Buy to Let

Cyprus is becoming attractive with increasing number investors, whose prime consideration is to buy a property, in order to let it as an investment.

The market is changing and from a 10% share, which originally represented this investment market, these buy-to-let buyers have surpassed now the 25% percentage of the foreign purchases. Residential returns are in the region of 4%-6% on the value of a property, but this return is applicable provided that:

• The acquired purchase price is the market value. We see that quite a large percentage of sales are grossly overpriced. Very few buyers (mainly foreign) opt to carry out a valuation of the property they intend to buy and they find subsequently that they have paid over the odds. A very recent example is a sale of a two bedroom apartment at Oroklini village (Larnaca) of 75m², having a large verandah and offering good views towards the beach (2kms away) was sold for £160.000 in an area where the prevailing prices do not exceed £75.000 (2 bed).
• Special care is needed for inspection flights and highly promoted foreign estate agents, who charge a commission amounting to 12%-14% (plus V.A.T.), a cost which is of course added on the price (see our article on inspection flights).
• Buy to let should be directed towards residential areas, where there is a stable demand forthcoming both from locals, as well as foreign people and for letting periods in excess of 12 months.
• Residential units located within a tourist area, with their seasonality, do not provide such rental returns, whereas an attempt to let them for short periods (mainly to holiday makers) you will find that you have to furnish it fully, have a person on spot to clean, repair, make sure about damages etc, keep an eye on maintenance, unpaid electricity and telephone bills etc. For these reasons and unless your property is located at a prime spot in the tourist areas (e.g. Limassol on the beach etc) do not buy a property in locations of seasonality with the rental income in mind.
• Locations such as Larnaca tourist areas, as well as Paralimni and the eastern region, have a very limited and most seasonal demand. On the other hand buy to let villas with private pools of the 2-4 bedroom capacity can be an attractive proposition (mainly in the Paphos region) earning an approximate annual income of £20.000 (less expenses).
• Be very careful when you see developers advertising about high returns. We noted recently a developer in Limassol offering a guaranteed return of 15% p.a.!! In addition to the “out of the word” return, when we addressed the developer whether the guarantee meant a bank guarantee, the reply was “…. what we mean guarantee is that the return we advertise is attainable…”!!
• For those who borrow in order to buy, must not depend on the rental income in order to pay off their loan, if the loan is in excess of 50% of the acquired price (this is a general rule).
• What people sometime confuse is the capital appreciation and the rental income. It is correct to say that as prices move upwards, at the rate of approximately 10% p.a. (not in all areas) and the rental income of say 4%. In this case, yes, the total return can reach around 14% p.a. But again this is not for all areas and for all properties. We note that foreign estate agents in particular using inspection flights and other high pressure tactics, charging a 12%-14% commission, increasing the prices at levels above the market rates. For this reason, in the eventuality that a purchaser of this type wishing to resell the acquired property, he might find that even after a couple of years he may have to sell at a price lower than the initially acquired. Bearing in mind that the transfer fees (stamp duty) are charged on the acquired price, the inflated sales price gets more inflated, when the transfer fees are added on top.

As a conclusion, we can say that:

• Buy to let in Cyprus is O.K. in residential areas, not ignoring in particular Nicosia which shows the best and steady returns.
• Buy in residential areas and not in tourist ones.
• Check the price you pay.
• Have someone to look after your property (and get a costing).
• Make an all inclusive rental contract (to include common expenses).
• Bear in mind the furniture and equipment costs.
• Etc.

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