By Antonis Loizou FRICS
There are the parameters nowadays, which show that the time is ripe, at least for an initial examination, for the creation of real estate funds in Cyprus.
Our opinion is based on the following:
- Property prices have reached rock bottom levels for good properties; no notable discounts/reductions are expected in the immediate future.
- Financiers offer real estate either in the form of swap deals or auctions at reasonable prices, which are coupled, on most occasions, with financing.
- There is ample supply of all sorts of real estate type in all districts.
- Existing buyers and resales to new buyers could be coupled with long term finance.
- Most property sales are sold based on a ‘clean’ owning company, reducing/doing without transfer fees with the company already in operation.
- Interest on deposits have been reduced from the past, from the level of 6% to 1.5% pa, whereas deposit rates abroad are around 0.5% with some foreign banks even charging a ‘keeper’s’ fee.
- Real estate prices based on recent developments and projections appear to be on the increase (at least for chosen properties)
- There is a prevailing worry for European banks (see Greece/Italy etc) as well as others on their solidness.
- The popular investment regions by locals, such as Greece, are not at their best bearing in mind the uncertain economic future, whereas popular London has its own problems with the unknown consequences of the Brexit.
With all the above in mind and with the be it limited finance available in the Cypriot real estate market, perhaps it is time to examine the possibility of setting up local real estate funds.
We suggest that such funds could vary in size and scope but as a basis:
- Initial fund €10m
- Target to borrow €5m
- Period of exit of the fund 8-10 years
- Target for an annual return 4% pa
The following areas could be the first to be targeted:
- The seaside areas of Famagusta.
- Buildings for income to be let to solid tenants (4-6 years) which show a return of 4%-5% gross.
- Residential apartments in chosen localities which need renovation/improvement and with good chances to resell.
Perhaps these funds could be created initially with the financier being the major shareholder. The more attractive the fund appears to the market, the greater the demand for it and it is one way out for the financiers to dispose their properties.
If the financiers/majority shareholder “guarantees” an annual income for the initial period of 2-3 years of 1.5-2.5pa it will become even more attractive, securing an initial return plus the expected capital appreciation and the anticipated profit at the end for the shareholders.
Notwithstanding the situation of the Cypriot economy the market of real estate is improving with clear signs for a positive future.
Instead of the prevailing situation of financiers sitting back and waiting for investors to show interest, the above vehicle is one option which might attract big investment buyers from abroad.
If this idea gets a proper study and it was correctly promoted, we feel it is an effort worth exploring especially by the financiers.