset other tax liabilities; e.g. Income Tax.

These expenses cannot be indexed.

Note that the 10,000 (€17,086) is a personal allowance. So if the property is owned in joint names, e.g. husband & wife, each owner is entitled to the exemption of 10,000 (€17,086).

Capital Gains Tax does not apply to profits resulting from the sale of overseas property by residents who were not resident in Cyprus when they purchased the property. So if you buy a home in Cyprus and become resident here, you will not be liable for Capital Gains Tax in Cyprus should you subsequently sell your property in the UK.

(Note that if you’re planning to sell your home in Cyprus and return to the UK, you may be required to pay some Capital Gains Tax to the UK authorities as well as the Cypriot authorities. However, the UK authorities may deduct any Capital Gains Tax you have paid in Cyprus, so make sure you take all your paperwork with you).

Reducing your Capital Gains Tax liability

‘Under the table’ payments are, of course, illegal. However, there are perfectly legal ways of reducing your Capital Gains Tax liability:

  • Capital losses may be used to offset the gain.
  • If you are selling your property partly or fully furnished, come to an arrangement with your buyer whereby they purchase any furniture, etc. using a separate agreement. This will reduce your Capital Gains Tax liability as the items included in the agreement should not be liable for Capital Gains Tax.

But be sensible! Don’t try and sell your home for 5,000 and its contents for 175,000 – the authorities will be down on you like a ton of bricks!

What Sort of Roof Should We Have?

Nigel Howarth
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We are planning to build our own home in Cyprus and I understand that you’ve done the same.

We’ve seen a number of properties and visited a number of different building sites and we both have a good idea of what we want in our new home. We’ve seen many designs and styles of roofs and I’d appreciate your advice on which style is better.

Answer

Thanks for your email. Yes, I built my own home in Cyprus – and I’ve helped a number of other people do the same.

But I should advise you that it is illegal to build property in Cyprus unless you are a registered building contractor. So when you say you are planning to build your own home, I hope you mean you are getting someone else to build it for you!

There are many different designs of roof, which fall into three main categories:

Flat Concrete Roof

The cheapest type of roof is basically a flat concrete slab.

While our house was being built we rented a house with a flat concrete roof; it was not a pleasant experience!

During the summer, it acted like a storage radiator, soaking up the heat of the sun during the day and releasing it at night. We could actually feel the temperature rising as we climbed the stairs at night and the heat in our bedroom was suffocating.

During the winter, all the heat in the house escaped through the roof making it very cold indeed. On some days the temperature inside was lower than the temperature outside and we felt that we were living in a refrigerator.

The roof hadn’t been properly waterproofed and several damp patches appeared when it rained and we also saw several patches of grey mould growing.

Insulation and waterproofing are the main problems with a flat roof. It has to be maintained regularly to stop rainwater getting in and insulation is non-existent. You can seal and treat the roof with a heat reflective paint, but it’s not very effective.

Pitched Concrete Roof

A tiled, pitched concrete roof is the next step up the ladder in both price and quality.

The ceiling and roof are combined into a single component providing attractive vaulted ceilings inside the property.

As long as the roof has been properly treated against damp, the chances of it leaking are reduced. However, in terms of insulation, this type of roof is just as bad as a flat concrete roof. Houses with any sort of concrete roof can be suffocatingly hot in the summer and freezing cold in the winter.

To improve insulation you could add a dropped false ceiling backed with plenty of insulation material.

Pitched Wooden Roof

At the top of the range in both price and quality is a pitched wooden roof built over a flat concrete ceiling.

This is obviously more expensive that a concrete roof as more materials and man-effort are required in its construction.

This type of roof is becoming more and more popular. I have one and I’ve seen many properties being built with a similar roof.

As well as dramatically improving insulation, a pitched wooden roof provides you with an attic and a significant amount of extra storage space. You can also use it to hide those unsightly water storage tanks, etc. affording them protection from the elements. (Click here to see a photo of our attic that I took while our house was being built)

Unlike British style wooden roofs, many Cypriot roofs are sheathed in marine grade plywood or oriented strand board (OSB) before the roof felt, battens, and tiles are fixed.

We’ve lived in our home for three years now and the difference between it and our rented house, which had a flat roof, are remarkable. Even when it is over 40 degrees outside, our home is comfortable just with ceiling fans circulating the air. At night, I put our bedroom air conditioner on for an hour before we go to bed and then switch it off. And we don’t get freezing cold in the winter – we do have central heating but that tends to only switch itself on in the early mornings.

My Advice

Having experienced living in houses with a concrete roof and a pitched wooden roof, the decision’s a no-brainer.

If your budget can stretch to it, I advise you to have a pitched wooden roof over a concrete ceiling. Alternatively, have a pitched concrete roof and add a dropped false ceiling backed with plenty of insulation material. Unless your budget is extremely tight, avoid having a flat concrete roof!

Your architect will be able to advise you of the ball-park costs of the various roof options.

Can the Property Developer Do This?

Nigel Howarth
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Question

I recently put a deposit on property in Cyprus; an apartment in Paphos. It’s a resale property that was bought by the present owners off plan.

Unfortunately the developer who built the apartment is being awkward and is reluctant/refusing to sign the release(?) agreement. Can he do this? I understand the property is registered at the Land Registry in the seller’s name.

Answer

Whether the property developer can do this depends on the contract between him and the people you are buying from. Their contract should contain a ‘right to sell’ clause, which will look something like the following:

“If at any time after the signing of the present agreement the Purchasers desires to sell the said Property, they will have an absolute right in doing so as they are deemed to be the beneficial owners of the Property providing that the Purchasers have fulfilled all their obligations as herein provided. The Vendors shall be obliged and cannot in any way object to and /or deny and/or withhold their consent to sign any necessary cancellation contract and new contract of sale with the new purchaser/s, provided that the vendors shall not be liable for any taxes and/or other related expenses as a result of such transaction.”

If the contract contains such a clause, the developer cannot refuse. (If he does, the people from whom you are buying can sue the developer for breach of contract and claim damages against him).

On the point about the property being registered in the seller’s name, I do not believe this to be the case. If it were, the sellers would not have to involve the developer in the sale and this situation would not have arisen. I suspect that their contract has been deposited at the Land Registry for what is known as ‘Specific Performance’; this is not the same as having ownership of the property registered in their name.

I suggest you ask the people who are selling you the property to read through their contract and speak with their (hopefully independent) lawyer to see how best to proceed.

Cyprus Warns Foreign Companies to Refrain from Land Deals in North

Editorial
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INTERIOR Minister Neo?lis Silikiotis said that companies which engage in illegal sale or purchase of Greek Cypriot properties in the Turkish occupied north of Cyprus will not be allowed to operate in the Republic of Cyprus.

The Minister made the comment after a meeting with US Ambassador to Cyprus Ronald Schlicher during which they discussed the wish of US real estate companies to become active in Cyprus.

Schlicher said “some real estate companies, very large American real estate companies are interested in doing business in the Cypriot market” noting the two discussed the “rules, law and regulations that govern these things, and I alerted the minister to some of the concerns that the American companies have”.

Silikiotis said that regarding the activity of foreign real estate companies in Cyprus, “I informed the ambassador that a relevant legislation has been tabled in the House of Representatives which provides for the amendment of the provisions of the existing law, harmonising it with the acquis communautaire”.

So far, he added, permits to work as realtors are given on a personal level, but after the relevant law is amended, companies will be able to operate, provided they comply with certain provisions such as employing people who are registered in the Realtors Registration List and that at least one person in the company speaks Greek.

Silikiotis said it is evident that “companies which engage in the illegal sale or purchase of Greek Cypriot properties in the occupied areas cannot be allowed to operate in the Republic of Cyprus”.

On his part, the American Ambassador said these companies are “interested in being in the Republic of Cyprus. They are interested in partnering with people in the real estate business here”.

To a question if they are aware of the informed on the situation in Cyprus, Schlicher replied “absolutely and of course when we talk to any companies that are interested in doing business in Cyprus, it’s is not only good business it is our duty to let them know of the sort of legal and political legal issues that they might face when they do business in Cyprus”.
The two also examined the progress made on the national action plan in combating trafficking of persons.

Sylikiotis said that the whole issue is an extremely dangerous phenomenon with wider international dimensions and which is also present in Cyprus. He informed the American ambassador on the measures which the Republic of Cyprus is taking to combat it, as well as the action plan, the coordination of which was undertaken by his ministry. A relevant legislation prepared by the Legal Service of the Department will be sent to Non-Governmental Organisations and then will be taken before the Cabinet for approval and subsequently the House of Representatives.

A convention on combating the Trafficking of Persons will also be taken before the House, he added, noting that in the last years the number of permits to employ artistes in Cyprus has significantly decreased. “We are trying to restrict to a minimum, if not completely wipe out, the trafficking of persons in Cyprus”, Sylikiotis added.

Schlicher said that this is a world wide problem and “the US seeks to be the partner in fact of all the countries in the world in combating this international problem. The things that have been done by the government of Cyprus in meeting this national action plan are very laudable, we applaud those things and we look forward to the fulfilment of those things that the government of Cyprus plans to do, has in progress but has not quite fulfilled yet”.

The two also examined the possibility of members of the families belonging to diplomatic missions in both Cyprus and the US to be able to work in the respective countries. Schlicher also said that a bilateral work agreement was examined and hoped the two countries will be in a position to move forward on that.

Buying Property in Cyprus – What to Buy?

Nigel Howarth
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Whether buyers are looking for new or resale property in Cyprus, the choice and price range seem almost endless. In recent months I’ve seen properties advertised for as little as 20,000 and as much as 4,000,000!

The majority of expatriates buying property in Cyprus will buy ‘off-plan’ from one of the many property development companies. Others, who are keen to get settled, buy a resale property using one of the many estate agencies. Others buy a plot of land and build a custom home designed and finished to their specific, individual requirements.

There is no right or wrong choice; everyone has different needs, requirements & aspirations. But regardless of what type of property you’re thinking of buying:

  • Always, always, always take independent legal advice.
  • Instruct your lawyer to conduct a search at the Land Registry to ensure that the property is free from any claims (such as a mortgage). If the property is mortgaged and your lawyer can’t obtain a ‘release’ from the vendor; do not buy it.
  • If you need to take out a loan to buy the property, make sure you have everything agreed with the finance company before signing a contract.

In this article I look at some of the benefits and disadvantages of the different approaches to property purchase to help you come to a decision.

Buying off-plan from a property developer.

Buying an off-plan home from a developer in Cyprus should be as straightforward as buying a new property from a developer in the UK. If you are looking for a new property and are not too concerned over its design then you may wish to consider this option as:

Advantages

  • Build time should be relatively quick; expect to take possession of the property within a year to fifteen months.
  • Your day-to-day involvement in the project should be considerably less than building a custom property.
  • You can choose the location for your property from one of the many sites owned by the developer.
  • You can choose the design of your property from one of the standard plans provided by the developer.
  • You may be able to make some small changes to the design using the architect employed by the developer.
  • You can choose the finishes, fixtures and fittings from those provided by the developer.

Disadvantages

  • Items that you would normally expect to be included in the sale price of a new ‘luxury’ property may be charged as extras. For example:
    • insulation,
    • double-glazing,
    • air conditioning,
    • central heating,
    • window shutters,
    • insect screens,
    • and even garage doors (assuming it has a garage)are often excluded from the advertised sale price.
  • Simple changes, such as replacing a single power socket with a double or moving a light switch to a more convenient location may prove expensive.
  • The range of fixtures and fittings offered by the developer may be limited and/or not to your liking.
  • You will pay a high Property Transfer Fee as it will be based on the combined price of the land and the property.
  • Due to complications that delay the availability of Title Deeds, it may take a long time for you to complete your purchase.
  • Should you plan on selling your home before completion, you may need to come to a financial arrangement with its owner to cancel your contract of sale.

Buying a resale property

If you plan on buying property in Cyprus and want to take delivery & settle in the shortest possible time, then you should consider buying a resale home as:

Advantages

  • The buying process is very quick in Cyprus and you could take possession of the property within a matter of weeks of signing the contract.
  • You will see exactly what you are getting for your money.
  • The garden may be landscaped ready for your enjoyment.
  • Some properties are sold complete with furniture and other useful extras such as household appliances, satellite dish, television, etc.
  • The price should be substantially less than buying a new property from a developer.

Disadvantages

  • You may incur additional costs in repairing, modernising and/or altering the property, which could work out more expensive than buying a new property.
  • An independent survey of the property may not uncover hidden problems that may be laying in wait for you.
  • If the property is relatively new, you may find that its Title Deed is not available and it may therefore take a long time for you to complete your purchase.
  • If you plan on selling the property before completion, you may need to come to a financial arrangement with its owner to cancel your contract of sale.

Buying a custom property

If you are buying a new property and are able to put the time and effort into getting exactly what you want, then buying a custom home is your best option as:

Advantages

  • Your property will be unique and match your specific requirements.
  • You will have control of the design process.
  • You will be able to choose your building contractor through a tendering process and get a competitive price for its construction.
  • If you choose your building contractor on the quality of his work, then the build quality of your property should be somewhat better than that of a development company.
  • You will avoid the annoying and costly extras often added on by some property developers.
  • You will be able to select and buy your finishes, fixtures and fittings from any supplier of your choosing (and pocket any discount you manage to negotiate).
  • You will have a much greater degree of control over costs.
  • The price will be substantially lower than buying a new property from a developer.
  • You will pay a low Property Transfer Fee as it will be based on the price you pay for the land rather than the price of the land and the property.

Disadvantages

  • You will need to find and buy a suitable plot of land.
  • You will need to invest a significant amount of your thought, effort and time into the project.
  • You will need to commission an architect and other professionals to design your property and manage its construction.
  • It could be a long project; don’t expect to take delivery of the property in less than two years.

Extract adapted from: ‘Buying a Home in Cyprus: A Practical Guide to Successful Real Estate Purchase’
your ultimate guide to buying property in Cyprus.

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