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Worries for overdoing it?

5 February 2017

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Construction in Cyprus

The debt for asset deals (swap deals) are up and running and it seems that the financiers will place in the market numerous projects/properties (we understand that sales by the financiers have reached last year over €200 mil. and this year the expectation will be more).

You must be aware of the numerous large scale projects that are under construction and others on the pipeline. These projects including the marinas and golf developments, target mainly foreign buyers who are after the permanent residency visas and passports, which based on the Ministry of Interior reports over the last 3 years approximately €1.7 bil. housing and other units have been sold to this market source.

This is especially so for Limassol with multi storey apartment buildings exceeding 30 floors and to a lesser extent for the Chinese market (with their main activity being Pafos). We have even enquiries from the British market in its effort to secure a Cyprus / E.U. passport, bearing in mind the Brexit, (be it very limited). This bonanza of demand is evident in the press, with the announcement of new projects, the recent one (again in Limassol) of another 3 tower blocks, whereas the Larnaca marina study based on the foreign consultants who have carried a development study for the purpose and whose feasibility is based on this market demand (visas/passports). We understand also that the Ayia Napa Marina is doing well in sales with mainly the Chinese market-be it as yet without a building permit – but it is coming-with sales prices of €7.000-€8.000/sq.m.).

We even have high rise apartment buildings under construction and under consideration in Nicosia with sales prices of around €3.500/sq.m. based on the same market source.

Having said that, we must express our worries however because:

  • Nicosia is not Limassol and even if sales prices in Nicosia for the purpose is ½ of the beach towns, we doubt if the foreign demand can absorb the supply (there is a similar project in the centre of the town of very good quality with only one apartment sold notwithstanding its 3 years completion). How on earth these daring Nicosia developers will succeed it is beyond us (the financiers worries-danger apart).

  • We seem to forget that these buyers for passports have an obligation to keep in their ownership the residential unit for a period of only 3 years. So what will happen after the 3 years if, as we suspect, at least 50% will place their units in the market at discounted prices, what will this cause to existing and even other new coming projects and the units ready at the time?

  • If this happens (we will suspect it will do) will we not have another crash for such projects? Do the financiers have this in mind?

  • An added worry is the recent letter (warning shot) given by the E.U. that we, as Cyprus, are very liberal and the signs of an objection by the E.U. is there. Yes other countries do it (Spain, Portugal, Greece, USA, U.K., Canada etc) but then been small and weak (Cyprus) we are more vulnerable (see the bail in – unique only for Cyprus).

  • We are also worried about the disappointment of foreign investors who now placed whole page adds of their complains regarding the long delays and inexcusable red tape (most of the complains are justifiable).

  • The debt for asset deals (swap deals) are up and running and it seems that the financiers will place in the market numerous projects/properties (we understand that sales by the financiers have reached last year over €200 mil. and this year the expectation will be more). The legal pressure on sales will increase since financiers cannot keep properties in their ownership for more than 3 years (we object to the limitation). So this is another factor to consider to a possible flooding of the market and including a “mini” crush, reducing market confidence again.

  • The problem of non-payment of common expenses it is there and nobody seems to care since this is something which will come up more evidently in 1-2 years’ time. See now with the non-payment of common expenses be it on average €100 p.m. per unit, how are those high-end and full of facilities projects are going to cope (we say not less than €1.000 p.m./unit) with the high common expenses bills? Will this not provide another pressure group of the style we had before regarding titles and with the analogous repercussion on the market (bad publicity, discouragement of new buyers etc).

  • So here we are with approximately 200 new apartments along the Limassol seaside road which is already experiencing congestion/traffic problems how will this (and other) roads and public services cope?

Yes, dear readers, it appears that all is well at this point of time, but we must learn by our mistakes of the past and which regrettable we seem to forget very easily.

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