Why you need to invest NOW

Cyprus, like many other Mediterranean countries has had a tough time in recent years economically and this has had a negative impact on the property market. Property prices hit their highest point in 2008 just as the global financial crisis was beginning to hit. Since then, combined with a banking crisis, property values have suffered badly. House prices are currently 30%1,2 below their 2008 peak.

Now that the Eurozone recovery is well underway and property prices in the west of the Mediterranean are showing good signs of growth, there are our top-ten reasons as to why NOW is the right time to move back into the Cyprus property market.

1. The Economy is improving

Fundamental to any property market recovery is an improving economy and healthy liquidity in the banking sector. On both fronts, the signs are positive.

Growth in GDP both in 2015 and 2016 has been very healthy at 2.9%. This is very competitive when compared to other western economies as well as the rest of the EU. The consensus forecast GDP growth is approximately 3% for the next few years3.

Following the banking crisis in 2012-2013, Cyprus has made significant progress in improving the credibility and liquidity of the sector. Following an intense period of downsizing, supervision and a recapitalisation of the three leading banks in the sector, capital controls have been lifted and a healthy level of liquidity has been restored. So much so, the country was successfully able to go back to the international debt markets by the end of 2014.

Since the crisis, Standard & Poor’s have hiked its rating of the country eight times to BB+ with a stable outlook. In line with this, the risk rating of Cyprus debt has improved considerably and is now rated higher than some other EU countries such as Portugal.

It is clear, investors are now buying into Cypriot assets.

2 – A Lost Decade

Property values today are exactly where they were back in 20061. Following some boom and bust years, property prices are at their same level as 2006 and some 30%1,2 below their peak.

If you factor in inflation over that period, prices have dropped in real terms and are relatively low by historical measures. Property looks undervalued with significant upside potential.  

3 – Momentum has turned

Following declines in property prices from 2008, the market has been stable in 2015 and 2016 with modest signs of growth. This point at which momentum changes has historically proven to be a good time to buy.

4 – Buyers are returning to the market

Property transactions slumped in 2013 due to the banking crisis. Since then, sales volumes have increased by 88%4 with 2016 showing a 43% increase versus 2015. The figures, from the Department of Lands and Surveys, showed transactions at 7,063 for 2016.

Of interest, the region with the biggest increase in sales volumes was Limassol with a corresponding increase of 138%. Larnaca also showed an impressive rate of growth (125%) whilst Nicosia fared the lowest increase (45%).

4.1 Contracts of Sales

Year Paphos Famagusta Larnaca Limassol Nicosia Cyprus
2012 1530 583 1051 1627 1478 6269
2013 1164 241 604 1049 709 3767
2014 1238 330 794 1417 748 4527
2015 1241 324 1072 1566 749 4952
2016 1740 436 1360 2496 1031 7063

This increase in transactions is featured for both domestic (91% increase from 2016 over 2013) as well as foreign investors (corresponding 78% increase).

This broad-based increase is a clear sign of confidence returning to the market.

5 – Progress on the ‘Cyprus problem’

Ever since the violent partition of the country in 1974, politicians have been trying to resolve the continued dispute. One of the biggest issues is the treatment of 180,000 Greek Cypriots that were forced to flee their homes in the north-east of the island and remain displaced. This partition of the island to the Turkish Republic of Northern Cyprus is only recognised by Turkey. There has been pressure from the UN, the EU and the general international community for resolution of this issue. Indeed, there has been so much pressure over the last year with the respective leaders of the island determined to find a solution with the UN brokering discussions.

Given the fresh impetus to find a deal, it is likely that a referendum will be put to the two parts of the island within a year. If a solution is delivered by the people, it is likely to generate significant inward investment and a spur to economic growth – the so-called ‘peace dividend’.

6 – Mega-investment projects

Following subdued demand in the residential housing sector, property developers have focussed on mega investment projects to improve the infrastructure and tourism appeal of the island. Innovative high-end large scale developments include marinas, golf resorts and even a casino resort. These projects have attracted strong support from the international investment community.

One such stunning success is Limassol marina which has transformed the town. The impressive project extends over 40,000 square metres and includes 74 villas, 162 apartments and space for 650 berths for luxury and super yachts. It has already been dubbed the ‘Monte Carlo of Cyprus’ and Limassol is now a property hot-spot on the island.

7 – Cyprus emerging as a regional energy hub

The discovery of major oil and gas fields in Cyprus’ Exclusive Economic Zone (EEZ) has also created new and exciting prospects for Cyprus to become an energy hub in the Eastern Mediterranean.5 In one of the fields, US firm Noble Energy has found an estimated 4.5 trillion cubic feet of natural gas sufficient to meet Cyprus’ domestic gas demand for over 100 years. Investments of approximately €3 billion will be needed to build the exploitation structures of the field and the pipelines towards Africa and the Middle East. An important step in Cyprus’ ambitious plan to evolve as a regional energy hub is the operation of a €300 million oil storage terminal which is now operational with further investment scheduled.

8 – Residency and Passport Schemes

Cyprus remains an attractive destination for the purchase of an overseas home, with foreign investors seeking to benefit from the favourable personal and corporate tax regime. As an added incentive, the government introduced in 2013 a scheme to obtain Citizenship and Permanent Residency along with the option of a full Cypriot passport providing open access to the EU.

Permanent Residency can be obtained in a little over two months for the purchase of a residential property with a minimum value of €300,000. Demand has been strong as investors use Cyprus as a gateway for their business into Europe. Figures from the Ministry of Interior suggest this scheme has attracted over €1 billion of inward investment to date.

To obtain Citizenship and a Cyprus EU passport, an investment of €2 million in residential property is required. A Cyprus passport is one of the most attractive passports globally providing free-movement within the EU, visa-free access to 150 countries globally, access to free education, healthcare and voting rights. It is estimated that this scheme has generated nearly €2.5 billion of inward investment.

9. Improving confidence in the ownership rights of Cyprus property

Historically, Cyprus has had an issue with the extremely slow issuance of title deeds which, in many cases, could take over ten years. This has created many problems and undermined the market. Thankfully, the government has taken several measures to rectify this issue.  In 2011, the government passed a Specific Performance Law designed to protect the rights of buyers and have made it much easier and quicker to obtain the title deed. Owners can now have much greater confidence in owning residential property. This has been key to restoring credibility to the market.

10 – Growing demand from foreign investors

Several factors have supressed demand from overseas markets in recent years. Trade sanctions have adversely affected Russian buyers, a weak oil price has reduced capacity in the Middle East whilst China’s economy has suffered from some tightening of capital controls and liquidity.

There are good indications that demand for these three markets could significantly increase. Firstly, the new administration to the US has a more positive outlook on Russia which could lead to a relaxation of trade sanctions. The oil price has improved over 2015 and is finding some stability. In addition, the Chinese economy continues to grow strongly. If you add the emerging purchase power of India, that represents four super powers that will find investing in Cyprus very attractive for several reasons already outlined particularly access to the EU.

To review our portfolio of Cyprus properties – please click here.

References

  1. Central Bank of Cyprus – Residential Property Price Index
  2. RICS Cyprus Property Price Index 
  3. Cyprus Ministry of Finance and IE Economics
  4. Department of Land and Surveys
  5. Invest Cyprus

Please note, the points expressed in this paper represent the views of Escape to the Sun Ltd. It does not constitute investment advice for which we always recommend seeking expert legal and financial advice from suitably regulated sources.

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