Still a Good Investment Option
The real estate sector has always played a key role in the Cyprus economy. This month marks two years since the beginning of the COVID-19 pandemic and here, Michalis Hadjipanayiotou, Chairman of the Cyprus Land and Building Developers Association, talks about the sector’s re-emergence and expresses cautious optimism for a strong recovery.
What’s next for the real estate market as we emerge from the COVID-19 pandemic? How does Cyprus compare with the rest of the EU?
As we approach the end of this pandemic, the Cyprus economy is on an upward trajectory and growing faster than the EU average. This is undoubtedly the result of a combined effort: the public, the Government, epidemiologists, medical staff, and the business community have all displayed an admirable degree of resilience and dedication in minimizing the impact of COVID-19. That’s not to say, however, that the pandemic has not left its imprint on our economy. We will need some time to recover and make up for lost ground but I remain hopeful. The development/construction sector has continued to play a key role in the country’s growth and I am confident that, with the right measures in place, we can overcome this crisis as we have done many times before.
Μore and more countries are simplifying their procecesses concerning property development, even for large, complex projects. How does Cyprus’ performance in this field compare to that of its competitors abroad?
Processes are, indeed, simpler and more efficient in some other countries. While it is important to recognise that things are improving in Cyprus, our processes are still lagging behind when it comes to advances in technology. Unfortunately, we have inherited a series of legal and administrative processes that have held us back for decades. Now that technology has well and truly entered every aspect of our life, it is illogical to resist improvements when dated procedures and bureaucracy are inconveniencing both buyers and sellers and, consequently, harming the economy. I hope that Government officials and the House of Representatives will acknowledge the necessity to digitise and simplify our processes in relation to the sector, from the issuing of building permits to property transfers. We need to outsource services wherever possible to make the process more efficient for everyone. Only then will Cyprus be able to cope with ever-increasing international competition. In fact, I believe that this, along with the investment law and additional incentives, will substantially help us attract more foreign investment.
One challenge in the current market is volatility. There are tremendous opportunities but uncertainty, due to the pandemic and geopolitics, makes this a difficult period for investors. How can this be successfully addressed?
There are always more options available when investing capital in a globalised market but weighing the risks and returns is crucial. Cyprus relies on foreign investment due to its size. I believe that certain sectors of the economy – including land development and construction – have significant investment potential for both locals and foreigners. Unlike the more mature markets of northern Europe, Cyprus offers property investments with returns akin to those in emerging economies. This makes it an exception to the rule, given that it is an EU member with a stable currency, a creditworthy banking system and low lending rates. With this in mind, I believe that our sector is a good option for anyone looking for a high-return, low-risk investment.
Do you believe that the recent problem of reduced VAT on residential properties will affect the market?
Last month, a bill reducing the VAT rate of 5% on the first 140 square metres, with a limit of 200 square metres on a new first residence, was presented to parliament. Fortunately for all Cypriots planning to buy their first home, the Minister is currently negotiating the reintroduction of the previous regime that was in force until 2016, which allowed for a reduction to VAT on 200 square metres with a limit of 275 square metres. The outcome of all this is, obviously, of huge relevance to both buyers and sellers. Talk of imposing a ceiling on value should not be discussed at this point, as from our point of view, there is no reliable data on the real cost of construction in Cyprus. With costs rising during the pandemic and the skyrocketing prices of building materials, the ceiling value as proposed will be too low, thus creating havoc in the market. Building is at least 20% more expensive since the recent increase in oil prices and the cost of transporting raw materials. We have seen a domino effect across the industry. So yes, the VAT issue is extremely important. Additional ceiling prices on homes will impact the economy and render it practically impossible for ordinary people to purchase a new property, leading to an artificial demand for old properties, which are not among the Cypriots’ top choices. From what I understand, this would benefit asset management companies when marketing their portfolios but lead to a significant number of negative consequences from a social, economic and environmental standpoint.
To what extent is the real estate sector in Cyprus keeping up with international trends related to sustainability and greater environmental protection?
On a global level, the land development and construction sector is increasingly integrating green practices, in an effort to reduce the environmental footprint of the industry. The local market is also heading in this direction and I must stress that, in many cases, private businesses in Cyprus are at a more advanced stage than the current legislation. A high percentage of businesses had foreseen the ‘green transition’ in good time, particularly those in our sector, where it remains current and relevant.
Cyprus already has ample advantages that enable it to be in the vanguard of this effort. Moreover, consumers themselves are also aware of this transition and have become more demanding when it comes to matters like the energy performance of buildings, the use of cold materials, renewable energy sources, etc. Energy upgrades to buildings also benefit the sector’s businesses, not only due to increased demand but because they themselves are able to appreciate the long-term benefits of creating sustainable urban and semi-urban complexes.
How have consumers’ priorities and sector trends changed in the wake of the pandemic?
The pandemic has changed every aspect of human activity and our sector is no exception. We are, after all, obliged to cater to our buyers’ needs. Remote working over the past two years – which seems to be here to stay – has most definitely influenced new trends. For example, we have seen increased demand for larger residential properties, something that was to be anticipated given that the average worker now spends more time at home. More space allows for greater comfort when two people are using it is a base for work, more so if the children are at home as well. We have also noted an ongoing trend for projects that allow buyers to combine their personal and professional lives more effectively. This was not curbed by the pandemic. Developments that are in proximity and well-connected to one another are still more attractive to people living in Cyprus. This trend is further reinforced by Cyprus’ aspiration to become a hub in the southeast Mediterranean, providing its well-known high quality of life to locals, as well as non-Cypriots choosing to live in our country.