Cyprus plans tax incentives for landlords

Nigel Howarth
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Cyprus plans tax incentives for landlords

Cyprus has unveiled two bills aimed at offering incentives for landlords who offer affordable housing by providing substantial tax benefits through the Interior Ministry’s “Renovate-Rent” programme.

The proposed legislation, presented to parliament on Thursday, offers a three-year exemption on income tax, corporate tax, and defence contributions for rental income from properties leased at affordable rates. Additionally, landlords can benefit from enhanced capital allowances of up to 20%.

Affordable rent under this scheme is defined as at least 30% below prevailing market rates. The Interior Ministry plans to publish detailed market rate lists on its website and affordable housing platform, categorized by district, municipality, and property type.

The new measures also increase capital allowance rates, raising allowances for buildings from 3% to 5% and for machinery and equipment from 10% to 15%. These benefits are available for purchases made between 2024 and 2027, and apply to both individual landlords and companies.

Tax exemption costs

The tax exemptions are estimated to cost the government €1.75 million annually, amounting to €5.25 million over three years. Separately, a proposed amendment to the Special Defence Contribution Law will remove the 3% defence levy on rental income for properties leased under the scheme, an initiative expected to cost €100,000 per year, or €300,000 in total.

Qualifying tenants

To qualify for the programme, tenants must meet specific income requirements and cannot be related to the landlord. The gross annual family income limits are set as follows:

  • €25,000 for single individuals.
  • €45,000 for couples or single-parent families with two members.
  • €50,000 for three-person families.
  • €55,000 for four-person families.
  • €65,000 for families of five or more.

These measures aim to boost the availability of affordable housing while offering financial incentives to landlords.

Landmark ruling in property foreclosure case

Nigel Howarth
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0
Landmark ruling in property foreclosure case

On Thursday, the Cyprus Supreme Court issued a landmark ruling in a high-profile property foreclosure case, marking its first major ruling since significant justice system reforms took effect on July 1, 2023. These reforms, aimed at modernizing judicial processes and enhancing fairness, set the stage for the court’s deliberation on this pivotal case.

The five-judge panel addressed a contentious issue regarding the foreclosure of a multi-million-euro coastal property, ultimately overturning a prior decision by the Court of Appeals. The court clarified a critical legal principle: the validity of an appeal is not nullified simply because ownership of the property in question changes during foreclosure proceedings. This interpretation sets a precedent that could have far-reaching implications for similar cases, safeguarding appellants’ rights despite changes in property ownership during legal disputes.

The case has a complex history dating back to 2017, when a bank initiated foreclosure proceedings against a borrower who had mortgaged a valuable piece of coastal real estate to secure development loans. Following the foreclosure filing, the borrower launched a counter-claim, challenging the bank’s actions. However, the legal landscape shifted in July 2018 with new legislation that removed lenders’ authority to pause foreclosure processes, further complicating the borrower’s position and fuelling a prolonged legal battle.

After thorough deliberation, the Supreme Court awarded the applicant €4,500 in legal costs, signalling recognition of the financial burdens borne during the protracted litigation. The court also referred the matter back to the Court of Appeals for a substantive hearing, ensuring that the unresolved issues receive comprehensive judicial review.

This decision not only impacts the parties involved but also provides clarity on foreclosure laws, particularly concerning appeals and ownership transitions. Legal experts suggest the ruling underscores the judiciary’s commitment to balancing procedural integrity with the rights of litigants, reaffirming the importance of appeals in ensuring justice.

Apartment prices & rents defying annual market trends

Nigel Howarth
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0
Apartment prices & rents defying annual market trends

Apartment prices and rents in Cyprus defied broader market declines in Q3 2024, showing strong demand, according to a report by real estate analytics firm Ask Wire.

The report, which is based on the firm’s proprietary index that tracks property sale and rental values across all districts and property types since 2009, highlighted the contrasting performance of different property segments amid challenging market conditions.

Apartments proved resilient, recording a 1.2% year-on-year increase in sale prices, supported by robust demand. Holiday apartments also saw a marginal annual rise of 0.1%. In contrast, other property types faced declines, with warehouse prices falling by 1.8%, retail spaces by 1.4%, and houses and offices by 0.8%.

On a quarterly basis, most categories experienced price declines, except for holiday apartments, which posted a 1.4% increase. District-wide, prices fell across Cyprus, with Larnaca standing out for its relative stability.

Apartment prices

Rental values for apartments grew annually by 1.9%, reflecting continued demand. However, other categories struggled, with annual declines in warehouses (-2.0%), houses (-0.8%), and retail spaces (-0.7%). Holiday house rental values remained stable year-on-year, marking a rare point of consistency in an otherwise fluctuating market.

Quarterly, rents for apartments declined by 1.2%, warehouses by 1.8%, and houses by 0.8%, while holiday rentals remained stable across most districts, with only minor decreases in Nicosia and Limassol.

Pavlos Loizou, CEO of Ask Wire, commented, “The Cyprus property market is navigating significant challenges as elevated construction costs and disruptions to the supply chain, influenced by ongoing geopolitical tensions, continue to shape property prices and demand patterns.

“High mortgage rates are adding pressure to affordability, particularly in the middle and lower segments, tempering overall demand. For investors and lenders, the convergence of high interest rates, construction costs, and regional instability underscores the need for caution in the near term.

“As we look to Q4 and into 2025, we anticipate more selective investment, with stability expected in certain asset types as the market continues to adjust.”

For a breakdown of movements in sale and rental values by district, visit https://ask-wire.com/insights/.

Property Type Prices Rents
Apartments -0.1% -1.2%
Houses -0.8% -0.8%
Commercial -0.8% -0.7%
Warehouses -1.8% -1.8%
Office spaces -0.5% -0.6%
Holiday apartments 0.4% 0.0%
Holiday houses -0.4% 0.0%
Source: Ask WiRE – Across Cyprus: Quarterly percentage change in property values (Q2 2024 with Q3 2024)
Property Type Prices Rents
Apartments 1.2% 1.9%
Houses -0.8% -0.8%
Commercial -1.4% -0.7%
Warehouses -1.8% -2.0%
Office spaces -0.8% -0.6%
Holiday apartments 0.1% -1.0%
Holiday houses -0.6% 0.3%
Source: Ask WiRE – Across Cyprus: Annual percentage change in property values (Q3 2023 with Q3 2024)

Further Reading

Ask Wire Index: Q3 2024 press release.

Construction materials prices edged down in October

Nigel Howarth
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0
Construction materials prices edged down in October

The Price Index of Construction Materials for October 2024 reached 117.18 units (base year 2021=100), recording a fall of 0.08% compared to the previous month according to the Cyprus Statistical Service.

Price index of construction materials Cyprus

Compared to the same month of the previous year, the index recorded an increase of 0.13%. By main commodity category, increases were recorded in electromechanical products (3.63%), products of wood, insulation materials, chemicals and plastics (1.17%) and mineral products (0.45%), whereas decreases were observed in metallic products (-2.12%) and minerals (-0.02%).

Construction Commodity categories & prices in Cyprus

For the period January-October 2024, the index recorded a decrease of 1.01% compared to the corresponding period of 2023.

Cyprus real estate market gaining strength

Nigel Howarth
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0
Cyprus real estate market gaining strength

KPMG has published the 13th edition of its Real Estate Market Report Insights that provides a comprehensive analysis of the Cyprus property market and delves into key market dynamics and emerging trends.

Despite the ongoing regional challenges including instability in the Middle East and Russia-Ukraine conflict, the sector has shown resilience and growth in specific sectors.

The report highlights improved market liquidity in 2023 and early 2024, with Limassol remaining as the market leader, particularly in the luxury housing market segment.

Meanwhile, Larnaca stood out as the fastest-growing region for property transactions in 2023.

“As the market adapts to new economic conditions, our pioneering Insights report serves as a crucial tool for stakeholders to navigate in an evolving real estate market”, said Christophoros Anayiotos, Head of Deal Advisory and Real Estate and Construction sector at KPMG Cyprus.

KPMG real estate report

KPMG Cyprus Insights Report

Rental yields more than double bank deposit rates

Nigel Howarth
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0
Rental yields more than double bank deposit rates

Rental property investments in Cyprus are yielding significantly higher returns than bank deposits. Rental yields range between 4% and 6%, in stark contrast to the average one-year household bank deposit rate of 1.98% in October.

According to property consultancy Danos International, Limassol leads in rental growth, with yields also ranging from 4% to 6%. Seafront apartments and properties in high-demand neighbourhoods are particularly lucrative, attracting both local and international tenants.

Rental yields

In the capital, Nicosia, rental yields remain steady at 4% to 5%, particularly in areas close to business districts, government offices, and universities. This stability reflects the city’s role as a hub for commerce and culture.

Larnaca has gained traction as an investment hotspot, offering yields of 5% to 6%. Properties near the airport or beaches are especially profitable, appealing to investors seeking well-priced assets with strong rental demand.

In Paphos, popular with British retirees and tourists, long-term rentals yield 4% to 5%, with the potential for even higher returns from short-term holiday lets.

Property prices in Cyprus have stabilised for the first time since 2020, with minimal fluctuations over the past two quarters. This marks a shift from the consistent growth observed since 2021, when quarterly apartment prices rose by 1% to 5%.

The average price/sq.m for residential properties has increased from €1,800 in 2022 to €2,500 in 2024. E.g. a 150 sq.m house costing €270,000 in 2022 is now valued at €375,000, while a 100 sq.m apartment priced at €110,000 in 2022 has risen to €160,000.

Rental prices in Limassol start from approximately €850/month for a one-bedroom flat, €1,300 for a two-bedroom unit, and around €1,700 for three bedrooms; rates that many Cypriot residents find challenging to afford.

Rental yields are calculated by comparing annual rental income to the property’s purchase price. Some property owners are achieving even higher returns through short-term rentals via platforms like Airbnb, further enhancing their investment potential.

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