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Stimulate Cyprus property sales by lowering prices

If developers in Cyprus want to stimulate property sales, they must lower their prices. Economic conditions have changed dramatically over the last year and people are not prepared to pay the same prices today as they were a year ago.

THE ASSOCIATION of Land Developers has sent a memo to President Christofias with its proposals for stimulating demand in the housing market. The international economic crisis has put the sector under immense pressure with negative consequences for state revenue, it noted. The chairman of the association also requested a meeting with the President to discuss the proposals.

The memo contained some useful ideas. It suggested that the responsibility of issuing of title deeds could be given to the private sector, which would speed up procedures, at no additional cost to the taxpayer, and boost government revenue. It also made a series of proposals relating to VAT such as the waiving of transfer taxes, when VAT was paid; another was the simplification of the regulations for claiming back VAT for a first home. Eligibility for a housing loan from the state organisation should be extended to couples with a joint annual income of up to €60,000, instead of the current €40,000.

These are sensible proposals but would not boost demand on their own. First, property prices, which are still excessively high – particularly in the Nicosia district – need to come down another 10% to 20%. But developers are quite clearly not prepared to cut their prices in order to kick-start the local market. Instead their association suggested that the government reduce capital gains tax, from 20% to 10% for a given period, which would “allow transactions at more reasonable prices”.

This says it all. The association is aware of the need for transactions at more reasonable prices, but it wants the state to make this happen by reducing the capital gains tax so that the current, inflated prices are not affected.

Developers’ plans to get through the recession, without significantly cutting prices, was evident in the memo which spoke about reversing the prevailing negative climate. It said:

This could be achieved by a conscious effort by everyone (public personalities, private sector organisations, etc) to get the message across that now is a good time to buy because prices have already come down.” It is quite astonishing that the association is prepared to put such a view on paper, implying that high property prices are simply a matter of the wrong perception.

The truth is that the prices developers are quoting, few people are prepared to pay. It is the law of demand and supply. Economic conditions have changed dramatically in the last year and people are not prepared to pay the same prices today.

If the land developers want to stimulate property demand, there is just one way of doing so – lowering prices.

They cannot expect to make the same profits they were making two years ago.

©2009 Cyprus Mail

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