Building density and real estate development

It is a fact that real estate development creates jobs and boosts the economy of Cyprus. Development is controlled by existing town planning zones, which set the building density allowed, land uses and so on – all of which are reflected in the value of real estate.

During the 1990s the overall building density was set at 220 per cent of the land area and after this, with the introduction of the town plan law, this percentage was reduced sharply, which resulted in less interest in real estate development and a rise in prices to such an extent that locals could not afford to acquire real estate.

Over the past ten years, this administration has introduced several relaxations in calculating the building density, thus achieving its increase.

But still, what we have today is well below the original 220 per cent density.

The rather short-sighted approach is still with us, with the recent introduction of the Paralimni new zones, where the building density for hotels was reduced from 70 to 40 per cent, followed by the so-called incentives, to make development more attractive, which resulted in the upgrading and expansion of the accommodation.

So, increasing the building density helps, provided it is used logically.

But then, for almost every added building density incentive, other restrictions were introduced, such as the requirement of public areas, distance from boundaries and more, almost nullifying the initial incentives.

By increasing the building density, real estate values also rise.

For this reason, we have suggested the introduction of taxation (20 per cent charge on the increase resulting from the increase in building density value), land which is not developed also to be taxed so that real estate owners are encouraged to dispose of them or to develop.

Objections raised by large landowners, including the Church, however halt such a progressive concept.

Regrettably there is no single body which understands real estate development in its entirety.

For example, when the government wants to increase the supply of residential units to let (to reduce the increase of residential prices and rents), investors who buy or develop residential units for rent are charged 19 per cent VAT, thus increasing their cost.

I have suggested the 19 per cent VAT should be reduced in such cases to 5 per cent (if for own use).

If the investor disposes of the property within ten years of acquisition, the balance of 14 per cent should be paid retrospectively to the government.

Then there is the sickening indifference of parliament and the government regarding the common expenses law which is unworkable and creates social and financial problems.

It is for these (and other) reasons that we have suggested the creation of a Deputy Ministry of the Interior whose job will be to improve the situation regarding lands office procedures and development.

With the system as is and with the indifference shown by most (including the Technical Chamber and developers), there is no chance for improvement any time soon.

Antonis Loizou & Associates EPE – Real Estate Valuers, Estate Agents & Property Consultants, www.aloizou.com.cy, [email protected]