By Antonis Loizou FRICS
THE EU is placing pressure on the Cyprus government to introduce the (19%) on building and development plots. The matter is under discussion at the House but it seems that there is no way out and the EU is threatening penalties which could amount to millions if this measure is not introduced very soon.
This would upset the real estate market which has just started to revive and concerns have been expressed from all directions. If the measure is adopted it means that building plots will cost an additional 19%. This could be OK if the buyer is a VAT payer, but most buyers are not, especially those who buy the plot for their own use etc.
The government claims that discounts have already been made to counterbalance this, such as the property taxes (abolished from 2017) and reduction of transfer fees (by 50%) so this new tax has been met with counter discount measures. It is not as easy as that and it will create serious problems to buyers, reducing thus their demand, whereas financiers will have a serious problem in trying to dispose of swap deal properties and those which they are trying to sell.
This measure was supposed to be introduced several years ago, but the government succeeded to secure postponement (mainly due to the bail in etc). We do not expect that new apartments/commercial developments will be particularly affected in terms of demand, since developers mostly pay VAT, so it is a charge that they can discount. The matter gets more confusing as discussions in the House proceed however. It refers to non VAT charge for private owners who sell building plots on an occasional basis, not as a business and their sales do not bear VAT.
So two plots next to each other might have a different cost if one is being sold by a developer and one by private individual. Also the measure does not refer particularly to building land (we don’t know if it covers the development land as such) since it refers to building plots (not clear as yet).
Another point on the subject is charging VAT (19%) on commercial rents – it is not clear what it means and how it will be implemented and what happens to the rents agreed prior to the new measure.
Another point to consider is the visa/passports measures that we have and for which Cyprus has been so successful in attracting foreign buyers and investors in excess of €3bil in real estate. The recent report by Bloomberg (in addition to EU warnings) has made a lot of damage, accusing Cyprus more or less of laundering money, that we encourage Russians to invest (low tax etc) and it is evident that this is an orchestrated effort to hurt the Russian investors (not to mention Europeans and other international western companies who benefit. In addition, there are in place similar passports measures, as well as that of the visas in most European countries with no reaction.