Do we want foreign buyers or not?
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.