Cyprus: Opportunities For Investment In Real Property In Cyprus

Cyprus, the third largest island in the Mediterranean, is situated at the crossroads of Europe, Asia, the Middle East and Africa. Its strategic location, sound legal system, excellent infrastructure and reliable communications, relatively low cost of living, superb climate and the friendliness and hospitality of its people are just some of the advantages that have contributed to its continuing development as an international business centre and as a tourist resort.

The island became a full member of the European Union on 1 May 2004. As a result of this move, seen as crucial to its continued growth, Cyprus is increasingly attractive to foreign investors, who can take advantage of the low tax incentives and relatively low level of taxation.

Man’s affinity with land stems from time immemorial and it has always been considered as one of the most precious commodities. As a finite resource, it is continuing to increase in value to meet the demands of a growing world population with rising social and economic aspirations.

In Cyprus, a suitable legal framework has been created to regulate the rights of occupation and ownership of immovable property and to protect the social, economic, agricultural and industrial interests of the island and its people, while allowing the involvement of the island in the international land market. It operates through a series of laws which are regularly amended to meet everyday demands and balance conflicting interests in this vital sector of the economy.

Cyprus has proved to be one of the more popular destinations for Europeans regarding holiday/retirement homes (it ranks third in popularity after Spain and Portugal) and, following its accession to the EU, there has never been a better time to invest in property there. Experience has shown that real estate prices have always risen after a country has joined the EU. The best example of this was Spain, where prices more than doubled in the years following the accession of that country.

In Cyprus as well as Spain the equity required is limited to 30% of the purchase price. Because the initial outlay is relatively low compared to the value of the property, it is possible to realise gains in the region of 80 – 120%, particularly when Cyprus’ favourable tax regime is taken into account.

Demand for property is rising fast. According to the statistics, sales doubled between the years 2000-2002 and doubled again between 2003-2004. The sales are expected to increase during 2005-2006.

Buying property in Cyprus is a safe and profitable exercise and offers the following benefits amongst others:

• The investment is secured by the laws of the Republic.
• Properties cost much less than in the UK, Portugal and Spain.
• Properties are easy to let as holiday homes. Income from lettings should more than cover any mortgage instalments.
• Good weather conditions (an average of 320 sunshine days) and Cypriot hospitality.
• Easy communication (Cypriots speak at least one extra language – mainly English, German, Italian or French).
• A low cost of living, an inflation rate of about 2.3% and an unemployment rate of about 4.7%.
• A low crime rate, 6% of that of the UK, 8% of Germany, 30% of Portugal and Spain.
• A European-standard banking system.
• Competitive quality of construction.
• A land registration system providing security of title/protection of ownership for foreign investors. Prospective purchasers are also protected by the Government and the courts.
• Very reasonable legal fees.
• The lowest company taxation rate in Europe (10%) and a low rate of VAT (15%).
• Exemption of the first CYP 10.000 of any profit from capital gains tax as well as inflation allowances.
• The double taxation treaties which Cyprus has signed with no less than 36 countries.
• A tax on pensions of 5%.
• No estate duty (inheritance tax) for people domiciled in Cyprus.

Foreigners (non-Cypriots) purchasing immovable property in Cyprus must obtain a licence from the Council of Ministers to acquire such property. Licences are granted to all bona fide purchasers for houses, flats, building sites or land up to 4,000 sq. metres. Since the accession of Cyprus to the EU the need to obtain license for land has been abolished for EU citizens, but not for houses or flats, unless the EU citizen is permanent resident of Cyprus.

When a foreigner purchases property in Cyprus the usual steps that a lawyer has to take in order to safeguard his client’s interests are as follows:

• Search on the title deeds of the property.
• Agreement on the final form of the contract, execution thereof and payment of the deposit.
• Stamp and deposit the contract with the Land Registry for specific performance.
• Prepare and submit the application to the Council of Ministers for a licence to acquire the property. The application is made in the prescribed form, accompanied by a copy of the contract, title deeds, plans and other necessary documents. The licence takes 6-7 months to obtain, but it remains a formality especially for EU citizens.
• On obtaining the licence and on full settlement of the purchase price, attendance at the Land Registry to transfer the property into the name of the client.

Following the above steps is important, as if a purchaser or his lawyer stamps and deposits the contract with the Land Registry within two months from the date of signing the agreement, the legal rights of the purchaser are safeguarded and guaranteed by the laws of the Republic. The purchaser has the remedy of specific performance in the event of the seller’s non-compliance with the contract.

This reference to some aspects of the legislation of Cyprus on real estate and property does not, by any means, exhaust the subject, neither does it offer reliable information which may be acted upon without professional advice and guidance, especially as the laws in question are constantly being amended. The accession of Cyprus to the EU on 1^st May 2004 has already brought, and is expected to bring more, substantial changes to both the relevant legislation and the applied practice and policy concerning the land market.