Reasons Not to Invest in Property in Cyprus

We’re in a bad mood today thanks to tax bills and telecom providers so we thought we’d take it out on the Cypriot property market and give you some of our favourite reasons not to invest in property in (the Republic of South) Cyprus, because quite frankly there are quite a few compelling ones!

Yes, this article is about Southern Cyprus and not the Turkish Republic of Northern Cyprus.  So don’t get confused guys.  Right – reasons not to invest include the fact that tourism numbers are falling, property investors are scarce, the government’s left hand hasn’t a clue what the right hand is doing and policies and practices across the island are scaring would-be buyers, investors and visitors away.

The first thing to note is that Cyprus has a water shortage issue – it’s not addressing this issue seriously enough, and whilst tourists and holiday home owners are not being any more adversely affected than the locals, tourists and holiday home owners as well as would-be investors don’t actually have to put up with the problem.  They can simply vote by the very presence of their absence!  In other words, the fact that the Cypriot government is still largely ignoring the very, very, very real water crisis in Cyprus means that they are damaging both the tourism and property sectors of the economy.

Well done.

Next up you have the fact that the tourism market in Cyprus is shrinking before our very eyes.  Don’t believe people who tell you that arrivals are up and spending is up – the fact of the matter is, Cyprus is expensive to get to and it was always expensive to have a holiday there – now, thanks to the euro’s dominance against the pound, Brits are determined NOT to visit Cyprus because it just costs too much and they can get more and better for their money elsewhere.  Compounding the problem is a naive (?) government and desperate, (or greedy?) hoteliers, restaurateurs, bar owners and shopkeepers.  The government didn’t listen to Ryanair when they told them to scrap their airport charges recently – in exchange for up to 750,000 more tourists in five years time.  Nooooo, why listen, who needs three quarters of a million new visitors?  Errrm, Cyprus!  So, those who do make the 4.5 – 5 hour flight from the UK have to pay through the nose to get to Cyprus as cheap flight operators can’t make the route viable, and then they are faced by the expensive euro everywhere they turn in a nation that has become very well known for charging tourists much higher prices than locals.

Okay, so, no water, no tourists, what other reasons do we have for not investing in property in Cyprus?  How about the fact that the construction industry is constricting?  There has been a “slump in property prices” according to the Financial Mirror in Cyprus which reported in May that receipts from capital gains taxes on property deals fell 17% year on year in the first four months of 2008 and that income from property taxes fell 25% year on year.  Personally we think these figures are actually a little optimistic!  Speak to property developers on the island and they have sold very little in 2008 because the pound to euro ratio is all wrong, because British buyers are suffering from a slowing housing market back home, (and it’s largely Brits who funded the entire construction industry in Cyprus), and because the market has been hit by reports of fraud and the fact that the Land Registry takes forever to issue title deeds.  Gosh, anyone would think that foreign buyers are not actually welcome in Cyprus!  Official stats say that there has been an 11.7% decline in purchases of property in Cyprus by foreigners in 2008 compared to the same period in 2007 – again, this is probably an overly optimistic figure in our view.

Anyway, all that negativity aside, let’s look at reasons to still invest – well, the central bank has just pushed the loan threshold on second and holiday homes in Cyprus back up to 70%...that’s probably good news.  Then you could look at the fact that the Cypriot government and private sector has been actively encouraging in UAE, Russian and Iranian investment into property which resulted in strong numbers investing in 2007.  Oh no, wait, I forgot, the government then slapped a bit of a restriction on people from these nations actually visiting their properties didn’t they.  Oooops.  Oh well, maybe one day the Republic of South Cyprus will be a good investment again, until then isn’t it lucky we have the Turkish Republic of Northern Cyprus to invest in.

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