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Returns on Property Investment (Cyprus)

Cyprus Property Investment

How to get a better Return of your Money with Property Investment in Cyprus.

Due to the lowering of interest rates from the 5% (Cy) interest on deposit (rates 4 years ago) to now 1%, a number of people and companies with cash available are looking for investments with returns.
This interest turns towards real estate which has been encouraged in addition by the rumors that some of the local banks are not safe to keep one’s cash deposited.

The bail-in of 2013 and the more recent Co-op crash has encouraged this. Such real estate investments which we came to know about from large scale investors from abroad originally were asking for a 6% return, mainly for office buildings let to grade A tenants and for mid-term leases (say around 10 years).
Since then their requirements are now lowered at the rate of 5% (still a high-income return) and again referring to large scale investments.

Originally the favorite type of investments for locals with returns was for shops, but with the numerous empty shops around (see the effects of the Malls on individual retail units) finding a sound tenant even for 2-3 years lease is difficult. Choice localities are few and far between as are quality tenants.

The level of return (i.e. the amount of rent) is, of course, important, but for our part and based on our experience the regular payment of rent is more important. So, pay particular attention to the tenant quality rather than the level of rent, since non-payment of rent (or breach of lease terms) takes years to correct through courts, the legal fees apart.

Bear in mind that statutory buildings (specified in certain areas only and for buildings completed by end 1999) the tenant has the right to apply to the rent control court to have it reduced in order to be in line with the immediate neighborhood rents.

So, in such cases, the court takes the average rentals i.e. the average independently when they were let. So, it is a sort of “mixed grill” of all sorts of rents – even rentals established 10-15 years ago, as well as more recent ones.

One way to bypass this obstacle is to set the lease period agreed with the tenant and the rent (say €100) but when the lease period ends to have a clause in the contract that the period is longer than the one agreed – say if the agreed period is 2 years for €100/p.m. each, the lease to refer to 3 years with the third year to have a rental increase to €130 p.m. in this case and if the tenant wishes to leave the premises he cannot opt for a reduction, whereas if he wants to extend the period, he must either come up with the hefty increase or he can renegotiate with the landlord.

Recently however it appears that holiday homes appear to show returns in the region of 6%. That is short holiday lets which are usually let at €1,000-€1,500 per week, less the agents’ fees and damages caused by the “who cares” tenants, the never-ending electricity cost apart.
This is a job for specialized holiday let firms but still, this is an investment showing reasonable returns net of around 4%-6%. An upcoming area for such lets is Ayia Napa and the Protaras area.

Houses of a 3 bedroom capacity with a pool and rather close to the beach are the tops in demand with the lease period extending during winter. If one is to assume €1,200 p.m. (3 bedroom) or €1,000 p.m. (2 bedroom) it makes good sense to tenants since it is approximately half of what the hotel cost is.

Because this new type of holiday is increasing, the hoteliers have just woken up to note on the one hand the numbers of increasing tourists and those who stay in non-licensed touristic establishments are showing 20% less (which means villas/apts direct lets).

It is becoming more interesting when one considers that most of these lets are tax-free (direct payment abroad).

The more the number of bedrooms (say up to 4-5 bedrooms) the better the return since a larger number of visitors can stay reducing their comparative hotel stay by even more. Regarding food cost, this is much lower than eating at the hotel (the beverage cost even less) and having a choice where to eat (eating at home apart).

The recent expectation for Cyprus through Airbnb has caused numerous people to opt for this option.
This is a good investment but one which might likely change in the future if pressure is built up by the hoteliers.

The regulations say that no property can be let for a period of less than 30 days to one tenant. Alas, as in many matters in Cyprus the law is not adopted, and the authorities do not bother.
Does it then pay to buy a complex of villas or apartments with private pools or even a large common one and operate it as residential lets for short periods? It is one investment worth looking into.

As an example, a friend of ours had a 4 bedroom house in the Protaras area up for sale at €650,000, but he lets the property (through agents) with a net income of €30,000 p.a. (tax-free we add).

So, he withdrew his house from the market since he has no financial issues. He bought a beach house on a lovely beach for €1.2 mln. and he is now letting for €3,000 per week and for an average let period of 8 months – netting approximately €40,000 p.a., out of the gross income of almost €100,000 p.a., a return of +4%.

Unless the law changes or at least it is implemented the hoteliers will be at a loss and of course the Government (no tax) and the local authorities who get % of rental (if declared by the owners).
Other popular areas for such investments is Paphos, with a similar return (slightly less than Protaras which has local interest).

So, there you are, buy holiday houses (not so much apartments) to let 3-4 bedrooms and seek purchase through the foreclosure opportunities which are abundant.

If large enough the investor can manage the project himself thus the 20% letting commission but then one must worry if the law is implemented plus the management team one must have.

For commercial properties (shops) pay particular attention to locations which are the subject of tourism developments, such as Limassol seaside area, as well as location nearby the Ayia Napa and Protaras Marina, Limassol town and Paphos Poseidon road as at Coral Bay-Mall road.

It is also worth keeping your eye on the banks’ real estate websites which now offer numerous properties for sale (some with tenants, some vacant, but easily lettable).

This article was first published on the Financial Mirror Website and all Copyright is theirs.