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Tax hike may trigger land sales

The government’s proposed changes to immovable property taxation may encourage property developers to sell their land banks rather than sitting on them, according to a lead consultant.

SPEAKING to the Cyprus Mail yesterday Pavlos Loizou, a consultant and member of the Cyprus Royal Institution of Chartered Surveyors (RICS), commented on the government’s property tax hike proposals (for details see Tuesday’s report ‘Property tax set to increase‘).

Mr Loizou said that although home owners will now be called on to pay more tax, it is property developers, and those with considerable property to their name who will be most impacted.

Loizou said that some (property developers) may not have liquidity to pay taxes but he hailed the fact that the changes will give some property developers an incentive to sell their land banks. “Anyone who buys property will have an incentive to do something with it rather than let it sit,” he said, adding “Look at Nicosia with its empty plots.”

Having property in the heart of a city and not doing anything with it forces people to move further out and spend more time and money commuting, and forces the government to build more roads, install more street lights and the like, he said.

One of the proposals contained in the troika draft memorandum to the Cyprus government was to “Ensure additional revenue from property taxation of at least €20 million.” The counter-proposals put forward by the government set the level at €29 million/annum.

Equitable property taxation needed

At the present time, Cyprus’ Immovable Property taxation system is inequitable.

Once a house has been built on a plot of land and included on the Title Deed, the Land Registry reassesses the property’s 1980 value and updates the Title Deed accordingly. Obviously, this value will be more as it now made up of the 1980 value of the land plus the 1980 value of the property/building that has been constructed on that land – and it is this value that is used to assess a property owner’s Immovable Property Tax liability.

But the system is inequitable as there is no legal requirement to add a house or any other building on a plot of land to its Title Deed, thereby depriving the state of much-needed revenue – and it’s all perfectly legal!

Furthermore, as local property taxes paid to the Community are also based on the Land Registry’s 1980 valuation, local government loses out as well.

It’s been estimated that some 50% of buildings island-wide have not been to Title Deeds.

Shouldn’t the Government set a level the playing field so that any tax increases can be shared equitably by all those owning property?

Readers' comments

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  • @Mike – Yes the developer (or the landowner in an αντιπαροχή agreement) is liable for IPT until individual deeds are issued and the properties transferred to their purchasers.

    Some developers recover the IPT from purchasers, some do not. And some of those who do overcharge – sometimes by a considerable amount.

  • Mike says:

    Nigel
    Many thanks for the answer. So it would follow that the developer would be liable for the taxes in the cases where people have paid for and moved into the property but still do not have title deeds in their name. I assume the developers name would appear on the deed until transfer is made.

  • @Pavlos – Perhaps I didn’t explain very well – to live in a building legally, all you need is a Certificate of Final Completion.

    I have recently paid my ‘local’ property tax at the Erimi Community Office – they charge 0.2% of the 1980 value shown of my deed.

    Since we bought the land in 1992, we paid no local taxes until our house had been built and we moved in. Although it had been issued with a Certificate of Final Completion, I had to advise our Community Office before the Planning Authority would give me the Certificate. I expect this may have triggered the Community Office to start taxing me?

    Interesting to know that the councils can have properties valued independently and raise local taxes accordingly.

    Mine (I think) is using a different approach and has just revised our Community Service Taxes so we will all be paying a little more.

  • James JH Lockhart says:

    Nigel,

    My house has title deeds but the lawyers put the vendors name on the title deeds. It appears the House I bought the vendors did not own the house.

  • @Cyprodite – it would be a very good idea to issue all properties with Title Deeds.

    One of the suggestions in the troika memorandum was that the government should issue all outstanding Title Deeds by the end of 2013.

    Sadly, I feel that the troika may be confusing ambition with ability.

    But it could be achieved if the government was prepared to drag the antediluvian processes involved in issuing Title Deeds into the 21st century.

  • @Mike – It’s the registered owner who is responsible for paying taxes.

    I don’t know of any cases where the Registered Owner is not shown on the property’s Title Deed.

  • Cyprodite says:

    Given that many of us don’t have title deeds wouldn’t it make sense to issue them so that they can tax us? In the mean time we are paying immovable property tax to the developers who use their own dodgy formulas to calculate what they allege we owe them. I am certain the government doesn’t see a good portion of what we pay over to the developers.

  • Steve says:

    Something I don’t understand here. Around two years ago the government floated a proposal to raise €80-€100 million by increasing immovable property tax on the developers land banks plus other large land owners. The proposal was rejected by parliament.

    Now the government is in really dire straits financially, they include small properties as well by cutting the exemption to €40,000, but can only manage €29million.

    Is this Cypriot communist mathematics or am I missing something more?

  • Mike says:

    Can I ask, is it the owner or the occupier who is legally obliged to pay the property taxes, who would the charge be addressed to?

    If it is the “owner” could they not present legal argument to claim that they are not the owners as they are not named on the registration document / Title deed and therefore until they are cannot be liable for property tax. If it is the occupier then case closed but what does the law say? In the case of a house not rented out and the owners name not appearing on the title deed I wonder if the same argument could apply?

  • Pavlos Loizou says:

    @Nigel

    It is not necessary for a property to have a certificate of final approval for it to be accounted for estimating the amount of immovable property tax.

    The local authority (municipality or community council) can instruct a private valuer to value what is currently on a plot of land with 1980 prices. It then uses this amount to charge the immovable property tax.

    A number of councils are going down this route, but their problem is that they don’t have the budget to undertake the valuations that will give them the income they lack.

    Thus, “the field is level” provided the local authority can undertake the necessary valuation of properties without a certificate of final approval.

  • Pavlos Loizou says:

    @ Alexey Golovanov

    Transaction volume is down by 50-55% from its 2007 peak, but there are still circa 1,000 transactions taking place every month.

    Times may be tough, and will get worse over the next 3-12 months, but everything will sell at a price.

    PS The RICS is a UK association with branches around the world. It totals circa 147,000 members, of which circa 300 are in Cyprus.

  • Peter Davis says:

    I would love to know the 1980 list price of my Cypriot neighbour’s houses to see how much they will pay in taxes to the Government.

    Will there be transparency?

    I have no idea how much they pay in local rates any idea how I find out?

  • Alexey Golovanov says:

    And to whom this land registered in the name of the developers (if it is so, which I doubt) will be sold – if I may ask the honourable gentleman of Cyprus Royal (!?) Institution of Chartered Surveyors?

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