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Is it the right time for real estate investment funds?

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There are the parameters nowadays, which could make it the right time for the creation of small scale real estate investment funds in Cyprus.

Our opinion is based on the following:

  • Property prices have reached rock bottom levels for good properties and we do not expect any notable change in the immediate future
  • Financiers are offering real estate through swap deals or auctions at reasonable prices and those are subject to negotiations, usually coupled with financing
  • There is ample supply of all sorts of real estate type in all districts
  • There is the option of long-term finance
  • Interest on deposits has been reduced
  • Based on recent developments and projections, real estate prices appear to be on the increase (at least for certain properties)
  • There is a prevailing worry surrounding the solidity of European banks

With the above in mind and the, be it, limited finance available in the Cypriot real estate market, is it perhaps the time to examine the possibility of setting up small scale local real estate group investments?

We can suggest the following properties to start with:

  • Those in the seaside areas of the Famagusta region, like Ayia Napa, Paralimni, Sotira and Dherynia
  • Buildings for mid-term (at least 4-6 years) rentals to solid tenants, which show a return of 4 per cent gross
  • Second-hand residential apartments in select localities within towns, which need renovation or uprades, with a good chance of reselling. Avoid tower blocks which were aimed at the citizenship by investment scheme

Perhaps these funds could be created initially with the financier being the major shareholder, with an option for him to depart in 2-4 years. Since management will be in the hands of the financier, the other shareholders will most likely feel safe, as opposed to a if the fund was controlled by a private company or individual. The more attractive the fund to the market, the greater the demand for it will be.

If the financiers or majority shareholders guarantee a certain annual income for the first two to three years it will become even more attractive helping to secure an initial return, plus the expected capital appreciation and anticipated profit at the end for the shareholders.

Financiers could set up numerous such funds of various levels of equity investments. Larger funds could aim at higher value investments, such as hotels, golf courses, student halls, villas and so on

This set up could attract the big investors from abroad.

The idea needs to be properly studied but we think it is worth exploring especially for financiers and other cash rich investors.

Regarding alternative investment funds, although it sounds odd, agricultural fund investment should not be discounted outright. The problem with this fund is the small pieces of agricultural land.

If financiers get together and exchange ideas how to promote these agricultural plots as one lot in one area, it could be possible to come up with large holdings.

Agricultural investment will need a special study on soil suitability and produce quality. To this end the Ministry of Agriculture could help with expert knowledge, and the various subsidies and insurance is an added plus. Agricultural investments will need some persuasion but what else can be done with the various agricultural plots now owned by financiers and others lying in waiting?

 

Antonis Loizou & Associates EPE – Property Valuers, Property Consultants & Estate Agent

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