Incentives are needed to solve the rent crisis

Rising rents and the lack of apartments available for rent are a given. Not only is the situation not being resolved but it looks to be getting worse. This both causes issues for locals, but also makes it difficult to attract foreign residents, especially high-income earners and staff for the hospitality industry.

Adding to the problem are college and university students who are finding it difficult to afford the rising rents.

These and other related issues regarding renting, such as evictions and tenancies, are an obstacle for the improvement of the economy. Government goals such as attracting foreign students, foreign skilled workforce and hosting Europeans/Ukrainians due to the prevailing situation cannot be achieved in this environment.

So, we need to increase the supply of rental units, since in capitalist economies like ours, rent levels are determined by supply and demand.

So how do we increase the supply? It has to be through the private sector. Both the land development organisation and the various municipalities that try to offer cheap rents by offering municipal units, have very limited supply possibilities and will soon face problems regarding distribution and management of the units.

An example to avoid is that of refugee housing. After the transfer of the units to beneficiaries, there have been huge compliance problems with the management regulations.

In order to increase the supply, incentives are needed which, however, must not financially burden the state. Perhaps it could start with 1,000 applications for a subsidy for example, but would most likely have to increase to more than 10,000 with constant political pressure to satisfy as many people as possible.

My proposals, which come from 42 years of practical experience in the development, sale and management of construction projects, are based on the realities and not theories.

Here are some recommendations:

• Projects to build units that will be for rent could be entitled to an increase in the building factor by at least 20 per cent and a reduction in the requirement for parking spaces by 50 per cent.
• Units erected for rental purposes could have a 5 per cent VAT rate, instead of 19 per cent, on the cost of construction, with the condition that they will not be made available for sale before a period of 10 years passes. If they are sold within this period, the difference shall be owed.
• The so-called minimum areas for the purpose of renting should be reduced by 30 per cent from the current requirements.
• Units benefiting from these measures should not only be new projects, but also individual existing units to encourage private projects that can possibly be achieved by expansion.
• In areas where the shortage issue is particularly serious, tax incentives may be offered for a period of 5 years. Depending on the shortage in the area even a 30 per cent tax reduction could be offered.
• The problem of non-payment of common expenses is well known and for this reason we recommend that new units for rent be exempted from the protection of the law with eviction being possible three months after non-payment.

These are some of our own thoughts and we hope that the would-be presidents of the Republic will take them into account.

Antonis Loizou & Associates EPE – Real Estate Appraisers & Development Project Managers, www.aloizou.com.cy, [email protected]