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November, 6 2019
November, 6 2019
INTERVIEW: Real estate developments, trends and predictions 2019
AN INTERVIEW WITH ANDREA NEWTON FROM HARRIS KYRIAKIDES LLC
Andrea Newton, Associate of the Commercial, Real Estate and Employment advisory Department at Harris Kyriakides LLC answers our questions regarding real estate investment trends, the changes on land development issues, the Cyprus Investment Programme and much more.
Andrea specialises in sale/purchase and lease agreements for Cyprus real estate, the acquisition of Cyprus assets by foreign nationals, international license, franchise and trademark license agreements.
She advises on a full range of real estate development projects, from office buildings and mixed use facilities to large scale urban residential projects as well as hotels and retail facilities. She is regularly involved in asset acquisitions, joint ventures and the setting up of other corporate structures on behalf of a major real estate development company.
1. What is the government’s recent policy on land development issues?
At the end of May, the government has implemented new housing policies in an attempt to ensure there is affordable housing in the Cyprus market. One of the new policies introduced is that affordable housing will be available at the average construction cost as published by the Cyprus Statistical Service. The new policies also included three new development incentives:(i) an increase of 25% in building density and the construction of housing units with affordable rentals; (ii) an increase of 25% in building density with the condition that 10% of the increased density shall be used for the construction of affordable housing units; and (iii) an increase of 45% in building density, for plots of a net area of at least 3,000 sq.m., on the proviso that 20% shall be used for the construction of affordable housing units. Furthermore, just six days ago new regulations have been approved in Parliament for the increase of the subsidies for rent and mortgage interest payments which individuals with low income are entitled to.
2. Investment and financing in Real Estate seems to determine the islands’ economy, how well equipped is the Cyprus residential market to handle such investments and are there any threats that can jeopardize the upward course?
Investment and financing in real estate certainly affects the Cyprus economy, however I wouldn’t say it determines it; the real estate market reacts to the island’s economic trends. The market at the moment is quite well equipped as there is fierce competition, especially for residential units, and potential buyers are spoilt for choice. There are certainly threats to the upward trend the market has been experiencing such as the recent changes in the regulations of the Cyprus Investment Programme and the financial solvency of Cyprus banks.
3. From which countries do we see an extensive interest for investments in the real estate sector and do you predict that this interest will accelerate for the coming years?
The countries from which there has been extensive interest for real estate investment in Cyprus are Russia, China and Middle Eastern countries. Interest in real estate changes and fluctuates according to the incentives available for real estate investment, both the global and local economy as well as events taking place in the region. My personal prediction is that, interest in Cyprus real estate will decelerate; the uncertainty surrounding Brexit, the difficulties faced by the banking system both in Cyprus and Europe, wars and tensions in the nearby region of the Middle East, the changes to the Cyprus Investment Programme, the fall in Cyprus tourism, are just some factors which I believe will limit interest.
4. We also see an increased demand for residential premises in Nicosia especially by multinational companies attracted to the island but also for luxury villas and seafront villas especially in Limassol. How competitive are Larnaca law firms in comparison to Nicosia and Limassol firms to deal with such cases especially as less projects are being made in the real estate industry in Larnaca area?
There aren’t necessarily less projects in Larnaca, the type and size of the projects differs and development undoubtedly hasn’t been as fast as Nicosia and Limassol. Larnaca has developed significantly over the past three years and investors find a better profit margin here. I wouldn’t say that Larnaca law firms have less of a competitive advantage in real estate transactions; it doesn’t mean that a law firm based in Larnaca is going to solely advise on developments in the region of Larnaca. The same applies for law firms based in Limassol, Nicosia and Paphos. The world we live in is more connected than ever before and 80% - 90% of the time, advice is given remotely. It all depends on the type of service and experience a law firm can offer to a client.
5. The prices of renting and purchasing properties has increased, do we experience any risk for a real estate bubble again or do you believe that Cyprus has learned from its past mistakes?
Yes, there is a risk that the real estate bubble will burst once more and we’re currently experiencing some early signs. The real estate market is very volatile, especially in small countries like Cyprus; it’s not only influenced by the country’s and the region’s economic cycles. The Cyprus Investment programme was a huge contribution to growth and now, following the latest amendments to the regulations, it is anticipated that it will drawback growth instead. The real estate portfolio of local banks is growing due to repossessions and debt for asset swaps and the effect of unloading these properties into the market is still unfolding. These are just some factors leading to concerns that the past mistakes of oversupply will be repeated.
6. How will the amendments of the Citizenship by investment program that were enforced in May this year impact the international interest to the investment program?
There was significant momentum up until mid-May; entire projects were sold out off plan in a matter of days and the ministry had issued a circular allowing for applications to be submitted two months after the enforcement date of the new regulations provided that agreements had been executed and stamped by the enforcement date. The momentum was lost however, shortly after the enforcement and the impact is already evident; international interest has been curtailed and there has been a significant drop in applications and in turn in property sales.
7. What does a potential investor that seeks to buy a property in Cyprus need to know
The considerations depend on the type of property being purchased and its intended use by the buyer. Some of the key points to have in mind are the following:
- Third country nationals (non-EEA) are allowed to purchase property in Cyprus for limited purposes. A permission of the Council of Ministers must be obtained by non-EEA nationals to acquire a property in Cyprus and transfer the title deed of that property on their names. Currently the aforementioned permit is only granted for the transfer and registration of up to two immovable properties.
- A purchase and registration of a property in Cyprus is subject to either V.A.T. or transfer fees.
- A due diligence exercise must be conducted in relation to the property; it should ideally be both technical and legal. During the legal due diligence process, you would need to examine whether the seller has separate title deeds for the immovable property in question and whether it is burdened with any mortgage and/or any encumbrance. In the event of a property under construction you would also need to examine whether the planning and building permits have been issued.
- You should be wary of the financial solvency of the seller in the event the property purchased is under construction and should ensure there are adequate securities in place.
Each case of course has its own merits and legal advice should be sought in order to avoid surprises, and losses, in the future.
Andrea Newton | Harris Kyriakides LLC
T: +357 24201663
F: +357 24201601