Brexit: a scary thought be­comes a re­al­ity

Financial Mirror (Cyprus) - - FRONT PAGE -

I have been asked to ex­press an opin­ion of the ex­pec­ta­tions of the real es­tate mar­ket (2016), es­pe­cially now with the Brexit vote and how this would im­pact the sec­tor

Look­ing at the sta­tis­ti­cal data of 2015-2016 (up to May) we have the fol­low­ing pic­ture:

The over­all pic­ture for 2015-2016 is +25%. This is a sub­stan­tial in­crease, but one must bear in mind the low num­bers of 2015. Nev­er­the­less, it is an en­cour­ag­ing sit­u­a­tion. Out of the to­tal num­ber of 2355, for­eign­ers con­trib­uted ap­prox­i­mately 800 sales, i.e. 34%, a very large per­cent­age which in­di­cates the im­por­tance of the for­eign de­mand for the Cyprus real es­tate mar­ket. Hav­ing said that, in terms of value of sales, we are cer­tain that the per­cent­age of the for­eign buy­ers is much more (in ad­di­tion to the ac­qui­si­tions by Cypriot reg­is­tered com­pa­nies owned by for­eign­ers) per­haps reach­ing 70% of the to­tal (see for ex­am­ple ho­tels, mall sales, large offices, etc. as one ex­am­ple cal­cu­lated as one sale each). It would have been most use­ful if the Land Sur­veys Of­fice cat­e­gorised not only the value per sale per con­tract, but also the na­tion­al­ity of buy­ers, which will be a most use­ful tool for all, es­pe­cially for the mar­ket­ing peo­ple, de­vel­op­ers and oth­ers.

Based on our own ex­pe­ri­ence, I “sus­pect” that ap­prox­i­mately 20% of the for­eign sales are Bri­tish in terms of num­ber and the rest by other na­tion­al­i­ties, but in terms of value less than 10% are Bri­tish and 90% are oth­ers.

The per­ma­nent res­i­dency and pass­ports in­cen­tive is a ma­jor at­trac­tion, hence the in­crease in for­eign sales. This is ex­pected to con­tinue es­pe­cially if the Gov­ern­ment pro­posal to re­duce the min­i­mum re­quire­ment of EUR 5.0 mln (for pass­port) to 2.50 mln on an in­di­vid­ual ba­sis as op­posed to group sales, is adopted.

Much of the 2016 prospects will de­pend on the fi­nanciers’ fore­clo­sures, since this will af­fect the mar­ket in terms of over­sup­ply and with a com­pet­i­tive edge since fi­nanciers may of­fer lend­ing fa­cil­i­ties to go. Fi­nanciers must be very care­ful re­gard­ing the na­ture and vol­ume of the fore­closed prop­er­ties, since an over­sup­ply will re­duce prices, af­fect­ing their re­main­ing prop­er­ties’ se­cu­rity value. It would have been ideal for all the lenders to co­or­di­nate on this – but we doubt if it can be achieved (which is to their and the mar­ket’s ben­e­fit).

The tourist mar­ket, which is the foun­da­tion of for­eign de­mand, is in­creas­ing and so there is hope for fur­ther de­vel­op­ment. So, on this count the real es­tate mar­ket will not ben­e­fit by the Bri­tish de­mand com­pris­ing of ap­prox­i­mately 40% of the to­tal tourist num­ber, whereas the re­duc­tion of ster­ling value vs. the euro and any other con­se­quen­tial af­fects in the U.K., it will have a re­flec­tion on Bri­tish po­ten­tial buy­ers’ in­come.

In terms of the Brexit much of this will de­pend (on the real es­tate mar­ket) at what terms and time­frame the exit hap­pens, how much (if) the ster­ling pound will be de­creased vis-à-vis the euro, whereas prop­erty ac­qui­si­tions in Cyprus will be­come more ex­pen­sive. So, cer­tainly we will ex­pect a re­duc­tion of the Bri­tish de­mand, but, as I have said be­fore the Bri­tish mar­ket does not form part of a large per­cent­age – it will af­fect, how­ever, the lo­cal Bri­tish per­ma­nent res­i­dents and home own­ers, who might find liv­ing in the Eu­ro­zone is more ex­pen­sive, thus forc­ing some of them to sell and re­turn home to the UK. This sit­u­a­tion will also af­fect other hol­i­day home coun­tries pop­u­lar to the Bri­tish re­tirees and in­vestors, such as Spain, Por­tu­gal, Malta, etc. and com­pared with the Cyprus-res­i­dent Bri­tish of about 30,000 peo­ple and that of Spain with 600,000 peo­ple, one may get the pic­ture how the mar­ket will be­have.

It is early to pre­dict the con­se­quences, but over­all, 2016 will not be sub­stan­tially dif­fer­ent than 2015. We will have to wait and see whereas the pos­si­ble im­prove­ment of the UK real es­tate mar­ket is also a pos­si­bil­ity (lower ster­ling, lower cost real es­tate, thus more de­mand) which might help UK own­ers to raise more fi­nance for in­vest­ment abroad.

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