By Antonis Loizou FRICS
There appears to be increasing interest for Cyprus alternative investments. Real estate demand from wealthy buyers is active, ranging from the acquisition of top quality houses to office buildings (as an investment – for income). Other investors (mainly foreign) are looking over the island for other types of investment such as hotels, which are the top choice as the industry looks to have a positive future as tourist arrivals continue to increase.
This demand is expected to become more evident during the year 2017/2018 with hotel investments showing a return of around 10 per cent on the cost/value. At the same time, hotel owners are willing to sell their property and lease it back for a period of 10-15 years with a “guaranteed” average income of six to eight per cent. If the hotel is of a good quality and bearing in mind the expected increase in value in the future and depending on the deal, this is not a bad return considering that deposits abroad are around 1% p.a.
We even received an enquiry for a sea fish farm and another for a multi functional restaurant (i.e. six restaurants in one building), – both coming from abroad, whereas demand for agricultural land for produce is thin, but demand comes from far away places such as South Africa and New Zealand!
All these and other enquiries coming from abroad (and not only Russians/ Ukrainians but from other Europeans and Americans) show at least some kind of interest in the economy of the island, which, in turn will help the real estate market. The foreign demand nowadays is made up of other nationalities which include Chinese (hotel developments), Israelis (see recent acquisition of 3 hotels) and we even heard of an Afghani investor who bought more than 50 per cent of the shares of a private school/college.
To all these, added hopes are placed on the casino development, since it might place the island on another level (as Limassol Marina has done) whereas the recent Ayia Napa Marina is showing a new source of demand (Arab nationals). We must not get too enthusiastic and get carried away with all the real estate projects since certain projects, such a golf courses, have not shown the results and the demand that we were expecting and one wonders what are we going to do with the 6 new golf courses duly planned and some ready for development.
Foreign investors in particular do not necessarily ignore the Cyprus political problem or the ‘competition’ from the occupied areas, whereas the strike at Hellenic Bank and the problems created by unions put off interest in the sector.
The future of real estate/economy appears to be positive but we live in a region that has its problems which must be taken into account.
On the one hand we have these sort of positive signs and interest for top end investment properties and on the other we read reports for the pending sale of 6,000 units in forced sale procedures (which is bound to push down/reduce prices, but then who is to buy these 6,000 units with no available demand?).
We repeat our warning that the passports measure (and visa) which forms the basis of the real estate revival is not expected to remain as is after EU warnings whereas the VAT of 19 per cent on building land is another factor to be considered.
In order to reduce their NPLs the banks have appointed international firms in an effort to dispose of the properties on their books and their efforts will also have a negative effect on local real estate, be it positive, if successful, for the banks’ balance sheets.
So we are curious to see how this situation will develop over the next couple of years. Other European countries are suffering but none had the people’s deposits being confiscated as people lost their jobs and face an uncertain future.