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Pitfalls to avoid when buying property in Cyprus

To help prospective buyers avoid making costly mistakes, Charles Savva outlines the top 10 pitfalls to avoid when buying property in Cyprus and how to ensure that property purchases move forward smoothly and efficiently.

PURCHASING property in Cyprus can involve a number of pitfalls. Potential purchasers are advised to exercise extreme caution when buying property, especially if the title deed is not readily available, which is a common scenario when purchasing new property in Cyprus.

Many EU and non-EU high-net-worth individuals seek to acquire property in Cyprus through the citizenship-by-investment programme or a residency-by-investment application.

This update outlines the top 10 pitfalls to avoid when buying property in Cyprus and how to ensure that property purchases move forward smoothly and efficiently.

Not appointing a property lawyer

Appointing a lawyer who specialises in property is of paramount importance. The biggest mistake that can be made is signing a purchase contract presented by a developer (an all-too-common occurrence). Such contracts are unlikely to protect the buyer and are generally heavily biased in the developer’s favour.

Further, buyers must be wary of lawyers acting for vendors or builders and who are therefore not independent. This is the equivalent to not appointing a lawyer.

A reliable lawyer who is proficient in the purchaser’s language and independent of the other parties involved in the transaction is the most important consideration when buying property in Cyprus. A good lawyer makes these potential pitfalls easier to navigate. In short, property is a major investment and should not be undertaken without engaging a specialised property lawyer.

Ensure that property is not subject of ownership dispute

Property to be purchased must not be the subject of an ownership dispute, something that is common in divorce proceedings, for example. Such a scenario can generally be avoided by purchasing property from a reputable developer. However, this is not always the case, especially in recent years where developers have become active in assuming an intermediary role for resale properties (typically for properties which they have developed and sold to clients in the past).

Hidden commissions

Hidden commissions negotiated between an agent or intermediary and the vendor (in most cases a developer) are arguably the most costly pitfall when purchasing property. Such commissions can range from 5% to 50% or more. Such costs can be avoided by engaging a reputable lawyer who is readily able to provide potential clients with the required references.

Failure to consider all relevant costs

It is important to calculate the value-added tax (VAT) (ie, nil, 5% or 19%), transfer fees, stamp duty, legal fees, disbursements and immovable property taxes that will be applicable for real estate purchases as early as possible in order to budget accordingly.

VAT is often misunderstood and misrepresented by developers and advisers in Cyprus. Property purchasers who have made uniformed VAT elections often find themselves either unable to manage their properties as they wish or facing significant VAT liabilities.

Handing over reservation fee without written reservation terms

If a purchaser is asked to pay a reservation fee to a developer, it should ensure that something is put down in writing, ideally by an appointed lawyer, to confirm:

how much was paid;

the circumstances in which a refund will be paid; and

the full purchase price for the property, which may be reduced in some circumstances.

Signing contract of sale without undertaking due diligence

While lawyers are not required to conduct due diligence automatically, such as a mortgage check, a good lawyer should do this as a matter of course.

In 2011 the government introduced a specific performance law to provide a contract of sale precedence over any pre-existing mortgage; however, a check should be undertaken to examine whether any mortgages have been placed on the land before purchase to avoid potential difficulties later on. A contract of sale cannot be properly drawn up without considering the results of these searches.

Further, purchasers are advised not to rely on developers to conduct due diligence even if they provide official extracts from the Land Registry and other government departments.

Failure to put everything in writing

Purchasers are recommended to ensure that all points negotiated are set out in the contract of sale, particularly any agreed extras. This includes an inventory of any necessary repairs or damages.

Failure to deposit contract of sale

A contract of sale must be deposited with the Land Registry within the timeframe specified by law. The purchaser will lose important legal rights if this is not done. Further, a contract of sale must be stamped within the timeframe specified by law, otherwise the purchaser will be liable to pay penalties.

Failure to focus on material contracts connected to property

Many luxury villas and apartments will require a property management agreement to be executed, a service that is commonly offered by developers. This is a material agreement and the required attention should be given to understanding all terms and conditions to ensure that the purchaser’s property is maintained and secure during any absences from Cyprus.

Failure to make a will

The Cyprus Law governs all immovable property situated in Cyprus, which includes an element of forced heirship. However, certain categories of foreign purchasers are entitled to bypass these rules and make a will to pass down the property as they wish. Purchasers should draft a will as soon as property is purchased in Cyprus.

Comment

It is important to learn from the lessons of purchasers who have bought property in countries such as Spain, Italy, France, Portugal, Greece and Cyprus before the financial crisis and who remain embroiled in expensive legal battles. Despite this, the property dream is still alive, with millions of Chinese, Russian, British and high-net-worth individuals considering buying abroad even more so than before the financial crisis according to the latest research by HSBC.

Avoiding these pitfalls in Cyprus becomes all the more important in property investment, when the investor is typically investing as part of a citizenship-by-investment application and such an investment typically ranges between €2 million and €2.5 million.

Most of the potential problems encountered when buying property in Cyprus could be avoided if the above pitfalls are considered. Above all, it is paramount to obtain independent legal advice from a competent lawyer. A good lawyer should ensure that purchasers are protected from all other pitfalls on this list.

About the author

Charles Savva is the Managing Director of C. Savva & Associates Ltd (S&A); a CySEC licensed Fiduciary Company and Private Client Services provider in Cyprus.

For further information on this topic please contact Charles Savva.

Readers' comments

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  • Costas a Fortune says:

    And after all these comments telling people not to buy in Cyprus, if your in any doubt just watch this BBC Inside Out programme of which is called a £500million property scheme in Cyprus. https://youtu.be/g7vUITRIR2U

  • Andrew says:

    “Sadly many purchasers could have avoided finding themselves in an unfortunate situation where their legal rights are compromised if they had opted to obtain independent legal advice a the time of the purchase. Many ( not all) purchasers either because they trusted the developer too much or because they wanted to avoid any potential legal fees ,chose to use the developer’s in house lawyer or a lawyer that had been recommended to them by the developer. This however meant there was clear conflict of interest. They have however ended spending much more in legal fees trying to rectify the situation than they would have done if at the time of purchase they used independent lawyers.”

    If a buyer came into your office and instructed you to act , would you decline to do so , if you had a conflict of interest. Is it a case of Russian Roulette when choosing a lawyer

    There are many references to Cyprus law being based on English law and many Cypriot lawyers have obtained their degrees from UK Universities. In the UK it is common practice for a buyer to use a lawyer recommended to them by the developer or their agent.

    Insinuating that buyers are somehow at fault is not at all helpful. Maybe it is time for the Cyprus Bar Association to root out their dubious members.

    Any self respecting, diligent, lawyer should always protect the interests of the person or persons they act for.

  • Costas a Fortune says:

    Can I just say that when you choose a local Cypriot lawyer in Paphos you do so at your own risk. Surely if you employ the services of a Cypriot lawyer when buying over there you expect him to act in your best interests?

    Surely he should tell you that the contracts are heavily weighted in favour of the bank and the developers? But they don’t. Surely when you start asking questions about drawdowns being too high in comparison to build progress he should act for you and confront the bank instead of just telling you that this is normal here.

    Why didn’t they ask about illegal POAs? Why when you complain to the Cyprus Bar about a lawyer nothing is done (and you have to pay to have a complaint looked at). If a lawyer tells you they are independent how do you know this true ? They tell you “it’s simple to buy here and our laws are based on UK laws”, rubbish!

    There’s thousands caught up in property scandals in Paphos alone , so quite simple Do Not Buy Here.

  • Tojo says:

    You forgot to mention the mysterious folks signing the Power of Attorney agreements John. Ours signed this legal document stating that he knew us previously and that it was signed in front of him. The problem is that have never ever so much as met him or seen a picture of him so it might well have been signed by Father Christmas for all we know and “our” lawyer was complicit too. Best advice is stay away!

  • Esme Palas says:

    As an Independent U.K qualified Barrister at Law and Senior Associate of Michael Kyprianou and Co LLC (one of the firms recommended by the British High Commission) specializing in Immovable Property Law ,I find it is my duty to defend those of us who practice the legal profession in Cyprus with integrity and always have the clients best interests in mind.

    Though I truly sympathize with many purchasers of immovable properties in Cyprus for indeed being the unfortunate victims of the circumstances that have been described in previous comments ,I feel the need to stress to those contemplating the purchase of property that there are independent lawyers out there who can indeed protect your interests , guide you through the process and ensure that any purchase of property is made safely and that your interests are fully safeguarded.

    The pitfalls mentioned in the article are very real but that is why it is essential for one to have independent legal representation.

    We are currently dealing with many clients who have come to us to assist them in battles against the banks for swiss franc mortgages or with battles against the developers to obtain their title deeds.

    Sadly many purchasers could have avoided finding themselves in an unfortunate situation where their legal rights are compromised if they had opted to obtain independent legal advice a the time of the purchase. Many ( not all) purchasers either because they trusted the developer too much or because they wanted to avoid any potential legal fees ,chose to use the developer’s in house lawyer or a lawyer that had been recommended to them by the developer. This however meant there was clear conflict of interest. They have however ended spending much more in legal fees trying to rectify the situation than they would have done if at the time of purchase they used independent lawyers.

    I would also like to mention that many clients are made aware of the risks when choosing to purchase a particular property but nevertheless either because they have fallen in love with the property or because the price is tempting decide to proceed with the purchase despite us making them fully aware of the dangers and risks. It is their decision. Our duty is to fully inform them but after that they are free to make their own decision. We have witnessed this happen many times.

    I am afraid I will have to disagree with the advice given to prospective purchasers not to buy property in Cyprus. Countless of clients have successfully bought properties in Cyprus and have not encountered any of the issues mentioned in previous comments. I would say all you need to do is learn a lesson from the unfortunate and sad situation others have found themselves in, in the past and ensure that you find an independent legal advisor who will safeguard and protect your interests inform you of any dangers or risks relating to the property you have chosen and guide you through the process.

  • Tony says:

    I have said it before and will say it again – “Anyone considering buying a residential property in Cyprus must either be ‘MAD’ or have ‘MORE MONEY THAN SENSE’

    The ‘System’ is still corrupt and even the EU are powerless!!!!

    Yes Mr.Savva’s points are valid BUT two of the main pitfalls are and still are :-

    1. How does one avoid a corrupt solicitor/lawyer? and
    2. How does one avoid a corrupt developer?

    Dream on!

  • Linda Raine says:

    We are among the many thousands including Cypriots who are caught up in the CHF nightmare however, you can let it drag you down or you do your best and get on with life.

    There are people everywhere you go in life that will only look after themselves.

    The best things in Cyprus are free the sunshine, the location, and the warmth of all the Cypriots who are so welcoming, friendly and appreciative of us ex pats, and recognise the value what we bring to their island.

  • dagwood says:

    Mr Savva’s points are all valid. However, his article is not really aimed at the average ex-pat retiree of normal financial means. He is really only drumming up trade for his company: “Avoiding these pitfalls in Cyprus becomes all the more important in property investment, when the investor is typically investing as part of a citizenship-by-investment application and such an investment typically ranges between €2 million and €2.5 million.”

    Personally, I never tire of telling any Cyprus homeseeker or tourist I meet: Do NOT buy in Cyprus.

    Ed: Anyone considering buying property in Cyprus should take note of what Mr Savva says, including the average ex-pat retiree of normal financial means.

    Just because his company provides Fiduciary and Private Client Services does not detract from what he has to say.

    (Incidentally I always acknowledge authors and provide their contact details and a link to their web site.)

  • Peter Davis says:

    The simple truth is don’t buy a new property and don’t buy off plan. The contract and drawings are loosely based on what you might get. They aren’t worth tuppence.

    It will take 10 years plus to get the title deeds and then the cost will be set by the Land Registry, not based on the cost in the contract, as you will be accused of paying part in cash to a developer.

    Buy something already built with title deeds so you can see what you are getting. Use a professional estate agent, don’t use local ones.

    Do your homework about Cyprus and the best way to do this is to spend the first 6-12 months renting, then if you don’t like what you see you can walk.

    Buying is easy in Cyprus, selling a property can take 5 years, and cost 5-10% of the value so test the water first. Whilst many expats complain there are few who would pack up sticks and return to Blighty, I’m one who is for staying. I have a standard of living here that I couldn’t hope to match in Britain.

  • Who Gives says:

    Fully agree with all the comments of the continue nightmare that buyers still face in a so call regulated EU state which is a complete shame. The complete property situation in Cyprus is a mess with zero compliance as nobody is accountable. Too many people making money across the corrupt food chain so nothing in Cyprus will change for the right reasons.

    The only likely out come is Cyprus is technically broke all the window dressing on how great the economy is doing is just smoke & mirrors as with so much NPL that the banks will not go after the developers will only result in another financial crisis in Cyprus.

    There been no lessons learnt by this Government from 2013 crisis just repeating the same mistakes that will no doubt end in another bail out.

  • Barry says:

    Best way to avoid any pitfalls when purchasing in Cyprus is…….keep the option of the list of where to buy!!! absolutely, completely and indefinitely……one word describes it all from start to finish…..Corrupt!

  • john says:

    I totally concur will the post below made by Pils

    Just would like to add – Do not trust Estate agents!

    Buying property in Cyprus should have beware notice (DO NOT BUY ) 10 years of hell relating to swiss franc mortgage, title deeds, bent lawyers, corrupt developers, weak government, Nothing as changed BUYERS BEWARE

  • Costas a fortune says:

    Pitfalls of buying in Cyprus…. Just Don’t !!!!!!

    Banks such as Alpha Bank in Paphos have broke many banking rules yet barely get a slap on the wrist, allow drawdowns when they know they shouldn’t, give out complex Swiss frank mortgages with ( proven) unfair terms and conditions , the list is endless. As for Cyprus lawyers…. it’s laughable! You expect them to look after you and work on your behalf and tell you that banks contracts etc are one sided but they don’t .

    Please, please , please look at the misery that thousands of Brits are caught up in . One place that has thousands of law suits is Paphos with Alpha bank, Alpha Panareti and a local Greek lawyer at the forefront of all this misery. So very simple “ Do Not But In Cyprus “!

  • Deanna says:

    I would like to re-write the final paragraph…..

    ‘Most of the potential problems encountered when buying property in Cyprus could be avoided if…..

    ….’If the Government made all these dodgy-dealings unlawful.’

    But then, all the ‘good lawyers’ would miss-out on payments for unravelling the dodgy stuff…

  • pils says:

    Buying property in Cyprus should have beware notice (DO NOT BUY ) 10 years of hell relating to swiss franc mortgage, title deeds, bent lawyers, corrupt developers, weak government, Nothing as changed BUYERS BEWARE

  • Dunn Good says:

    We purchased with deposits in £CY two properties in 2004 and borrowed in CHF before euro but our lawyer did not reveal to us that ‘foreign nationals’ were not permitted to purchase more than one property.

    Although he registered both with the LR, had he informed us the ‘Law’ we would have bought just the one and not lost them both, we have now lost our UK home to The Alpha Bank also.

  • Martyn says:

    My advice forget the 10 pitfalls above and just DON’T buy in Cyprus all the above will cost you lots of money in “scams”.

    I bought in 2005 and regretted it every since would you believe it took nearly 10 years to get my deeds, over 7000 euros in IPT, even this my property was below the threshold for paying IPT, 6000 euros in 2014 to get my deeds and now trying to get my IPT back. So far it’s taken 2 years and I believe due to government’s re evaluations of property I won’t get back all of the 7000 euros I paid.

    Topping that I have lost at least 50% of the value I paid I will find out the exact amount when I try to sell and get out this year.

    Buyers be very wary.

  • John says:

    Good article. I would add points for British nationals. Do not take the often stated lines that Cyprus law is based upon and similar to English law. It isn’t!

    Most Cypriot lawyers have been educated at British Universities but that gives a false sense of security to English buyers. Find your lawyer via the British Consulate- Foreign and Commonwealth offices. They keep a list of English speaking lawyers against which no significant complaints have been made . (There aren’t many)

    The lawyers I originally used didn’t disclose a series of facts that would have led to me pulling out of the purchase. The land on which the property was built wasn’t owned by the developer(even though it is one of the largest in Cyprus). As a result I needed a loan guarantee which has cost me about £80,000 in hidden costs, only fully discovered ten years after buying and when the Deeds finally became available for purchase.

    Get everything in writing. The word is not a bond of contract in Cyprus and I have had many false verbal promises that weren’t followed up as fact. If someone wont put a promise in writing, then believe it isn’t true. The Deeds were promised to be available two years after purchase not ten years.

    Sorry to say but adopt the position that the lawyers are working for themselves or others in Cyprus, not you. A good lawyer is essential in any matters in Cyprus and if you get into a legal dispute on your property, assume it will take seven years for the case to come to court! The Cypriots are excellent at delaying tactics and legal challenges when it suits them

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