Healthy returns from sunny Cyprus

A healthy Mediterranean climate and the low cost of living make Cyprus a good bet for a holiday home. Just don’t expect to make a large profit if you decide to sell up early, writes Natalie Moore

For more than a century the British have favoured Cyprus as a year-round destination. Tucked away in the eastern corner of the Mediterranean, this 9,250 sq km island is a cultural blend of the Middle East and the west, with a rich history formed by various great empires—Assyrian, Persian, Roman and Byzantine to name a few.
The island’s strategic position drew the British government to forge a deal with the ruling Ottoman Empire in 1878, taking over its administration. Today it is the endless summer, English-speaking locals and burgeoning new property developments that attract investors, both big and small.

Cyprus was divided in two after Turkey invaded in 1974, forcing the indigenous Greeks into the south and its Turkish inhabitants to the north. The south is now an independent sovereign republic, and has been a member of the EU since May 2004. Its historical links with Britain give it a legal system and land registry similar to our own, making it a relatively straightforward location for property investors.
Cyprus is easy to get to from the UK, with five airlines operating direct, four-and-a-half-hour flights to the south, plus several charter carriers. With more than 300 days of sunshine a year—up to six hours a day in winter—it’s no wonder that more than 1.5 million Brits visit the island annually.

The last few years have seen an influx of British property investors in Cyprus but there’s still great potential for growth, says Yiannis Kalyvites, sales and marketing manager of property developer Cybarco.  “Between 1999 and 2004, capital appreciation was averaging 65 per cent, which was the highest in any European country. It’s still a good investment opportunity because overseas demand for property continues to grow along with strong local interest. Appreciation currently stands at around 15 per cent.”

Most people own their homes in Cyprus but—according to property research and investment company Property Secrets—as in the UK, many are being priced out of the market, guaranteeing a healthy rental market. Rental prices have increased 40 per cent in the last four years according to Property Secrets: a promising prospect for the long-term investor.

Real estate along the southern coastline is most in demand. On the western side, Paphos has a relatively mature, high-end market but new developments continue to spring up. The towns of Limassol and Larnaca, further east on the south coast, also offer good investment opportunities, whatever your budget.

“Paphos is the most popular resort for second-home ownership because it has a beautiful natural landscape with a contrast of sea and forested mountains,” says Orestis Rossides, UK director of the Cyprus Tourism Organisation. “Although less rural, Limassol and its surrounding villages on mountain slopes is also a popular choice.” Simon Tweddle, head of research and investment at Property Secrets, adds:  “The eastern region of Paralimni/Famagusta is starting to catch up and, with only one seventh of the number of expats you’d find in Paphos, it has huge potential.”

Off-plan properties can range from £80,000 for a one-bedroom apartment with use of a shared pool to around £400,000 for a three- or four-bedroom villa with a private pool and garden in more sought-after areas. “Holiday rental returns typically range from four to nine per cent,” says Kalyvites. “But Cybarco would offer a guaranteed return of four per cent if we took on management of the property. We can also fully furnish the apartment or villa for a few thousand pounds more.”
Some experts say that investors looking for a quick return should be wary of buying in Cyprus. David Cox, director of overseas investment specialist Property Frontiers, explains why: “Before Cyprus joined the EU, there was a boom in Brits buying property: everyone wanted to get in on the market early, expecting prices to go up after accession. Some made good returns but there are fewer opportunities now and it’s a better buy as a lifestyle choice. Investors all want to buy off-plan to make bigger returns, but selling a property on afterwards is more difficult now than before.”

Cox says that the majority of people buying now want properties as second homes or holiday homes, and advises that any current investment should be seen as a mid- to long-term plan. “Mortgages are readily available and interest rates are quite good, but it would best suit those who don’t need to sell quickly.”

Investors also stand to make greater gains on properties that were planned before 2004. “When Cyprus joined the EU it had to put VAT on properties, but those with planning permission prior to 2004 are exempt,” says Cybarco’s Kalyvites. “Stocks of these properties are depleting so it’s best to think about buying sooner rather than later.”
Despite recent increases, property prices are still at least 30 per cent cheaper than in Spain, and on the Turkish side of the island they are even lower. But while the self-styled Turkish Republic of Northern Cyprus (TRNC) is less developed and more rural than the south, property buying is a minefield there as the legal system has imposed strict restrictions on the amount and type of development permitted.
Disputes continue in the north over land that, pre-1974, was owned by Greek Cypriots, and some buyers have been caught in the ongoing wrangling over who owns which pieces of land. You might find that your new villa has been built on a plot belonging to a Greek Cypriot who wants it back. This may not be enforceable today, but investors should ensure that they are buying on Turkish-owned land in case of future deals between the two sides.

Buying in Cyprus

Pros
• A sound legal system, inherited from the Brits, means your investment is likely to be safe
• Rental prospects are good with annual yields of four-to-nine per cent
• Long-term economic growth is estimated at four per cent, higher than many other EU countries
• English is widely spoken

and cons
• Properties planned after 2004 are subject to extra VAT of seven per cent
• It’s a fairly mature market so emerging economies such as Montenegro, Grenada or Belize offer better returns
• Buying in the Turkish north is subject to many restrictions and the legality of investments can be difficult to determine