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The property bubble

IN PARALLEL with the tourist decline, the property boom in Cyprus went into reverse from 2005 onwards. Nevertheless, over that period we have seen countless articles and utterances seeking to deny first that there is a problem at all and, when that position became untenable, to bluster that the problem was minor and temporary. Cyprus […]

IN PARALLEL with the tourist decline, the property boom in Cyprus went into reverse from 2005 onwards.

Nevertheless, over that period we have seen countless articles and utterances seeking to deny first that there is a problem at all and, when that position became untenable, to bluster that the problem was minor and temporary. Cyprus has always bucked the trend elsewhere, the argument went. We never had a property crash in Cyprus like the UK did in the early 1990s so it was ‘obvious’ that conditions here are so different that we never could! And what with such brilliant developers, luxury properties and superb climate and attractions, there was simply no way that the foreign buyers would stop coming. Despite the glaring facts, many continue with this fantasy.

Consider the following:

  • Many large developers and agents will admit privately that they have not sold a property in 2008 and, in some cases, for over 12 months.
  • The buyer famine began long before the recent credit crunch hit the UK, as awareness of property fraud risks and the Land Registry delays in obtaining title deeds became widespread. The financial woes of UK buyers and the Euro/sterling exchange rates have merely sealed their continued absence.
  • A report by the Cyprus Property Action Group described as ‘absolute dynamite’ has been sitting on the desks of the Ministers who commissioned it. The new Finance Minister has apparently been advised that without government action UK buyers should be regarded for the foreseeable future as a dead market for Cyprus.
  • Recently, executives in one bank in Cyprus were summoned to a ‘crisis meeting’ (sic) to discuss plans to deal with a possible wave of loan defaults by developers.

In desperation, at least half a dozen of the larger developers took the initiative in 2006-7 to seek new buyers in three countries: Iran, Russia and UAE. They sought to create property sales pipelines into Cyprus. For example, advertising hoardings in Persian can be seen in such places as Oroklini, Pyla and the departure check-in at Larnaca International. Special visitor visas were issued to buyers so that they could come and go to enjoy their properties. For 18 months all went well and new buyers were coming in from the Middle East and Russia. Sounds too good to be true?

Now, the Immigration Department has added another deterrent to foreign tourists and property buyers. Any poor soul ‘unlucky’ enough to require a visa for Cyprus, unless travelling via a tour operator and pre-booking hotel accommodation, now requires a resident sponsor in Cyprus who has to cough up an €854.30 bank guarantee – each and every time they wish to come here. Yes, this includes all those property buyers from the Middle East and Russia! So, suddenly, they have vanished.

Was this the result of a coordinated governmental policy? Were all the consequences clearly considered beforehand? While the CTO and developers search desperately for new ‘warm bodies’ from Russia, the Middle East and Asia, the Immigration Department or whoever is busily undermining their respective missions. Is the Finance Minister aware of the impact on government coffers and the economy? Was he consulted? Do we have joined-up government?

Crisis? In Cyprus? What crisis?

Dr Alan Waring, international risk management consultant (waringa@cytanet.com.cy)

©2008 Alan Waring

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