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Black money is helping the Cyprus real estate market?
2 April 2017
Undeclared income, a sudden upsurge a business for some services and limited places to deposit one’s income, are driving some investors towards real estate investment. To this end the somewhat uncertain future of some of the local financiers, the difficulty in exporting one’s money abroad (with questions asked) and low deposit rates, have directed the attention of some cash rich individuals and firms towards local real estate investment.
Successful doctors (based on recent reports), have an average income of (+)€200.000 p.a., with a large percentage being non taxed, since they cheat the system, whereas the crumbling public health care and the long waiting lists are all the best for the private clinics and their doctors.
Another group that nowadays is “in the money” are a number of advocates (lawyers) who are loaded with cases coming from financiers chasing the N.P. loans (we heard of a Nicosia advocate firm having a retainer fee/income of €1.0 mil. p.a. from one financier) whereas a third category, some accounting firms, especially those who deal with foreign Cos are also in the category of cash rich firms (we heard of one accounting firm being involved in a joint venture deal between two international firms with €5 bil., charged €5.0 mil. for its involvement!!).
This sort of income is not uncommon abroad, but they are out of the way by local standards.
In the salary scene, we now come to know about incomes of ±€200.000 p.a. of individuals, plus fringe benefits of all sorts.
Leaving all these behind and following the non-declared income, a recent case of a kebab house in Nicosia impressed us regarding the Tax Authorities investigation. The kebab house, notwithstanding its evident huge volume of work declared a very low income. The Tax Authorities found out where the kebab place bought the raping paper for the “pitta” and by calculation came to an added tax of €200.000!! Of course, there are other business of a similar behavior and profit margins, such as business which do not issue bills, neither receipts (be it that they are reducing to less and less). On top of this we have the cowboy estate agents who demand (illegally of course) to be paid commission “under the table”, whereas others agree on a sales price with the owner and reap in addition the difference in the sales price - it needs the cooperation of the buyers and sellers mind you, whereas the foreign sales, especially to the Chinese market with a 20% commission with back to back deals from Cos abroad is another source.
It is no wonder therefore that some locals are buying high end holiday homes and expensive cars, which are evident in the streets. Be it that the Tax Authorities are becoming more and more efficient, but they are against a most difficult task, having the Tax Authorities staff reduced by 20% over the recent years.
We note that holiday homes in the region of €1 mil. are bought not only by the privilege Russian/foreign market, but locals are coming into the market for the purpose. The marina units (sales prices of €7.000-€10.000/sq.m.) have also their fair share coming from the locals, whereas REMU (Bank of Cyprus Real Estate sales) reported sales concluded by locals into millions.
All this wealth which is kept by a sector of the market, is finding its way partly towards local real estate. We might not see the pre-2013 situation of the large 1.000 sq.mt. house mansions, but which appear to be abundant, but see the social/fashion magazines with numerous “dressy” women posing with dress models in the region of €3.000!!
So to an extent this under the table/black money wealth is helping the local real estate market, whereas the registration of foreign Cos (in Cypriots ownership) is not unknown. For a recent sale we were dealing with, the introducer (Cypriot) issued a commission bill in favor of a Co in Sri Lanka (we could not believe it – duly refused mind you).
What more can we say?