The haircut imposed on Cyprus by the EU in 2013 which coincided with a burst in the real estate sector bubble saw a sharp decline in prices and transactions during 2009-2013. Prices continued to decline through 2014 and 2015 but, the rate of decline began to level off in the second half of 2015, indicating early signs of recovery. Stabilisation continued throughout 2016, signalling strong signs of a full recovery.
Since the financial bailout of March 2013, Cyprus has been charting a steady path to recovery and is fully focused on restructuring and revitalising its economy. Cyprus offers corporate governance as a compelling proposition for global companies and with new investment opportunities in tourism and the developing oil and gas sector, there is every reason to believe that Cyprus will emerge from this crisis stronger than ever. At the end of this painful process, we firmly believe that the Cypriot economy will be adjudged in the future as a success story.
A combination of legislative changes together with strategic planning by the construction industry mean this is the optimum time for overseas investors to move into Cypriot real estate. Cyprus, with its year-round sunshine has long been a magnet for international investors, expats, retirees and those looking to enjoy a second home in a mild climate. Today, the sector is targeting high end clients with a range of exclusive villas in five-star complexes, high-rise buildings, golf courses, seafront developments and luxury townhouses.
Prospective purchasers will be attracted by recent changes to immoveable property tax (IPT). A new law was passed in July 2016 to cut property taxes by 75% and abolish them altogether in 2017. New property legislation was also passed in 2015, ramping up protection for buyers in Cyprus, allowing owners to apply for their own title deeds. Thanks to the new amendment, the process is set to become more efficient while giving prospective buyers peace of mind and security.
Significant changes in the regulatory environment affecting the development of the property funds in Cyprus will be explored to provide participants with the insight concerning the various parameters for establishing and operating a regulated fund.
Despite the unprecedented opportunities currently being offered by the oversupply of industrial and commercial properties the growth of listed property funds is still at its infancy. This condition prevents many foreign institutional investors from tapping into the Cypriot property market but also many local investors that seek investments that offer greater liquidity opportunities.
The experience of the past seven years has shown that the banking and the real estate sector in Cyprus are strongly interlinked and that the restoration of the banking system is vital and necessary for the sustainable recovery of the real estate market. Prices in real estate can only recover once the uncertainty in credit markets, bolstered by the banking crisis, subsides. It is therefore pivotal that we arrive at a productive and efficient regulatory framework dealing with mortgaged property as soon as possible.
Following the practices of many banks around the world post-crisis, Banks in Cyprus have adopted a Debt-to-Asset Swap strategy to reduce their NPLs (Non Performing Loans). As a result, REOS are increasing rapidly in Banks portfolios. The Banks target is to manage efficiently and dispose the REOs as soon as possible. The implications in the real estate sector are tremendous due to the high supply that will be created and the conformation of the prices and the values of real estate assets.
Compared to the previous scheme, thresholds are considerably lower (reduced from €5mln to €2mln), and comprise of a more inclusive set of criteria. A minimum investment of at least €2,0 million must be made for the purchase or construction of buildings, or for the construction of other land development projects (residential or commercial developments, developments in thetourism sector) or other infrastructure projects.