Cyprus estate agents say rent control hinders investments — law “traps property owners”

Rent control in Cyprus has turned into a cumbersome obstacle, casting a shadow over the local property market and stifling both development and investment opportunities, according to the Cyprus Real Estate Agents Registration Council.

Specifically, the council referred to the Rent Control Law of 1983. This law intervenes in the relationship between landlord and tenant, imposing certain obligations on them.

The main purpose of the law was to protect the tenant from abuses by the landlord, especially during the period following the Turkish invasion, when refugees needed to be shielded from any exploitative practices.

“Rent control has evolved over the years into a painful saga, now plaguing those involved in Cyprus’ property market as it poses numerous issues,” Cyprus Real Estate Agents Registration Council president Marinos Kineyirou said.

“Unfortunately, it continues to apply in our country despite its initial purpose – established in 1974 to protect refugees from exploitation – becoming obsolete years ago,” he added.

Moreover, he stressed that “it’s time to abolish this outdated measure, which burdens the real estate sector”.

Understanding the ramifications of rent control, Kineyirou explained, necessitates delving into the foundational principles and parameters of the legislation.

Firstly, he noted that not all properties are affected, as areas covered by rent control are determined by a Cabinet decree.

Moreover, he stated that when a property falls under the purview of rent control, it triggers specific outcomes.

A tenant meeting certain criteria becomes a statutory tenant, entailing limited circumstances under which they can be compelled to vacate the premises as per the law.

In addition, determining statutory tenancy hinges on several conditions. These include the property’s location within a rent-controlled area, and its construction date predating December 31, 1999.

The property must also have been leased or offered for lease on or before December 31, 1999.

“The existence of rent control automatically creates both tenants and landlords of two different classes,” Kineyriou said.

“This occurs because the legislative regime differs in rent-controlled areas compared to non-rent-controlled areas,” he added.

He noted that in rent-controlled areas, tenants are considered statutory if rental payments are up to date, meaning that it is nearly impossible for the property owner to reclaim their property.

In simple terms, he continued, they cannot unilaterally decide that their rental agreement is complete and should no longer apply, after the original contract period is over.

“One might reasonably ask, why would a property owner want to lose a tenant who pays rent regularly? The answer comes from the things we observed in the property market. A property owner may want their property to pass on to their children, need to sell it to repay a loan, or simply want to stop renting it out to utilise it as they see fit,” Kineyirou stated.

“It is worth noting that the owner of such a property cannot renegotiate the rental fee unless there is a decree of the Cabinet authorising it and specifying the adjustment of the rental fee upwards,” he added.

He also noted that “it is indicative that from 2013, this adjustment percentage stood at 0 per cent until May 2023”, essentially freezing the rental price up until that point, before a decree by the Cabinet set the increase rate at 6 per cent for the 2023-2025 period.

“All of the above is enough to deter anyone from investing in the real estate market in areas subject to rent control,” Kineyirou said.

“These properties are colloquially referred to as ‘difficult to sell‘ as investors do not want to be subject to the provisions of an outdated legislation that affects the utilisation and ultimately the return on their investment,” he added.

Furthermore, he said this is why “property owners subject to rent control are often self-identified as trapped property owners”.

“Unfortunately, the problems concerning owners of rent-controlled properties are not limited to them alone,” Kineyirou stated.

He noted that “under the fear of rent control, investors generally avoid properties that were built before December 31, 1999, resulting in a broader impact on the market”.

“Therefore, it is necessary for the state to provide a solution, recognising that the institution of rent control and the country’s development model are not aligned,” the council president concluded.