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Cyprus Investment

Cyprus now has a maturing property market, which coupled with a generous taxation structure is giving Investors excellent capital value appreciation, particularly in the off-plan market.

Cyprus - and we're not including northern Cyprus here - has long been a place that has attracted foreign property buyers looking for a retirement or a holiday home in the sun.

Foreign, particularly British, buyers are attracted not just for the near year-round sun, good food and friendly locals but also:

  • - the island is very British, in fact the laws are based on English common law
  • - low taxes, including 0% inheritance tax and the ability to have your UK pension taxed
  • - great mortgage finance, low interest rates, 30 year terms and 90% LTV

Up until around 2 - 3 years ago the Cypriot property market primarily attracted second home buyers.

Once Cyprus became a member of the EU investors became increasingly interested in the property market there. The influx of investment was partly driven by investors trying to buy before the VAT rate on new build property was increased from 0% to 20%.
As well as these factors, investors were (and still are) attracted to the island by the restricted supply of property due to a shortage of land, a healthy resale market (by sunshine destination standards) and its increased political and economic stability brought about by EU membership.
The Cyprus property market has traditionally had a healthy balance between second home owners, locals and investors.

Changes on the horizon

Now there are signs that the Cypriot market is about to enter a new phase.
Various large UK property agents have been actively looking for property in Cyprus recently.
Each company plans to sell between 500 and 1000 properties a year. This will increase investor demand by 1,000's of off-plan (not resale) units per year over the next few years.
This will have dramatic effects on prices and the way the Cypriot property market functions currently.

Can developers supply this much new build property to satisfy this level of demand?

There is already a shortage of land for developers to build upon and it is predicted that zoned land will run out completely in around 5 years time, wherein only a resale market will exist, so the long term prospects are good.
Furthermore, planning laws restrict the height and density of property than can be built in Cyprus further reducing supply and increasing prices as developers can't use the space they have available as efficiently to make the same margins.
There has been around 16,000 units build per year over the last couple of years which has been about the right level for the demand. If we see a sudden increase in demand for off-plan property then agents will have to sell anything they can get their hands on and developers will naturally increase prices.
Either way I think we will see prices increase (as demand is strong and supply finite), but along with the price rises it will become increasingly hard to resell your property in the short term.
Now that cheap airlines have started flying to Larnaca , we can expect to see more independent travellers going to Cyprus. This trend of increasing tourist numbers will continue as the skies above Cyprus open up, though it will take a number of years to see significant increases as overall flights are still expensive to Cyprus, which has always been a limiting factor in the market.

Long term - bright outlook

In the longer term demand will continue to be strong, because of the factors in the first part of this article. Supply will slow down and eventually Cyprus will become primarily a resale market.

Capital Growth predictions

In the medium term we predict that capital growth will continue at between 12.5-20% a year, just as it is now (the exact figure depends on the area).

Possible strategies

If you are looking to invest in property in Cyprus you have 2 main options:

  1. Sell before completion but as stated in this article this may be difficult as the demand for resale property in the short term isn't favourable.
  2. Hold for the long term (5-plus years), in which time new build prices could double. Those Off-plan properties will have moved on, leaving, after some turbulence, a healthy resale market and improving rental market.

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