January 06

Introduction
This article is designed to introduce you to the Cypriot Property Market – a market we believe there is fantastic opportunities for growth. To help you decide whether this market is right for you we revel what types of investments perform and forecast how the market will develop and change in the future.

For the purpose of this article we are only concentrating on the EU Member, the Republic of Southern Cyprus – not the whole Island. We do not mean the Northern Turkish occupied side of the island. Purchasing in northern Cyprus carry huge risks for investors – risks are what we are trying to avoid. We have no interest in taking a moral position on this question. We make our assessment entirely on the basis of what makes a sound investment.

The aim is to inform you – investor. The goal is simply to give you all the information about Cyprus. To put you in a position to take advantage of the enormous potential the Cyprus market offers and will CONTINUE to offer in the medium to long term.

To take advantage of the market you need to understand the trends that drive it. The key to successful property investment; like all investments; is to be informed. We see the island taking between 10 and 12 years to reach its full potential – those 10 to 12 years of growth and resulting profits for you, the investor.

Cyprus In Brief
What would you call a Mediterranean island which has seemingly endless summers and mild winters, where you could live in one of the healthiest climates, where its island people are renowned for being probably the friendliest in the world, where you drive on the left, with a highway system connecting all major towns and resorts, with state of the are communications, where virtually everybody speaks English, where the legal system is based upon English law, where you may enjoy a high standard of living but a low cost of living, where you may have an active and fulfilling lifestyle.

With a population of approx 700,000 people, Cyprus has already staked its claim as one of the most beloved holiday destinations in Europe. Such a wealth of history, cuisine and culture is concentrated within its idyllic shores that one may find it hard to believe it is only 3572 square miles in size. It will not take the visitor long to realise why both Alexander the Great and Cleopatra frequently the island, and why Aphrodite – the Goddess of love – fell for Cyprus in a big way.

Key Attraction / Business
1) Tax
2) Clean administration
3) Rule of common law (English)
4) Excellent Banking and accountancy standards
5) Well developed infrastructure
6). Language

1. Tax
Cyprus cannot be described as a tax haven; but it certainly has a very favorable tax regime, both for individuals and for business.

The corporate tax level is 10%; which makes Cyprus a highly attractive place to register a company. This low rate, plus EU Membership, which means Cyprus registered company is automatically part of the EU is a big lure.

Pension income for individuals are taxed at 5%.

And unlike some other countries, there is no inheritance tax to pay on property owned anywhere in the world – if you are a permanent resident of Cyprus.
2. Clean Administrator
One of the legacies of British rule is an emphasis on good public administration. Cyprus is a relatively “clean” place to do business and corruption is not a problem which in this part of the world is quite a boast.
3. Rule of English Law
Again a legacy from Britain – the law is English/Irish common law, so there are no strange practices to catch the unwary. This is attractive to all who quiet naturally are attracted to transparent and well administered common law and property rights.
4. Infrastructure
A plus for Cyprus is that it works well. The phones dial out and communications are at a fraction of our costs. The roads are excellent and well maintained. The port works very efficiently.
5. Language
Again a legacy from Britain – English – the international language – is widely spoken.
6. Education
Cyprus has long done well in attracting foreign students, drawn to the islands by its rich culture, historic heritage, its climate and is beaches. The university of Cyprus plans to expand year on year and within 4 years hope to have 10,000 students compared with 4,000 now. Students like everyone else, need somewhere to lay their head and this is positive for the residential market.

How will the Euro change things?
To the Island this will be an evolution rather than a revolution. Cyprus spent the last 20 years preparing for EU accession. In 2004 it finally got the go ahead to join the EU club. Now Cyprus wants to take the next step – join the Euro. This event will happen late 2007 / early 2008, all of which ensures that the Cyprus economy will become even more stable, in tune with the strongest economies in Europe. It will mean complete price transparency. In other words, with rent and property prices spelt in Euro, it will be easier for investors to see what a bargain this Island really is. While tying Cyprus even more closely with the stable economies of Western Europe and give more confidence to the Cyprus economy.

Market
Investors should approach this market for what it is – a sun investment location, it is also a destination where the ‘Snow Birds’ (Northern Europeans – getting away from the cold) factor is significant. Property in Cyprus is relatively cheap – experts believe there were two factors previously holding back the property investment market in Cyprus – one of which has been removed and the other one is been removed. The two factors are political uncertainty and the lack of available finance. The second factor – finance – is what is changing right now and the reason why Cyprus is going to offer the very best returns of any sun location over the next few years and long term.

Finance
The most immediate growth in property prices is going to come from a revolution in the way mortgage finance is provided. It has been a lack of attractive finance that has held back the Cyprus property market until now.

One lender is offering rates on a loan term that under cuts other lenders. Loan lengths of 15 years and a rate of 2 – 2.5% above base with LTV (Loan To Value) of 70% being the norm. Now with a LTV of 80% and up to 25 year long term and a cheaper rate, this lender is setting new goals. This is an example of market forces at work.

New attractive finance deals which are both at a lower rate of interest and over a much longer period mean the effective cost of borrowing has come down 30%. This is one lender only, if the others want to stay in business, they will have to follow suite, this may take a while.

This represents an excellent opportunity for the investor. It could take up to 2 years for this easing of the capital to fully filter into the property market. And the fact is there is a direct link between money getting cheaper or more expensive to borrow and the price of property up or down.

Why is LTV so important? Firstly, the higher the LTV the harder the investor can work his money – he needs to tie up less of his own money to secure his property, so he can secure more property. The loan length is vital, because it means that the investment has more chance of being cash positive or if not the cash shortfall will be lower than if the loan was paid back over a shorter period. This is because the capital repayment element of the mortgage if it’s spread over a longer term.

So we are going to see 30% growth solely from this development in the property market. This is the type of environment – the low cost of capital borrowed over relatively longer periods – that fuel property price growth (just as it has in Ireland). This is why Cyprus is such an exciting opportunity because the accelerated growth this newly competitive finance market will create has just begun.

Cyprus – Comparison
Its turbulent past aside – Cyprus now offers great overseas investment potential – as did parts of Spain - now being over developed and over priced - did not so long ago. Like Spain, Cyprus, has been a popular destination for people from West Europe. Today property in some locations of Cyprus sell at around €60k less than similar ones in Spain in the €150k to €350k market, but there are important differences in these markets. Crime is very low in Cyprus, unlike in certain parts of Spain or in other destinations claiming the Mantle of “New Spain” such as Bulgaria and Croatia, which are less stable still. Cyprus’s big advantage is that it is an island, therefore less influenced by migration across borders. Recent EU entry for Cyprus has provided other important boosts to property prices. Laws allowing foreign ownership of property have relaxed and the letting of foreign holiday homes, - previously illegal – is now allowed. And very importantly, since EU entry, foreign property buyers can take out loans form Cyprus banks to buy Cyprus property, this change is starting to be felt now, is likely to revolutionise the market as it effectively opens up the market to a much wider group of people. Cyprus is a low tax location – for companies, individuals and especially foreigners with a foreign pension. Add to this the low living costs (about 60% of Ireland) and you have a highly attractive and appealing package.

Purchasing and Letting Laws
EU entry will eventually bring new freedom in property ownership rights. But for now you still need an off the shelf company if you want to register more than one property in your name. This applies only to the registration of deeds and does not prevent you from buying as many properties as you want without a company. This rule is due to be scrapped to bring Cyprus into line with EU practices. Restrictions on letting your property have already been scrapped since EU Membership. Previous restrictions that meant you could only rent to family and friends, have gone. These legal changes are freeing up the property market and are other contributory factors to price growth.

Multi-Ownership Rule
Foreign investors do not have a problem investing in the Cyprus market. But the multi-ownership rule means that – all least for now – if you want to buy and hold more than one property you will need to do this through a Cypriot registered company. This process is simple and cheaper than it sounds. Simply:- you can buy and hold as many properties as you like but when the title deeds become available you will need to register your property and for that you will need to register a company.

So if you are buying off plan, you can invest in multiple properties, if you re-sell the first property before the title deed for the next property is ready you don’t need a company, but the legal advice suggests you may register more than one property in your name provided your intention for the second property is for your own permanent residence. Under EU Law an EU Member Citizen has absolute and unalienable rights as to freedom of movement and property. While this rule is wildly expected to be scrapped, in the near future to bring Cyprus into line with EU Practice, technically it is still the law.

VAT Price Boost
New VAT rules mean that any plot of land to be developed that received planning permission after EU entry, May 2004 will be subject to VAT charges, currently 15%. There are very few sites left that fall into the exempt category.

Geography
Cyprus is a small island with mountains in the middle, the geography of Cyprus is a key factor in influencing the development of the property market, experts talk about the window for investment opportunities being around 4 to 5 years, after that the usable land will be gone.

Ireland to Cyprus
There are two airports that handle air traffic to Cyprus. Larnaca International Airport on the east side and Paphos on the west side, flights are available from Dublin all year round and from Cork and Belfast during the summer months. Alternatively through the UK on a daily basis. Flight times form Dublin is approximately 4.5 hours.

Property forecast for Cyprus
It’s true as every financial offer warns that “Past performance can be no guide to future performance” but the fact is that property prices in Cyprus have raced ahead.

The short term market
We believe property prices in Cyprus will accelerate by 20% a year or by 40% on average over 2 years. As mentioned, mortgages and VAT will open the flood gates for property price growth.

The cost of borrowing will become widely available at 30% cheaper than at present and VAT will add at least another 10% to prices over 2 years.

Loan rates a full 1% lower than have been available so far and the really big factor – the loans are over a longer period.

Admittedly, with so much going for Cyprus as a property hot spot, the great mystery has been: - Why hasn’t it taken off? We believe this to be the hidden Jewel

Now – so with a 25 year loan say at 1.6% above base rate, you have finance cost of 7% interest and 4% cap repayments – a total of 11%. That’s a price cut in the cost of almost 30% which we believe will fuel property price rises of at least that 30% but closer to 40% because demand is growing and there is the VAT element to fact in.

Long term Market over 10 Years
Longer term- Cyprus joining the Euro zone 2007/2008 will give the market a further fill up in the years following. This will be especially attractive to investors from elsewhere in the Euro zone because currency fluctuation worries will be discounted.

Cynical factors such as interest rates at a given time, currency fluctuation and inflation over ten years can be pretty much discounted. This is why the measure of a markets potential is actually more important than short term forecasts that include cyclical or one off factors.

We are confident of the prediction of 40% growth over 2 years based on the loosening of the availability of finance and the passing on of the VAT charge on property. Two years growth at 20% per year is of course excellent. However we would not advise an investor to enter a market to take advantage of two years growth only. Property should be a long term investment.

Forecasts say that within 5 years almost all of the useable land on Cyprus will have been built on, obviously, it is surrounded by sea, the north is not accessible and what land there is, is largely mountains. Also there are restrictions which mean that high density high rise properties are banned. The forecast has not added in the land element, which will clearly add greatly to inflation. For this reason we believe the forecast will turn out to be bearish. Over the long term we expect yields to remain as they are now – in other words, for rental levels to grow at approximately the same level as capital appreciation.

One aspect of measuring a sun investment location is that they are subject to a certain element of fashion, which is unpredictable. This depends on how they market themselves in their various target markets. (CTO strategic plan up to 2010 is to draw an extra 3.4% tourists each year for the next 5 years). However, with a market that is particularly attractive to retirees, there are certain measurable attractions – notably all year round weather and taxation advantages/disadvantages. For these factors Cyprus scores extremely well.

Location Location
True- some property investment rules apply around the world – but there can be differences. One golden rule does apply in Cyprus – price is not everything. But in the wrong place and no matter how much or how little you spend; you could be heading for trouble. Just like home the cheapest property will be a disaster if it is in the wrong location. The same rules apply in Cyprus – much better to buy the best property you can afford – even if it is the cheapest on the site – in an expensive area – than to risk your cash in the wrong location.

Water Water
The rules on Cyprus are simple, it’s all about water. Whether it’s a shared swimming pool at the rear of a complex of flats, a large villa with its own pool or a property within walking distance of a beach, water is vital to the value of any property being able to take the plunge is crucial. If a pool is the priority, next comes the walk to the beach, it must be a short walk. Any property that is more than a 10 minute walk to the beach could suffer when it comes to rental value and re-sale value. One – Two – Three bedroom apartments need to have access to a communal Pool. Large villas need to have their own pool. Verandas are also a huge bonus.

What to look for
1. Pool – in Ireland a swimming pool can be a liability. In Cyprus a communal pool in a block of apartments or a private pool in a large villa, are essential.
2. The Sea. Again, think sun, whether you aim to rent your property out to families with children who want only a short walk to the beach, or to older retirees, being close to the beach is a must.
3. Location proximity to the beach is a winner; you also need to ensure amenities like shops are close at hand.
4. The View: - this gives every property the “WOW” factor for the buyer, but also a “WOW” factor for anyone thinking of renting the property short or long term.
5. Veranda/Terrace. This is a big plus – especially if it is matched with a view – meals on the balcony are very popular in hotter weather – again think weather.

Have an exit plan (Exit Strategy)
However things change one thing remains constant, is the property attractive enough to be sold easily should your circumstances change drastically, this is a huge bonus. This is probably the most important consideration.

You may well consider the property as a long term investment, perhaps towards your retirement. Never the less, it is wise to look for property that you know or at least believe will sell easily, just in case at a later date, if needed to release the capital you have tied up in the place. This is known as an “Exit Strategy”

Investment Aims
It is important not to be vague. The fuzzy idea of pouring money into an investment is not enough. You need to be clear what you expect so that you can at least estimate whether the property you have in mind meets your criteria.

As a golden rule, three prime criteria need to be met by any buy to let property investor. Your investment aims are almost certain to include a requirement for capital growth alongside rental income. You also want to get good leverage on your assets so as to achieve both the above, which means a high rental yield in order to serve a loan and it means good financial gearing in the first place.

If you know what you are doing – property is a great investment – our aim is to ensure that you are informed and that you profit from our experience.

Value in Property
We hear about VAT - LTV – ROI – etc. how about VIP (Value in Purchase). We believe property only has a certain value – every county is not Ireland and every economy is not influenced by factors, our economy has been influenced by. In general we tend to follow the local money. If a development of properties is attracting local (Cyprus) investor than we look at this development and particular area as having a VIP. Your first call for an exit strategy is the local domestic market. In a nutshell, if local money is being invested in a project we promote, it tells me it has V.I.P.

Projects listed on our website are projects where local Cypriots money is going as investment and that’s good.

Economic and Financial crisis 2008>2009>? Addition.
Today, 12 months after the calamitous implosion in the American financial system and the fallout from that crisis is a pandemic economic infection that has cast a black cloud over every corner of the globe. Everyone has given their two and sixpence worth of commentary and the experts who created the monster do not know how to catch and or tame it. Efforts are been made by administrations all over the world to solve this crisis and there is some small signs that the crisis is easing its decent and should level out over the latter half of 2009. The return of decent growth will be slow and hopefully progressive so we do not get a v shaped deeper recession. We have always maintained that the rise in consumer inflation should be above asset inflation raises. Over the last number of years this trend went out the window. This is a reality check which has been overdue for at least 4 years. Everyone`s perception of risk got clouded in greed and gullibility, so the blame for a lot of the difficulties and financial injury faced by many is self inflicted and we are all part of the cause, Blessed are our children and our grandchildren for they shall inherit the national debt. This is the fact.

I still consider the current recession to be cyclical, (very sudden and very deep) the right investment with a good exit strategy will either make you a profit or at least it will not be the millstone around your neck. As I said in the long term market section; an investment should be planned for a long tern, 10 years plus, this investment will not be so affected by such cyclical events.

 

Please note that no responsibility is accepted for the information contained in this article