Do we want for­eign buy­ers or not?

Financial Mirror (Cyprus) - - FRONT PAGE -

I never cease to be amazed by what goes on in this coun­try, de­spite hav­ing seen so much in my en­tire 40 years of ex­pe­ri­ence and in­volve­ment in real es­tate.

At­tract­ing for­eign buy­ers in ex­change for per­ma­nent res­i­dence visas or pass­ports, started dur­ing the term of Pres­i­dent Tas­sos Pa­padopou­los in 2007. Af­ter that, the Christofias ad­min­is­tra­tion was against the mea­sure and de­spite our per­sis­tent ef­forts to im­ple­ment the plan, we were told dur­ing a sem­i­nar or­gan­ised by our of­fice in 2011 with about 400 par­tic­i­pants, in­clud­ing CIPA and of­fi­cers of the In­te­rior Min­istry, that “the Min­istry could not to ap­prove more than ten ap­pli­ca­tions a year” - ba­si­cally due to the pol­icy of the then gov­ern­ment.

The suc­ces­sor to that gov­ern­ment led by Pres­i­dent Anas­tasi­ades came up with an imag­i­na­tive set of mea­sures that came in hand-in-glove to the ef­forts to boost the strug­gling econ­omy and es­pe­cially the property mar­ket. This was an imag­i­na­tive plan from the Pa­padopou­los era, which the new ad­min­is­tra­tion en­hanced with new in­cen­tives, ad­di­tional tax breaks and other mea­sures bring­ing us to the cur­rent en­vi­able level where the po­ten­tial of this pack­age has yet to be fully utilised.

We sub­se­quently have for­eign in­vestors who showed a keen in­ter­est in our banks and bonds (if they hadn’t been around to res­cue the banks then the state would surely have de­faulted and de­clared bank­ruptcy) and some oth­ers who bought ho­tels show­ing great in­ter­ested and in­vest­ing in some of our lux­ury prop­er­ties (eg. Le Meri­dien, Amathus and oth­ers).

So, In­te­rior Min­is­ter Hasikos said that our econ­omy has ben­e­fited by around EUR 2.5 bln from this mea­sure. And what was the re­ac­tion of the op­po­si­tion par­ties? In­stead of con­grat­u­lat­ing the gov­ern­ment, they ex­pressed their usual ‘reser­va­tions’ ex­pect­ing some kind of apol­ogy from the Min­is­ter of In­te­rior. And yet, so far: • Two of­fice build­ings in Ni­cosia were sold in 2014 for EUR 12 mln to Bel­gian in­vestors who bailed out the owner who had se­ri­ous fi­nan­cial prob­lems. So, apart from the owner, the banks too se­cured fresh cap­i­tal.

• Three of­fice build­ings com­plexes, two in Ni­cosia and one in Li­mas­sol, were sold once again to for­eign in­vestors for the amount of EUR 25 mln, thus bail­ing the owner and help­ing the banks with fresh funds.

• Re­cently, the Land Registry build­ing was sold to a for­eign buyer for EUR 11 mln and again to the de­light of the lenders and of course the owner.

• We also heard that the build­ing hous­ing the Min­istry of Health, that had be­come a non-per­form­ing loan, was sold to the sat­is­fac­tion of the cred­i­tors.

• In ad­di­tion to th­ese “high level in­vest­ments” there have also been other smaller ones in the or­der of EUR 3-8 mln, which were mainly bought by Euro­pean in­vestors.

• And then we have the Chi­nese who bought and con­tinue to buy the lower cost homes and apart­ments mainly in Paphos for EUR 300,000 and helped to some ex­tent a re­cov­ery among the town’s de­vel­op­ers in ef­fect saving them from to­tal col­lapse which would have had a chain ef­fect on the banks.

• And fi­nally we have the Mid­dle East­ern buy­ers who con­tinue to show par­tic­u­lar in­ter­est in in­ex­pen­sive Lar­naca apart­ments mainly for re­sales which have re­mained on the mar­ket for years.

• And let’s not forget the two shop­ping malls that were sold for around EUR 200 mln with a yield of around 7%. So, what’s the prob­lem then? Surely, the banks that had dif­fi­culty to col­lect or re­cover their as­set-backed mort­gages and cer­tainly the seller must be happy.

I have not yet un­der­stood what the prob­lem could be, be­cause th­ese in­vestors do not want to buy the en­tire is­land, but spe­cific projects that of­fer a re­turn on in­vest­ment and which they can­not take away with them.

Th­ese in­vestors are turn to high qual­ity projects that guar­an­tee a steady in­come with an ini­tial de­sired yield of 6% (2013) on the cap­i­tal in­vested, which has now been re­duced to 4.5%. This is a very pos­i­tive out­come, be­cause it shows that the de­spite the re­duced risk, th­ese for­eign in­vestors ac­cept lower yields than those of 2014.

Just as ref­er­ence, the property in­vest­ments in Greece carry an ex­pected re­turn of around 10% of the ini­tial in­vest­ment due to the higher risk in­volved, while in other Euro­pean coun­tries with stronger economies the yields range from 2% to 3%. When de­posits do not earn more than 1% and even Switzer­land charges 0.5% for de­posits, it is clear that there is in­ter­est to in­vest in real es­tate by for­eign­ers who ex­pect yields of 4.5%.

There are many oth­ers who have large loans and are wait­ing for for­eign in­vestors to save them from the ex­or­bi­tant bor­row­ing in­ter­est rates of 8-13%, as well as the em­bar­rass­ment of go­ing through the fore­clo­sure process. So, in­stead, the op­po­si­tion par­ties in the House con­grat­u­lat­ing the ef­forts of this gov­ern­ment (and cer­tainly the pioneer Tas­sos Pa­padopou­los), MPs re­main some­what de­fen­sive.

So I can­not understand how some peo­ple can con­tinue to be em­broiled in petty pol­i­tics and do not care about the greater god of the coun­try and its ail­ing econ­omy.

Surely, th­ese for­eign in­vestors can­not re­move our prop­er­ties and ex­port them to their coun­tries, as they will now be obliged to re­main here and to man­age their in­vest­ments in such a way that suits them and will con­trib­ute to the lo­cal labour mar­ket, help pro­mote Cyprus prop­er­ties abroad, and con­tinue to pump money into the econ­omy as they are now per­ma­nent res­i­dents here.

Th­ese large-scale in­vestors do not care about the land or throw­ing us out of our apart­ments as all they seek is a good yield and q quick re­turn on their in­vest­ment. What we should really be con­cerned about is the dis­posal of the “loan pack­ages” and mort­gages which I men­tioned in my pre­vi­ous ar­ti­cle.

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