On Saturday 1 December 2008, Mr. Antonis Loizou gave a lecture in Ayia Napa on behalf of the UK Alzheimer’s Society, which was attended by 120 Cyprus residents, mostly foreigners. The subject was the Real Estate Market in Cyprus. We provide an abbreviated version of the speech.

Investing in real estate, whether it be a house, land, income-producing property, or development, has until now been a “safe” investment in terms of security of principal. Since 1974, prices have been moving up at variable rates per year. Until 2001, prices rose on average 7-10% per year, but since the Cyprus stock market crash, investor interest has turned to real estate. The inclusion of Cyprus in the E.Union, together with the more favorable tax system in the EU and the double taxation treaty between Russia and Cyprus, has caused Cyprus to attract a growing influx of European and Russian interest, which has helped to real estate investment in Cyprus. .

The lifting of restrictions regarding the purchase of property by EU citizens and companies has widened the scope of real estate investment and now, foreign buyers in Cyprus real estate are estimated to contribute around CP700 thousand. This is just below the largest source of foreign exchange, the Tourism Industry and its bill of CP1,200. pa and well ahead of the third largest source of foreign exchange, that is, the contribution of offshore companies of about CP350 thousand. No

This great foreign demand, together with local interest, as well as additional taxes on real estate, such as the 15% VAT, has caused prices to move at a rate between 2002 and 2004 of around 15% per year. while the very Prices in recent years have skyrocketed by almost 20% per year.

This is particularly true with regard to building plots and land, and more recently, agricultural land. With development land prices so expensive and planning laws permitting one-home development almost everywhere, public interest has shifted in increasing volume to agricultural land, where developers Prices have shown increases of more than 30% – 50% only in the last year.

This situation of high development cost of land, now becomes about 40% of the total cost of development of any house/apartment, whereas a couple of years ago, the cost of land in the sale price of a building amounted to 20% – 22% only. This unhealthy state of affairs will worsen with the introduction of VAT on building land from August 1, 2008.

So when will it end, and more importantly, are we headed for a real estate meltdown? I doubt it. Since these substantial increases in property prices have so far been absorbed by the public, it has affected the sales rate mainly for the least competitive projects, making the market, in part, quite unpredictable and somewhat uncertain.

To this negative image it must also be taken into account that several positive/balancing measures are now at hand. The reduction of interest rates [as for 1.1.08 from 4.5% this rate it is reduced to 4.0%] and the longer repayment periods on the loans now being offered have helped.

The new measures of the Central Bank in relation to the own contribution in the purchase or development of real estate that has increased the original contribution from 20% to 40% [for non own users – permanent residents] expected to affect “for rent” market as returns/fields in Cyprus are very low [around 4% p.a.] and it is one of the lowest among the popular holiday home destinations in Europe, while the high cost of air tickets etc. makes renting not as easy as in other countries [some balance may be gained when low cost air fair airlines are in full operation in Cyprus].

The new pending infrastructure measures such as the pending development of the two airports on the Island, the pending development of the 4 new marinas [expected to come around the year 2012] now on offer, as well as the expected 7-8 new golf courses, will add to the island’s appeal, making Cyprus perhaps the most densely populated area in Europe in terms of golf courses per population. On the other hand, if these projects materialize [i.e. golf/marina/Larnaca port projects] will be placed on the real estate market [mainly directed towards the foreign people] about 10,000 new homes in addition to the normal number now being produced [approx. 5.000 p.a.] With existing demand for around this number [5.000 units] and even considering an increase in demand due to previous infrastructure properties, supply will exceed demand in the year 2010 -2015 with possible negative effects on the vacation home market prices.

Buying/building real estate/homes in Cyprus is easy as it is the most popular business. At this time, “Real Estate Development” is carried out by almost everyone, regardless of their qualifications, financial status, honesty, etc. For this reason, we are noticing an increasing percentage of delays in incomplete projects, projects without permission, etc. and as such, care is needed. For this reason, I have prepared for your consideration our signature “10 Building Commandments” that every potential real estate buyer should follow as much as possible.

Buying in Cyprus is easy, but selling your property is another matter. One must compete with the aggressive, well-connected developers, the well-organized real estate agents. [some of which charge in excess of the legal 3% -5% – rates reaching upto 15%] so you should keep in mind not to be in a hurry if you want to sell your property.

As I said before, real estate prices have recently gone up at a rate of 20%. This is partly due to foreign interest representing approx. 20% of the total acquisition of real estate in Cyprus. This is a very high percentage, especially when you focus on certain areas. Therefore, care must be taken, as if you choose to invest in such popular areas of concentration of foreign people, you run a higher risk of price adjustments up and down, since foreign people behave differently from foreigners. premises whose demand/supply is inelastic.

The following table is quite interesting as it illustrates the concentration of foreigners [on a % of the total demand of the area]

Pafos     Limassol     Larnaca    Nicosia   Famagusta
90%        40%           50%             5%          50%

What are we going to do with the Russians my dear friends? As this country becomes more stable and oil prices rise, middle/upper middle income Russians will become more financially capable and turn their attention to vacation home destinations. Average sales prices per m2. for this type of property that Europeans usually buy is in the region of CP1,500 – CP2,500 [max.] per m2, the Russian market with special interest in Limassol, has even shown prices of CP4,000 – CP6,000/m2. for beach units.

With a mathematical calculation, the beach of Cyprus and even the locations near the beach will be acquired by the foreign market and this is something to be considered. The demand from foreign buyers affects the local population whose incomes are not competitive with the foreign market and are gradually outpaced.

This will create various problems, entire areas/villages will be inhabited by foreign residents, on periodic visits. [see Sotira area west of Ayia Napa] and even the complete takeover of small towns and dare I say towns [see Pafos in 10 years’ time]. Of course, I am not against the foreign market and I know that Cyprus cannot go back to the restrictive system of real estate sales by foreigners, so it is more a theoretical approach than another.

We live in a global economy and now, with the EU, traveling and settling abroad will become easier and easier. Cyprus is in a lucky position with regards to climate, with little drinking water either, but in closing, I’ll say yes, invest in real estate, but take care and don’t overextend yourself financially. Don’t rely on rental income to repay the loan, keeping in mind that you need about 10% of a residence’s 12-month income to cover repairs/null periods and administration, plus any tax implications, including your tax liability on the resale case.

However, for those who are permanent residents, my advice is to try to learn some Greek words or better yet speak the local language. I know that trying to learn Greek is the hardest. [two types of languages, the written proper Greek and the local Cypriot speaking Greek – quite difficult]. If you manage to master some of the language, it will make your life a lot easier, although I am aware that even when you try to practice your Greek language skills, people will respond quickly to you in English.

If you manage to speak the language, I can assure you that your life here will be much easier/happier.