Cyprus Mail
Property

Returns on real estate

By Antonis Loizou FRICS

Returns (yields) on real estate in Cyprus have always being at the lower end. Returns are the income of a property let on the open market (i.e. the rent) as a proportion of the prevailing market value. The returns are historically low since prior to the 2008 real estate crisis there was a healthy capital appreciation for most properties amounting to five to seven per cent p.a. The yields at the time (2008) compared with the deposit rates of approximately 5% showed a return of 4%-5%.

Nowadays the situation is different and returns have been reduced say for apartments to around 4%, whereas there is no expected short term capital appreciation.

The tragic situation of Cyprus as a result of the 2013 bail in has encouraged people to invest in real estate since, part of the market at least, doubt the solidness of local banks. Of course, out of the rental value/income one must deduct taxes and other charges that go with the ownership of real estate (provided again that the tenant undertakes his own common expenses and other charges). So, at the end and assuming 30% for expenses real estate investment by comparison to deposits has the upper hand (government bonds excluded).

Real estate has the advantage that you can look at it, touch it, plan for its future use, keep it as a dowry and mortgage it to secure a loan.

Below is a table of real estate returns which is not strict but depends on many factors. The table (prepared by the local RICS association) shows not large variations over the years (2010-2016) but higher returns are shown for high cost investments which entail higher investment risk and uncertainty, as well as increasing maintenance/management cost. As such these show a return of 6%-6½%, hotels 10%-12% etc.

 

2010 2011 2012 2013 2014 2015 9/2016
Apartments 3.60% 3.80% 3.80% 3.80% 3.80% 3.90% 4.00%
Houses 1.90% 2.00% 2.00% 1.90% 2.00% 2.00% 2.00%
Retail 6.00% 5.90% 6.00% 5.30% 5.30% 5.20% 5.40%
Warehouse 4.80% 4.80% 4.70% 4.50% 4.30% 4.30% 4.40%
Office 4.80% 4.60% 4.60% 4.30% 4.40% 4.50% 4.5

 

During the initial post 2013 years, large scale investors, mainly from abroad, required a return of 6%-7%, but as the economy got better it was reduced to 6% and nowadays is around 5½% (commercial properties).

What is interesting is the return shown for villas to let, especially in the Paralimni-Ayia Napa and Paphos regions. These villas are usually not declared for tax purposes (even though that is illegal) since tenants (short term) do not benefit by declaring it. There is an increasing demand for these short lets and as an indication a villa of three bedrooms (not on the beach) in Protaras is let for €2,500-€3,000/week (during peak months) and ±€2,000 per week off season with a total let period of six months.

The more attractive the property and proximity to the beach, the longer the let period and of course the income. At the same time four-bedroom villas on the beachfront have a letting rate of €3,500-€4,000 per month (peak period) and €2,500-€3,000 off season. These rates refer to the Protaras area with a much lower scale for Paphos. Mind you out of the total income one must deduct approximately 25% for expenses/maintenance and agents fees etc.

Coming back to Famagusta, the region is the subject of a general upgrading including the under development Ayia Napa Marina, the marina in Protaras (pending its construction) and the much awaited golf course, all of which will add to the region’s attraction and value elongating the let season by even more. Will these rental levels be sustainable in the immediate future?

It is difficult to say since this upsurge of demand came about as a result of the large increase in demand for hotels. So it is not certain for how long this brisk demand will last, but in the meantime it is one of the better income producing options.
Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents, www.aloizou.com.cy[email protected]

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