Buying
Property in Cyprus:
A Guide For The Inexperienced Investor
by
Stuart Gray, October 2004
IMPORTANT
WARNING:
The contents of this report have been compiled in good
faith by Investorsoffshore.com to provide assistance
to investors, but do not constitute investment advice
or recommendations. Investors should not rely upon the
information given in order to choose types or routes
of investment but should make their own independent
enquiries before making choices. Investorsoffshore.com
has taken reasonable care in researching and presenting
the information herein but makes no representations
as to its accuracy and accepts no liability for actions
taken or not taken as a result.
 Situated
at the eastern end of the Mediterranean and lying approximately
100 miles off the southern Turkish coast, the island
of Cyprus has in recent times expertly combined business
with pleasure by carving out a niche as a popular location
for offshore business whilst taking advantage of its
natural beauty and climate to become a busy tourist
hot spot. Its long history has seen the country absorb
an eclectic mix of influences from Ancient Greece through
to the modern era when it became an important military
and strategic base within the British Empire at the
crossroads of Europe and Asia.
A
notable British presence remains to this day and Cyprus
has become home to a large expat community (estimated
at around 50,000), while British tourist trade accounts
for the overwhelming majority of the country's tourism
income.
A
look at the Cypriot climate and it's easy to see the
attraction: average temperatures only dip below 70F
(21C) between November and April, and the country can
boast on average 300 days of sunshine per year. English
is also widely spoken by the local population, and the
legal and land registry systems are largely based on
British practices. What's more, luckily for the Brits,
they also drive on the left side of the road!
However,
it must be remembered that when we talk about Cyprus,
we are for the purposes of this feature only talking
about the south. The country has been divided politically
since, in Greek eyes, the Turks invaded and took control
of the northern third of the island in 1974, and to
all intents and purposes the island has remained two
distinct countries ever since. Whilst moves are (slowly)
afoot towards a political settlement, and restrictions
on movement and trade over the demarcation line have
recently been lifted following Cyprus' entry into the
European Union, it is uncertain when the island will
become fully integrated.
It
seems certain that Turkey will be required to put in
place compromises in certain areas concerning Cyprus
if it is to - eventually - be accepted as a member of
the European Union. Whether this will come to pass,
however, remains to be seen.
That
said, the political situation should in no way act as
a deterrent to potential investors in the South. In
fact, the country has been rapidly growing in popularity
for property investors and this has been borne out by
steadily rising prices. So what do you get for your
money? In 2004, about 130,000 Cyprus Pounds (EUR224,000,
USD278,000, GBP154,000) would buy you a detached three
bedroom dwelling, although expect to pay more to get
near the beach. In the north, the equivalent property
could at that time be picked up for around CYP90,000,
with prices here are rising fast, albeit from a low
base. However, there are significant risks attached
to buying in the North which will be explained later.
Whilst
there are no hard and fast rules governing the purchase
method of property in Cyprus, one will typically buy
through an agent or developer, or a partnership of both.
Agents typically charge the buyer a commission of 5%,
although an extra 3% may be charged if a developer is
also involved. However, fees become more negotiable
when the market cools. There is nothing to stop a buyer
dealing directly with a seller, but this is not recommended,
as the land registry system is somewhat bureaucratic
and best tackled by a professional representative. Legal
fees are likely to be in the region of CYP600 for a
normal transaction.
Obtaining
finance for a property purchased in Cyprus is relatively
straightforward, and thanks to the country's British
connections, most bank staff speak reasonably fluent
English. Typically, Cypriot banks will lend between
60% and 80% of the value of the property with the term
usually fixed at seven to ten years, although longer
repayment periods can be negotiated. As things stand,
it would be very difficult to obtain a Cyprus mortgage
from a non-Cyprus bank. The country's accession to the
EU means in theory that any restrictions on capital
transfers or interest rates should no longer apply.
In practice however, it is taking longer than expected
for the domestic banking industry to fully adjust to
the new environment.
There
are a number of taxes that are associated with the purchase
of property in Cyprus. First, there is a Real Estate
Transfer Tax. This is necessary to transfer the freehold
into the name of the buyer and is levied on a progressive
scale up to 8%).
For
residents there is an Immovable Property Tax based on
the value of the property at a rate of 0.2% between
CYP100,000 and CYP250,000; 0.3% up to CYP500,000; and
0.35% over CYP500,000. The first CYP100,000 is exempt.
The
buyer is also liable for stamp duty.
Depending
on the size of the property, local authority taxes per
annum vary, and cover refuse collection, sewerage, street
lighting etc.
When
the time comes to sell, capital gains tax is charged
on disposals of real property in Cyprus and shares in
companies owning real property in Cyprus. The base date
for calculating the acquisition cost of real property
is 1st January, 1980 or later acquisition.
The
tax rate is 20% of the chargeable gain as adjusted for
inflation unless the gain is already liable to corporation
tax, but certain lifetime exemptions apply to individuals
for the disposal of agricultural land and main residence.
The first CYP10,000 of a gain is exempt. This exemption
limit rises to CYP50,000 if the seller has lived in
the property continuously for the previous five years.
Further allowances are granted in relation to transfer
fees, inflation and improvements made to the house,
but the total exemption cannot exceed a CYP50,000 limit.
Capital gains tax does not apply to profits from the
sale of overseas real estate by residents who were not
resident when they purchased the asset.
Since
Cyprus joined the EU, residency and work permits are
no longer required of EU citizens. However, for non-EU
citizens, employees of entities in Cyprus require 'Temporary
Work and Residence (TRE) Permits', which are issued
by the Central Bank. For this purpose, employees are
categorized either as Executives or Non-Executives.
In
effect, executives are defined as senior management,
and only three are permitted per company unless the
Central Bank can be persuaded otherwise. The minimum
age for an Executive is 24, and the minimum salary is
CYP12,000 per year. In both cases, a fair amount of
documentation is required by the authorities and permits
are normally issued for 2 years, renewable for a further
three years.
Of
course not everybody investing in Cypriot property is
doing so with the intention of living there, and many
investors (mainly British) will rent out homes whilst
staying put in their home jurisdiction. Rentals in Cyprus
will generally yield around 8% gross. After various
management fees and costs have taken a bite, yields
are closer to 5%.
This
also brings up the thorny issue of tax. Few countries
tax their citizens purely on a territorial basis (that
is, only on income obtained from within the country
of residence), and rental income from a property let
in Cyprus will almost certainly attract income tax in
your home state should you choose to remain there, not
to mention capital gains tax when the property is sold
on. In Cyprus itself, income tax is levied on a progressive
scale up to 30% on income above CYP20,000. The first
CYP10,000 is exempt. Meanwhile, pensions are taxed at
5%.
Finally,
we must address the issue of investing in the North.
With the process of rapprochement between the two communities
underway, many brave (again mainly British), souls have
chanced their arm with an investment in the northern
property market. Whilst there are unquestionably many
property bargains to be had in the beautiful and still
largely unspoilt north, a note of caution: the risk
of losing your entire investment is a very real threat
unless you have a cast iron guarantee to the title.
This
is because the Turkish Republic of Northern Cyprus is
legally recognised by very few countries except Turkey,
and therefore the legal position of title deeds issued
in the TRNC over the last three decades is precarious
to say the least. A lot will depend on Turkey's entry
into the European Union, if and when it happens.
Since
border restrictions were lifted and Greek Cypriots have
been allowed to cross the demarcation line, many have
visited land or homes lost after the Turkish invasion,
and may be expected to press for restitution or compensation
in any negotiated bi-communal settlement. Therefore,
buying in the north is probably only for the more determined
or adventurous bargain hunter.
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