Income producing investments replace bank deposits
With the lowering of interest rates, now prevailing at 0.51% p.a. and with the signs of negative interest, as well as the lack of confidence in local banks there is a turn towards real estate investment properties for income.
Added interest for investment in real estate is also the result of a constant rise in rents for most properties, an anticipated (and speculative) increase in capital values in the future and the sense that it is no longer easy to expropriate properties (unlike the haircut on bank deposits).
Add to this, the various reports regarding some lenders’ instability due to their high exposure to non-performing loans (NPLs) and our “wise” MPs are causing part of the problem with the financiers, are increasing depositors’ worries.
The general picture of gross income for the real estate market (i.e. gross expected income p.a. in relation to the capital value), are as follows:
Antonis Loizou & Associates estimate 3-4% for residential apartments
2% for houses
5-6% for shops
5-7% for offices
4% for industrial units
RICS Statistics 4-5%
2.5%
5.7%
5%
4%
Hotel/tourist projects show return of around 10% (with uncertain long-term income).
Others – e.g. medical centres, small practices (500 sqm) for groups of doctors (due to the National Health Scheme) show at this point in time around 8-10% (supply is expected to increase, but so will demand). Similarly, the same rates apply to rehabilitation centres.
All these returns/rates assume permits availability and good location depending on the use and as such returns can vary – the more attractive and secure the investment, the less the expected return.
Regarding residential apartments, the returns can rise if they are close to local universities and colleges, where supply is nowadays limited. Notwithstanding increasing student accommodation, the numbers of students are also increasing at a fast rate.
Shops rates indicated are in commercial suitable areas, be it that the more commercial the property is, the higher the acquisition cost. On the question of size regarding flats, the highest in demand are the one and two bedroom units in the region of 70-90 sq.mts. units offering some views which are not easily to be found in suitable locations. Double size shops of around 70-80 sq.mts. and mezzanine are more in demand, due to their capability to be used for other purposes, such as cafes/take away units etc.
Offices is another attractive investment if they are in suitable locations, mainly within the town centres, with easy access, ample parking and quality (e.g. high tech units) since lower end offices are just not in ready demand. Most popular size 150-200 sq.mts.
The Airbnb concept is an investment to look at, especially in the towns and near the beach areas (complexes with common swimming pool and facilities, or individual villas of 3-4 bedroom with own pool and services are in top demand). This type of investment notwithstanding the high let out/agents cost, nowadays show a return of at least 10% on the investment (net of costs). Especially suitable for investors who can look after their own projects – care is needed however, pending the new Parliament’s measures on the subject (recent agreement with the Airbnb/villas to let and so on) including tax charges, VAT etc.
With an improving real estate market, one must consider the possible increase in capital values on such investments and this is another plus vis a vis cash deposits.
We have the option of investing abroad in real estate in counties that we are more known to, such as Greece, Romania and of course the favourite Cypriot investment place that of the U.K. and in particular London. Examining the local Cypriot way of investment wishing to “see and touch” their investment (and as such Cyprus is to be preferred), as well as foreign agents and managers who seem to overcharge and underdeclare the income (many examples) is a drawback.
At some point of time the Cypriot Co-Op (during the good old days) was placing adds, where the Co-Op was suggesting to keep one’s money in a plastic bag in a hole dug in the garden! Be that as it may, we are not far away from it, as circumstances appear from time to time.
Real estate investments also have problems, such as nonpayment or delay of rents and common expenses by tenants, costs for eviction, maintenance costs, etc.
Our experience has shown that a landlord should place greater weight on the quality of the tenant and their capability to meet the lease terms, as opposed to the level of rent. info@aloizou.com.cy
www.aloizou.com.cy