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Foreign Investments in Cyprus

16 July 2017

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Foreign Investments

The future of real estate/economy appears to be positive but we live in a region that has its problems which must be taken into account.

There appears to be some sort of increasing interest for Cyprus alternative investments. Real estate demand from wealthy buyers is active ranging from the acquisition of top quality houses, to office buildings (as an investment – for income) etc. Other investors (mainly foreign) are looking over the island for other nature of investments such as hotels, whose preference is on the top and with a rather positive future, since the tourist industry is improving. This demand is expected to become more evident during the year 2017/2018 with hotel investments showing a return of around 10% on the cost/value. At the same time hotel owners are willing to sell their property and lease it back for a period of 10-15 years with a “guaranteed” income of 6%-8% on average. If the hotel is of a good quality and bearing in mind the expected increase in value in the future and depending on the deal, this is not a bad return considering that deposits abroad are around 1% p.a. and it is money deposits which, who knows when and if they will have a “haircut” like Cyprus experienced (see possible Italy). We even have an enquiry for a sea fish farm and another from a multi functional restaurant (i.e. 6 restaurants in one building) – both coming from abroad, whereas demand for agricultural land for produce is thin, but coming into the market more evidently and demand comes from far-away places such as South Africa and now Zealand!!

All these and other enquiries coming from abroad (and not only Russians/ Ukrainians but from other European and U.S.) show at least some kind of interest in the economy of the island, which, in turn will help the real estate market. The foreign demand includes nowadays other nationalities which include Chinese (see hotel developments), Israelis (see recent acquisition of 3 hotels), whereas “we heard” of an Afghan investor who bought more than 50% shares of a private school/college. To all these, added hopes are placed on the casino development, since it might place the island in another level of international players (as Limassol Marina has done) whereas the recent Ayia Napa Marina is showing a new source of demand (Arab nationals) who show their presence in the local Ayia Napa fish harbor. We must not get enthusiastic and get carried away for all real estate projects, since certain projects such a golf courses, have not shown the results and the demand that we are expecting and one wonders what are we going to do with the 6 new golf courses duly planned and some ready for development. Foreign investors in particular do not necessarily ignore the Cyprus political problem neither the “competition” from the occupied areas, whereas the strike at Hellenic Bank and the problems created by unions are all the worst putting off interest in that sector.

The future of real estate/economy appears to be positive but we live in a region that has its problems which must be taken into account.

The future of the real estate is not 100% certain however. On the one hand we have these sort of positive signs and interest for top end high cost investment properties and on the other hand we read reports for the pending sale of 6.000 units in forced sale procedures (which is bound to push down/reduce prices, but then – who is to buy these 6.000 units with no available demand?). We repeat our warning that the passports measure (and visa) which forms the basis of the real estate revival, is not expected to remain as is after the E.U. warnings, whereas the VAT of 19% on building land is another factor to be considered.

The Banks in order to reduce their N.P.Ls have appointed international firms in an effort to dispose the properties in their books and their efforts will also have a negative effect on local real estate, be it a positive one, if successful for the banks’ balance sheet. So we are curious to see how this situation will be developed over the next couple of years in the wide market. Other European countries are suffering, but no one had the people’s deposits being confiscated and at the same time the people losing their jobs with an uncertain future. Surely this odd situation will be a subject of future scholars to study and report on and how if we manage to overcome it.

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