Cyprus-Forum.com

[coredump]

Does anybody have an idea about how many europeans already moved to Cyprus since EU accession?

[cyprusgrump]

This is my own view on it…

When I first came to Cyprus about four years ago there were plenty of signs for ‘Luxury Villas’ but if you followed the directions you ended up at a plot with a telephone number on it. Basically, you paid the developer and he built it for you.

Since then, everybody has jumped on the property bandwagon – villagers that were keen to sell me their field four years ago (I wish I’d bought it) are now developers in their own right and squeezing villas onto the land. Larger developers are putting up ‘boxes’ with no design element or thought into just about every square metre of land they can lay their hands on.

Consequently, while property prices have more than doubled in my village it is awash with unsold villas and new villas and apartments being started and completed every day.

In that period Cyprus has also joined the EU. While it makes it easier for European citizens (primarily the British of course) to move here as I did, the cost of living has increased significantly. VAT has increased from 10% to 15%; diesel has increased from 20c to 50c, etc. Of course there is also that 15% VAT on new properties. While the cost of living is still significantly less than the UK it certainly isn’t as cheap as it used to be (and as an aside, I see no benefits from the increased costs either).

I see ‘developers’ in the village that have started and completed their very first six ‘Luxury Villas’ all unsold and desperate to sell them as the repayments on their mortgage pile up. They are still asking CY£280,000 for them though – the equivalent of GB£330,000, quite a huge amount of money.

I simply don’t see a huge flood of British people coming here with GB£330,000 in their pocket – plus taxes and ‘extras’ of course – you’d need GB£400,000 out of your property in the UK to sell up, move, pay the extras and taxes on your villa, landscape the garden, buy a car, etc.

I believe there has to be a re-adjustment in the market price of villas. Some of the newer developers will simply slash their prices to attract sales and recover their outlay and the bigger developers while they will try and avoid it at all costs will have to follow suit.

[dolmadis]

so the pension fund contributions are in fact invested in a foriegn company. they cannot stop anyone doing this because a large volume of the pensions funds are tied up at present in long term contracts in foreign companies under indeminty Gaurantee,
in other words if the Government stop you as an individual investing your pension in a foreign company they would also have to stop pension fund managers doing it too,

According to a leading firm of IFA's in the UK the position is as follows:

The Chancellor’s U-Turn

On 5 December, in his Pre-Budget Report, Gordon Brown
indicated that residential property and ‘exotic’ investments
(such as fine wines etc) would not now be allowed as
investments in pension schemes. Although HM Revenue and
Customs’ Technical Note uses the term ‘prohibited’ about these
investments, they will not technically be prohibited, but will be
tax prohibitive. It is not just a question of these types of
investment being cost neutral whether made personally or
within one’s pension scheme. The potential tax charges of
putting exotic investments in a SIPP could be astronomical!

If a member does invest in this type of asset, the
consequences may be as follows:

• The member will be subject to an income tax charge at
40% on the value of the prohibited asset;

• The scheme administrator will become liable to the scheme
sanction charge, which will usually be a net amount of
15% of the value of the prohibited asset;

• If set limits are exceeded by the investment, the cost of
the asset may also be subject to the unauthorised payments
surcharge which is a further charge on the scheme member
of 15% of the value of the asset;

• If the value of the prohibited asset exceeds 25% of the
value of the pension scheme’s assets, the scheme may
be de-registered which would lead to a tax charge on
the scheme administrator on the value of the scheme
assets at the rate of 40%.

Some types of prohibited assets will receive transitional
protection from the new rules, although this is likely to be
conditional on not improving or developing the assets.Where
members have bought ‘off plan’ (i.e. already paid a deposit for
a property that is not yet built), the investment will only be
protected if it would be permitted under current rules.
However, it is more than likely that these will be in residential
developments and so not allowable under current tax rules.

The purchase of 100% of shares in a Company that holds
residential property is also prohibited.

So is there still a workable loophole that these IFA's have missed?

[Tuberider]

Thank you all for your posts, they are much appreciated.

Property is a sensitive subject and most people cannot think objectively when debating possible crash scenarios.

This is mainly because so much of our personal wealth is tied up in property, and we feel a kind of satisfaction when we see our assets rising.

We don't like to think that we can ever lose money on property, and we are constantly bombarded with nonsense such as 'property can never go down, only up' which we begin to repeat as a mantra, over and over until we believe it ourselves.

But history teaches us very different lessons.

Every property market in free capitalist systems experiences cycles, usually jarring ones. For many years Cyprus was a closed semi-socialist economy with many checks and balances which preotected the poor and kept out foreign capital. That has all changed since we applied for EU membership, and now we join the merry dance. We had a bitter taste of real market forces during the crash of the stock market, and now we are about the experience another.

I am not saying it will come about as fast as the CSE crash. Shares can rise and fall within a day, but property markets are like supertankers. They take a long time to turn and do so very slowly. But once they start there is no stopping them.

The remarks from Svetlana and others are duly respected and noted. But property investment 'specialists', estate agents and even banks all have a vested interest in talking up the property market. And why not? After all, you would never hear a car salesman tell a customer 'don't buy now, the price of cars is about to drop drastically. wait a while and see'. With sales talk like this he can expect an empty lot, and the same goes for our friends in the property business. They need to keep the buzz going to generate confidence and momentum (and of course commisions).

I do not begrudge them, we all must earn a living.

We may argue like my friend Michalis that the price of Cypriot property is not comparable to the price of property in Japan and England during their spectacular property crashes in the 90's. However this is irrelevant, as value must be measured relative to average income, and average incomes in Cyprus are very low. We can argue that property in Cyprus is a 'good investment', when we all know that rents here never cover the mortgage unless you whack down a hefty deposit, or buy a real bargain.
This is not an investment but a liability. You can often earn more by just letting your capital sit in a high interest account, and without the stress of running after tenants and tradesmen.

CyprusGrump makes some excellent and highly valid points concerning the oversupply of villas and apartments. Who will buy all these properties ? Certainly not the locals - they do not have 280k for a villa in the middle of nowhere (sorry but this is what Pissouri looks like to the average working local family - the middle of nowhere). British buyers are drying up, and somewhere, something has got to give.

I remember advising my friends to get out of the stock market while they were ahead, and they thought I was crazy when I cashed in and sold my shares for a nice sum. 'you are nuts !' they said. "We are about to join the EU, the only way for us is up !!' In retrospect, they all feel very silly.

I do not say that property is a bad investment. On the contrary, it can be a very good one. But buying in Cyprus right now is VERY risky. Time will vindicate me.

I wish you all an enjoyable and restful Sunday,

[rawk]

Well said Tuberider, with just one observatiob about your comment about property markets being like supertankers etc. Hot money flowed into Bulgaria in 2004/5 ( I put my hands up here) but suddenly now its flowed north to Poland and Estonia literally within weeks, Bulgaria didn't even make it into the "Place in the Sun", hot property investment list for 2006 much to the chagrin of investors. See their anger in the link below. No supertankers there!

http://www.mybulgaria.info/modules.php? ... &start=308

Regards

rawk

[Svetlana]

Hi Tuberider

My comments are not intended to encourage anyone to invest or buy property here - not that anyone would take notice whatever I or others wrote - but merely my view on the Market in 2006 and thereafter.

For me, property purchase is a strictly non-emotional activity, but I do agree people have over-optimistic views of the worth of their property generally.

The overall feeling I got from my visit to the UK was that the property market there is firming; but I was looking primarily at the SE and London, it may be different elsewhere.

Lana

[Radio]

I've never understood the justification for what I consider to be the artificially high value of the CYP£. It is not backed by gold reserves, and the country doesn't have a major industry to suport it.

[Svetlana]

Hi Radio

Most people agree the CY£ is artificially high; come entry to the Eurozone in 2008, there will need to be a sharp reduction in interest rates, which will devalue the CY£. This will make property cheap for foreign buyers and also make mortgages more attractive here.

Unfortunately, it will make fun trips and buying goods abroad more expensive

Lana

[Tuberider]

Svetlana

The property market in England is even more precarious than that in Cyprus. I think you are very very brave to be investing there right now.

Have a look at www.housepricecrash.co.uk

come entry to the Eurozone in 2008, there will need to be a sharp reduction in interest rates, which will devalue the CY£. This will make property cheap for foreign buyers and also make mortgages more attractive here.

As a global investor, surely you have heard that Euro interest rates are predicted to CLIMB to 3% this year? The ECB has already raised them twice since January ! So where do you get the idea that Cyprus rates will need to drop ? We should be on parity with ECB rates by the end of 2007, which means we are highly unlikely to see lending rates of less than 5.5% here unless the ECB slashes its base rate which is very unlikely due to inflationary pressures.

Look at the USA, Japan and England. The only way for interest rates for Europe is UP, as they need to prop up the value of the Euro !

[Svetlana]

Hi Tuberider

I suspect that a website entilted www.housepricecrash might have a slanted view of the Market LOL!

Lana