Sale and rental of government offices an option to consider
This was a completely uneconomic method, that was not in the interest of the state and I have already written extensively on the matter, citing numbers etc. that show the construction of government offices was not in the interest of the state. There is a perception that the construction of offices on public land “halitika” (hence without the added cost of buying the land) and then the labyrinthine procedures in build-operatetransfer projects (with endless objections, appeals, arduous architectural competitions, etc.) was the best solution. This approach did not take into account the value of land, the non-payment by the owner (state) of income tax and various property taxes, which is why this method wrongly seemed that it was advantageous to the state. The reason is quite simple: buildings and the construction technology develop rapidly and in the end the state will be left with an out-dated building that will be demolished after 25-35 years, as opposed to renting and the state services moving to new premises at the end of its lease and according to its needs.
If the state borrows with one interest rate, even at 3-4%, it makes sense to offload some government owned offices at whatever amount, which will yield the buyer or investor with a gross return of 4-5%. These buildings can be sold with the government remaining as a tenant (sale & lease back) for a period of, say, ten years with a right to renew for another two terms of 5 years + 5 years.
Assuming that the investor will receive 4.5% in rent, but exempt from income tax and property tax, the cost for the state will be below 3%, which is the cost of borrowing even under present high conditions. It is not unreasonable to assume that some government-owned offices could be sold to raise an amount of around EUR 500 mln, thus partly meeting the demands of the international lenders for privatisation or sale of non-core assets. These sales may even include the offices of some semigovernmental organisations with the same reasoning, ie. to increase the total income perhaps closer to EUR 1 bln.
It is also safe to assume that there is a somewhat but growing interest for such investments mainly by foreigners, either towards acquiring Cyprus citizenship and passports or as a purely investment deal due to the low deposit rates and the liquidity levels being in the range of EUR 10-50 mln. We have already seen such examples in the hotels sector, as well as some office complexes (at least four sold in Nicosia and three in Limassol). This should not come as a surprise since this approach is already applied in another format for BOT projects whereby the investor holds the property for 20-100 years (as in the case of the marinas) and then plans to return the entire property and project to the state.
So, the central offices for the Land Surveys Dept., new office blocks for the electricity utility EAC, the district court houses in Larnaca and Paphos (which have already started to show their age in terms of deterioration and unsatisfactory size) is a thought that should be considered. Perhaps it is only in our mind when such ideas are rejected on the outset, but a list of assets has already been submitted to the Troika to show as collateral for state loans. Hence, we have already entered the process of offering suitable properties.
Having in mind that there is no longer any interest in the notorious “prime fillets” of state properties, at the very end we might be forced to sell these assets at lower prices. There are, however, several parallel issues that need to be clarified first, if, for example, the plot had been bought through expropriation, in which case there could be an obstacle in the sale, while alternatively the sale could be turned into a lease at an annual 1 euro a year, also on long-term basis of, say, 100 years.
It will be very difficult for some to “digest” this approach and not ignore the political reactions, especially of the leftist parties. But on the other hand, what choices do we have? Now that deposit rates internationally are around 1%, a yield of 4-5% with the State as a tenant (regardless if it is struggling at present to survive economically) is an opportunity for several foreign investment funds that may not be available in future.