It is manifested by the improved fiscal indicators that the Cyprus economy is slowly entering a path of recovery, although challenges still remain. In particular, the Cypriot economy recorded growth in the first quarter of 2015, for the first time since the second quarter of 2011, despite contrary projections of the European Commission that the economy would shrink by 0,5% in 2015.
The adoption of the insolvency framework by the House of Representatives and the implementation of the law on foreclosures last April, have resulted to a staff-level agreement in May, during the sixth review mission, in relation to Cyprus’ Economic Adjustment Programme.
Following these developments, the yields on the Cypriot bonds reached a five year low, as the yield on the Cypriot 10-year bond (maturing in 2020) in the secondary markets fell below 3,5%. Moreover, following the approval of the European Stability Mechanism in the framework of Cyprus adjustment programme implementation review, the Central Bank of Cyprus has begun purchases of Cypriot government bonds in the secondary market, in the context of the European Central Bank Quantitative Easing Programme (QE). This will allow the Cypriot economy to be safeguarded against any turbulence in the eurozone and facilitates its next attempt to issue government bonds to the international markets.
Confidence in the real estate market seems to be improving. There are indications that property prices and rental rates have reached their lowest points, however the excess supply of properties in the market, as well as the practical implementation of the insolvency framework and foreclosure laws through the auctioning of the mortgaged assets is expected to influence the market. On the one hand, it will attract investments and financing to new projects, that were postponed because of financial difficulties and, on the other hand, the process may put pressure on the prices of specific kinds of properties.
Building permits in Cyprus have demonstrated an overall increase of 5% and 13% both in respect of value and square meters respectively, during the first four months of 2015, compared to the corresponding period of 2014. Also, despite the decrease in the total number of permits during the first four months of 2015 compared to the same period of 2014, the rate of decrease is diminishing, thus suggesting possible stabilisation of construction activity in the short term. Moreover, the significant increase of 11,3% in sales deeds during the first semester of 2015, compared to the same period of 2014, is also a strong sign of stabilisation of the real estate market.
The increase of sales in the property market is mainly a result of the borrowers’ need to deleverage and repay their loans, the naturalisation programme for third country investors, the tax incentives provided, the decrease of interest rates for deposits in Cyprus and the fact that the increase in the prices of properties in Central Europe during the last years has prompted investors to explore opportunities in other markets with potential higher yields.
The Government has taken significant steps in stimulating the industry, such as the promotion of large-scale developments. It is noteworthy that the operation of a casino resort plus four "satellite" units has been approved and the procedure to call for investors will now follow.
Recently, new legislation has been enacted providing additional benefits to the investors in the property market, such as a 50% reduction in transfer fees for all transfers and a 100% exemption from capital gains tax for profits on properties purchased until 31st December 2016.
Currently, a proposed legislation to facilitate the issuing of title deeds is under discussion at the House of Representatives and is expected to be adopted in autumn. The draft law provides for a mechanism to enable the issuing of title deeds in the name of purchasers, who have paid the full amount due to the land developer for the property in question, but the transfer is impeded by a mortgage in the name of the land developer over the property. For these cases, the Land Registry (either upon application or independently) will proceed with the issuing of the title deed within a period of 45 days, unless an objection is filed relating to specific reasons set out in the draft law. Also, for cases where there is a remaining amount due to the seller, this mechanism will be available, once the remaining amount is paid to an escrow account that will be established. The adoption of this law will address a long-standing problem and will, in turn, further enhance trust in the Cyprus real estate market.
Additionally, new legislation is expected to be implemented this year that will allow the sale of loan portfolios and loans securitisation. These are tools that may help the financial institutions to combat the problem of the high level of non-performing loans.
In early June, and four years after the initial exploration, Noble Energy International Ltd, Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership filed a Declaration of Commerciality for developing Block “12” of the Cyprus Exclusive Economic Zone.
The great natural environment of beaches and mountains, the highly developed infrastructure, the growing tourism market, the low property tax and the climate, make Cyprus ideal for property investment. Added to this, is the benefit of obtaining the Cypriot citizenship as a result of such or similar investment.