Investment Property in Cyprus

A former British colony, Cyprus has long held attractions for British retirees and holiday makers alike.  The warm climate, beautiful beaches, countryside and sedate lifestyle, as well as great tax benefits for older folk, make it an ideal choice.  Tourist figures are increasing year on year (up 2.2% in 2006) while in September 2007, an amazing 56% of total visitor numbers were British. 

A multitude of low cost carriers are playing their part in attracting tourists and investors in their droves and with routes from the UK to Cyprus starting at around GBP 90, it is easy to see why demand is so high for both holiday rentals and second homes in Cyprus.

Why Invest in Cyprus Property?

• The property market throughout Cyprus is one of the fastest growing in the European Union and prices in some areas are increasing by an annual average of 20%.
• Property prices are still lower than in many other European countries, particularly in the north.
• Cyprus has seen a sharp increase in the number of golf properties available, while golf property prices fetch up to 40% more.
• A comparatively low tax rate, including a Double Tax Treaty with southern Cyprus and the UK are attractions for investors.
• Capital Gains Tax of only 20% and Corporation Tax for Cypriot limited companies (through which you can own your property) stand at only 10%.
• You can easily receive your UK pension, tax free in Cyprus.
• Foreign residents permanently residing in Cyprus pay only a 5% flat rate of income tax.
• 340 days of sunshine a year make it a comfortable and enjoyable place to live.
• Cyprus enjoys a high standard of living, with good facilities, including top- class golf courses.
• A low cost of living often makes for an improved quality of life.
• There is a comparatively low crime rate in Cyprus and friendly people make it a desirable place to visit or live.
• Excellent medical facilities, education and offshore business advantages make it all the more attractive.
• Tourism is predicted to grow by 4.6% over the next 10 years, contributing some 13.9% to the country's GDP by 2014. This is good news to property investors looking for a ready market.
• Cyprus has a British-based legal system, where English speaking lawyers abound.
• A British-based banking system in southern Cyprus, makes choosing mortgages and managing your money similar to “back home”.
• Entry into the Eurozone in January 2008 is a further vote of confidence.
• Northern Cyprus is set to join the EU when Turkey meets the EU requirements, including a settlement with Greek Southern Cyprus.
• A very efficient land registry with straightforward and well administered procedures makes property purchase a safe option.

Low Cost of Living

The cost of living in both the north and south of Cyprus is low, which makes Cyprus a very attractive area for tourists and those considering retirement in Cyprus. Agriculture forms a large part of the economy. Therefore, while imported products are expensive, local produce is excellent and fresh.

EU Inclusion

Since May 2004, Cyprus has been a full member of the EU. Accession has brought with it several benefits to the Cypriot economy while the country now gains from increased EU financial assistance. Services and products now have access to a huge single market with free movement of goods and this can only have positive repercussions on the Cypriot economy.

Tourism Investment

Cyprus is currently undergoing the Strategic Plan for Tourism 2010 which plans the upgrade of its facilities and resorts in line with changes in tourism trends, with the chief aim of launching Cyprus tourism well into the 21st century. This will be achieved through increasing the amount of tourist arrivals, per capita tourist expenditure, length of stay and repeated visits. We will see an increase in theme parks, agro/nature tourism, marinas and golf courses to cater for the many interests of today’s tourists.

Constant improvements to air access to Cyprus ensure a steady growth in tourism figures, and in summer the new international airport at Ecran in Northern Cyprus welcomes over 90 flights per week from many worldwide destinations. The airport at Getikale is tipped for American finance and renovation to help ease future congestion. Additionally, the road infrastructure is considered to be of great importance in Cyprus due to an ever increasing need to cater for today’s more independent and adventurous tourist, wishing to explore the island with ease. These roads will of course increase ease of transit of merchandise to every location on the island.

The current drive for improved tourist facilities to boost the Cyprus economy can only be regarded as good news to today’s property investor seeking a stable tourist market on which to base a property investment with high rental potential and good capital returns.

Property Investment Strategies for Cyprus

Off-Plan Property in Cyprus

Now a full EU  member, Cyprus  is one of the fastest growing off-plan property markets.  Whether your off-plan purchase is for a  villa, townhouse, apartment or any other type of investment property in Cyprus, many developers are offering  beneficial payment schemes.  We carefully vet these schemes  and work with only the most reputable and secure development companies  operating in your favoured location.  Payment schemes currently on offer allow you  to purchase property off-plan, ie. before or during construction when the price  remains low.

By the time the off-plan property is finished, prices rise due to market forces  and the greater general appeal of a completely finished property that is ready  to move into.  Investors can therefore  sell the property on to another property purchaser and, in doing so, enjoy some  excellent returns whilst never having paid the full purchase price.  Depending on the down-payment (normally around 20%) and speed of construction, profits from off-plan deals average at 20% per  annum in the south and 25% in Northern Cyprus.

Investors should however exercise due diligence and choose wisely, making sure  their off-plan property in Cyprus is located in an area where they will resell  quickly and easily or where there is a high rental demand for their buy-to-let  option.  Rental returns on initial  property investment in Northern Cyprus are approximately 10% and 7–10% in Southern Cyprus.  There  are large discounts available on most developments in both North and South Cyprus for multiple unit purchases.

With an  off-plan investment, even in the worst case scenario if the property cannot be  sold upon completion, the final balance due can often be financed by the  developer.  Furthermore, the rental  income may pay off the finance of this loan and yield further eventual return  on investment.

How can property be cheaper if bought off-plan – How does it work?

In order to  limit financial risk and debts, the developers of any project in Cyprus will  wish to sell units off-plan.  They  understand that if buyers cannot see a physical property at the beginning, they  will demand a lower price, while relying purely on the developer’s reputation,  the property location, artistic impressions and computer simulations on which  to base their decision to purchase.

In addition to  the excellent off-plan price, some highly beneficial finance structures are in  place. You will need to pay only around 30% of the purchase price in the form  of a deposit, while the rest is payable upon completion.  This may be financed by a mortgage if necessary.

The Process of Price Increase

1. Purchasing early Prices never remain low for long and, as construction progresses, prices begin to rise steadily. In Cyprus, as in any other market, it is important to buy your villa, townhouse or apartment as soon as possible during the early stages of development when prices remain very competitive but are already beginning to rise. Early investors will invariably see the greatest returns.
2. Purchasing the best units Early off-plan property purchase in Cyprus allows investors to choose the most sought after properties on any given development. The best units always offer higher capital appreciation in the smallest time frame and can often demand the greatest rental incomes. Penthouses are often firm favourites.
3. Price increases as development matures As construction begins, the value of the units rises. A completed show home is normally available for viewing at this stage, while buyers are confident they are taking less of a risk as they now do not need to rely completely on plans.
4. Price appreciates as more units sell As more units are sold, the price of the remaining units rises. Units sell faster when buyers are able to physically see them. There is often a phase payment structure in place which mirrors the increasing value of the properties. To the early investor this means that, should you decide to sell your property, it will be worth considerably more at this stage than when you made your initial purchase and paid the 30% deposit. Investors are currently making some excellent investment choices in off-plan property in Cyprus and we are dedicated to helping you pick the best investment options suitable to your particular needs. In this way, you can generate personal wealth through safe and intelligent off-plan investment.

Off-Plan Financing

It is always worth considering the off-plan finance options offered by developers as these are sometimes preferential to the terms of a standard bank mortgage. Initial deposit and other payment terms can vary according to the construction phase of the project and rates are often competitive.

Property developers in Northern Cyprus have quickly caught onto the fact that the previous lack of bank finance restricted the local property market potential. Today many developers in Northern Cyprus offer a varied range of financial incentives and payment options to their customers.

As always, before making a commitment to a property investment in Cyprus, we recommend you discuss your strategy with a lawyer, a reputable property agent with experience in the area and even a financial advisor.

Equity Release

Equity release is an efficient way of releasing cash from a property you already own, without having to sell up. If you are in your mid-50s or older and own your own home, you may be able to get a cash lump sum, a regular income, or both, by using an equity release scheme based on the value of your property. These schemes can be helpful in some circumstances to raise money for a mortgage to finance your investment property in Cyprus.

Alternative Finance

Not everybody falls into a category and some investors will need to raise alternative finance to equity release or mortgage options. There are other borrowing facilities available to investors of Cyprus property.

Buy to Let Investment in Cyprus

Make sure your buy-to-let investment is in a rentable area and work from there, check rentals sites to see where people are looking for and stay competitive.

Cyprus Buy To Let Example

Paul decides to purchase an investment property and he decides that the "Buy-to-Let" investment strategy is for him.

Paul purchased a villa on a golf course for 325k Euros, rented this property out in the Summer and the Golf Season for 26 weeks and received a rent of 21.500 Euros, his return would be over 5% per year PLUS there would be capital appreciation to take into account.

Property investing has paid off handsomely for many people, both in terms of income and capital gains but it is essential that you go into it with your eyes wide open, acknowledging the potential advantages and disadvantages.

If you know someone who has invested in buy-to-let or let a property before, ask them about their experiences - warts and all..

The "Buy-to-Let" model is becoming more and more popular in Cyprus with the increase in demand of rental property as many holidaymakers are now utilizing the Internet to benefit from cheap flights and cheaper accommodation by booking direct.

Short-Term Letting vs Long-Term Letting

The final decision to be made by the "Buy to Let" Investor is which letting strategy to use. Its obvious that the highest income is made by the property owner by letting out short term during the high season. However you can off-set this against the increased overheads in constantly finding short term rental clients and the maintenance costs between clients. Long term rentals typically pay less on a month on month basis but usually require far less input from the property owner and the rental income is fixed over the course of the year. Some property owners choose to rent long term during the low season and then short term to higher paying holiday clients during the high season. The decisions to be made on your letting strategy are usually answered in part by the property you purchase. Some properties lend themselves to short term holiday makers and others to long term locals as a permanent home. Our experts will help you decide what's best and choose the property and rental strategy that's best for you.

The "Buy to Let" Strategy is not ideal for EVERY investor and it is essential that property for this strategy is chosen wisely as it needs to be a rentable property in a popular location to allow the investor to maximize income from the Investment.

The other benefit from this type of Investment is that during the time this property is being rented and earning the Investor an income and holiday home it is still appreciating in value at one of the fastest rates available. All in all the "Buy to Let" Investment model is a sound investment decision and Cyprus is currently an ideal location to deploy this strategy.

Banking in Cyprus

In the southern part of the island, banks are run according to British standards and transactions can be carried out in Euros and most other foreign currencies.

There are two types of commercial banks in the Turkish Republic of Northern Cyprus (TRNC): branches of large Turkish banks, and local banks. Transactions can be carried out in all hard currencies. The Central Bank of is in charge of monetary, credit and exchange policy and essentially acts as banker to the government.

In both areas of Cyprus major credit and debit cards are widely accepted. Credit cards can be used to exchange money at most banks.

Banking services go beyond the traditional and often include insurance, leasing, hire purchase finance, factoring, mutual fund management, investment and consulting as well as custody and asset management services. Banks in Cyprus have developed new products and services through electronic means and your bank account can be easily reached via electronic access and through internet banking, which is now increasingly used enabling you to make a number of worldwide transactions.

English is widely spoken in southern Cyprus and banks in the TRNC usually have at least one member of staff who speaks English that will be able to help you with your requirements.

Cash point machines are widely available all over the island and they accept most major credit and charge cards.

Offshore banking

For non-residents of the TRNC there are investment opportunities provided by offshore banks, which are positioned outside the country. They include business transactions in foreign currencies, lending and other financial services. The advantage of offshore banks is that they provide access to politically and economically stable jurisdictions and extend banking and trade services to non-residents of the TRNC, while supporting an international financial centre.

Currency

The two areas have different currencies - in the south Euros are used and in the north, Turkish lira.

Economic Factors

The island enjoys a standard of living that is higher than other European Union member-states while economic performance compares very well to that of most other EU countries.

The downturn of the Cyprus Stock Exchange pushed most of the capital towards the property market, since the stock market could not rise up to investor expectations, leaving the property market as the best major investment alternative in Cyprus

The banking sector is the major financier for both investors and developers alike. Cyprus property is expected to benefit from the uncertainty and pessimistic expectations in the English property market, since many investors prefer to transfer their capital to more secure property markets such as Cyprus with better future potential.

British investors have very strong buying power in Cyprus and they can use gearing from their investments in England to buy significantly more in Cyprus. Since its joining of the EU in 2004, Cyprus has enjoyed capital growth of approximately 20% while property prices remain considerably lower (up to 30% lower) than in destinations such as France or Spain.

Political Factors

Since 1974, Cyprus has been divided into the government-controlled southern two thirds of the island and the remaining one third in the northern part, administered by Turkish Cypriots. Shortly after founding the Greek Republic in the south, serious differences arose between the two communities about the implementation and interpretation of the new constitution. The Greek Cypriots argued that Turkish Cypriot interests were obstacles the efficient running of their government. Since a military coup in 1974, UN peacekeeping forces have maintained a buffer zone between the two sides. Apart from the occasional demonstration or incidents between soldiers, the island has remained completely free of violent conflict.

As the North generally continues to be a politically sensitive area with relatively complicated title ownership laws.

Property Taxes

Taxes in both parts of the island are low:

In North Cyprus, purchase tax on property is 3%, while VAT is 5% - both of these taxes are calculated on the value of the property assessed by the Land Registry Office. There is a Municipal Tax of 1% payable in most regions.

In the south, taxes vary according to the value of the property. Transfer fees on a property of up to 50,000 Cyprus Pounds (CYP) is about 3%. A property of less than 100,000 CYP pays no annual taxes.

Annan Plan

Today, North Cyprus will need to reach political settlement with the south and Turkey will need to resolve the North Cyprus situation in order to enter the EU. Meanwhile, America and the UN are putting strong pressure to the Greek side to accept an Annan Plan based solution. It is highly likely that if the parties on the Greek side continue to drag their feet (which they have done since rejecting the Annan plan, which the Turkish side accepted), there will be independent recognition of North Cyprus from the USA and then the rest of world.

Summary

EU membership and the adoption of the Euro is spurring Cyprus still onwards. The International Monetary Fund and the European Commission endorse the Cyprus economy as a stable one in which to invest, and property prices in prime locations of the south east have risen by as much as 20% per annum over recent years.  However, today in some areas of Cyprus there is now an oversupply of property, making it all the more imperative to carefully select your investment location prior to purchase. 

According to Knight Frank’s more conservative growth figures, the average property price increase on the island was 12.5% in 2007 which, combined with average annual rental yields of 4-6%, represents a solid, though not booming, potential market for todays’ mid to long term investors.

Southern Cyprus dominates the property market on the island as the north, with its political uncertainly, is still commonly regarded as too risky for many investors.