Real Estate Tips > For the Developer
For the Developer
Cyprus can boast on the standard of its developers. There are quite a large number of local contractors and developers who also have activities outside Cyprus and their size / nature classifies them as one of the largest companies in the world. Buying property from such companies is an added guarantee, not only of having your home delivered on time and of the envisaged quality, but also you will realise various fringe benefits. i.e. letting, maintenance, issue of titles etc.
Of course having said that, it does not mean that all the smaller developers are not good. Because development in this island, however, is like a national sport, with people and companies of all backgrounds engaging in such ventures, it is highly recommended that, before committing yourself, you ask the developer certain simple questions. Questions could be on what other projects he has completed, the number of his staff, the name of his banker, if he is the freeholder of the land on which the property is erected, whether he has received a building permit for the project, whether the unit for sale has a title deed etc.
Ask for a set of specifications and list of fixtures included in the price, the size of the plot, the size of the unit etc.
Complete the purchase through a solicitor and carry out a search in order to ascertain the existence of any mortgages, impediments etc. – see our 10 Building Commandments – must follow the procedure to protect oneself.
The 10 Building Commandments
From the numerous letters that we receive and the various publications in the press and t.v. (local and foreign), as well as by talking to a lot of foreign buyers, it appears that there is a confusion to a substantial percentage of buyers, on the situation of real estate in Cyprus. This situation is aggrevated by the various “experts” in the real estate field, trying to compare the situation in the U.K., with what is in Cyprus at the moment. For this reason we submit our 10 Building Commandments for everybody to notice - and including solicitors/estate agents and others. These Commandments are given in a summary form, but the gist is there. The Commandments refer mainly to properties without a title deed, although they can apply to an extent also for those who have.
The problems of the permits/deeds/certificates of approval etc are known and our 10 Building Commandments aim to improve an unsatisfactory situation. For a complete solution we have suggested practical measures, to the Government (published also in the public press), but these will take time to become effective.
So, when buying a property in Cyprus:
No.2: If the property is mortgaged (get a written report from your solicitor regarding any encumbrances) get a mortgage release from the Bank through the developer/seller. If he cannot get one, do not touch the sale. By securing this bank release, it is an assurance that if the Bank decides to foreclose, the bank will not touch your property. If there are other encumbrances e.g. memos etc on the property, get them cleared prior to finalization of the buy. The buyer’s solicitor should make a search in order to ascertain what the property is charged with. If you realize that the amount of mortgage is high, this is not necessarily a bad thing, since the balance due may be very little. Sometimes mortgages are left standing by the developers on behalf of the buyers although they have been paid off by the developer.
No.3: Stipulate in the contract the expected date of issue of the certificate of final approval. It is very difficult to be precise at this stage, since it is not necessarily the developer’s fault, since he is not in control of the timing of the red tape. A usual time scale is 2-4 years, after the completion of the project. When the time comes and the certificate is not issued, prior to the buyer taking any action, ask the developer to stipulate in writing the reasons of the delay. This can be checked with the authorities.
No.4: Stipulate in the contract the expected date for the title issue. A similar situation as 3 above.
No.5: Insert in the sales contract an option for a resale i.e. a cancellation of the original contract and the developer to enter into a new sales contract with a new buyer, whom you, as the original buyer indicates. Some developers will not accept this, since there are numerous issues involved, including added taxation to the developer, bearing in mind, that the original buyer must secure a tax release from the tax Authorities, whereas the issue of double transfer fees, is not yet cleared (not tested so far).
No.6: Clear the charge for the resale by the developer at the time of the contract – e.g. a charge of €2.500-€4.300, by the developer is reasonable and the original buyer must be responsible, so that the developer bears no added costs, including tax etc. For this reason the original buyer must get a tax release etc as stated before.
No.7: Agree the 1.1.80 property value, which relates to the property taxes that the developer has to pay. This situation holds good even if the value of the property which you are buying is tax exempt (i.e. less than €170.000 as at 1.1.80). For this reason and in order to have some sort of basis of the annual tax, a rough formula to agree, is for the property tax to be assessed based on 1/3rd of the value of the property when sold.
No.8: Get a building guarantee for at least 12 months. A structural stability lasts for ever, but for the rest the 12 months is the norm. Bear in mind that defects, which are caused by the occupiers are not covered by the building guarantee of the developer.
No.9: If the building is ready/under development, get a structural survey, done by a qualified civil engineer. A trained eye can discover many things.
No.10: Stamp the sales contract within 1 month of the date of signing and you must deposit it with the Lands Office within 6 months. The deposit of the sales contract acts as a burden on the property and as such it cannot be sold to others, and if the project is mortgaged at a later stage, your sales contract has a priority. Also you need proof of the deposited sales contract in order to get the property tax refund where appropriate.
Reliability: Be very careful to whom you are giving your money. A developer's past performance is the best form of guarantee, but if you are afraid that the building will not be completed, ask for a bank guarantee (this will cost you 1.8% p.a. on the amount of the guarantee).
Should you wish to build your own structure, choose
a contractor based on his category. Small contractors may not
undertake large jobs etc. The contractors enter into a contract
with you and provide a Bank Guarantee for the good performance of
his obligations. This is usually 10% on the building contract. You
will require to pay 10% -12% down payment upon signing the
contract and for which the contractor must offer you again a Bank
guarantee and from there on stage payment depending on architect's
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