IN A MOVE designed to help revive Cyprus’ floundering property market, the Land and Building Developers Association has renewed their appeal to President of the Republic Demetris Christofias to cut property taxes.
Yesterday, in an interview with the Cyprus Mail, the president of the Cyprus Land & Building Developers Association, Lakis Tofarides said:
“For 20 or 30 years, successive governments have been happy to milk the cow of property taxes and duties. Well, now we’ve got a serious problem, so we are proposing something that will address the situation. We used to have zero per cent unemployment, now we have over five per cent, and if we do nothing we are most likely heading for seven or eight per cent”
When he was asked why developers could not cut property prices to stimulate the market, Mr Tofarides replied: “Why doesn’t the government cut VAT on property deals?”
He went on to add that asking prices for property often result from the inflated costs of buying land. “When I started in the business 32 years ago, the value of the land in a development deal – excluding construction costs and profit – was 18% or less of the asking price. It is now 40%.”
In a recent letter to President Christofias’ office requesting a meeting, Mr Tofarides wrote that property development “is a fundamental pillar of the Cypriot economy, and has been hit hard by the global economic crisis.” The sector is said to have contributed some 20% to GDP and a turnover of more than €2 billion last year, with foreign exchange exceeding €800 million.
The letter to President Christofias outlined five proposals.
- Property Transfer Fees should be exempt from VAT. “Cyprus is the only country which applies VAT to property transactions without [first] deducting property transfer duties,” he said and – referring to the average delay in issuing title deeds – he added that this move would “only affect state income after 5-10 years, by which time the economy will have normalised.”
- The sliding scale for Property Transfer Fees to be modified and updated to reflect today’s property values. The letter pointed out that when the current scale of 3% for the first C£50,000 (just under €85,500), 5% for the next C£50,000 and 8% on the remainder was first introduced, “someone could buy a house for C£80,000-100,000”. Tofarides told the Mail that under the current system, someone who spends €100,000 on a property will pay around €4,000 in duties, but someone spending €500,000 will pay €60,000 in duties.
- Regulations on VAT refunds on first homes to be simplified to “help Cyprus be competitive”, saying “the VAT allowance for first homes should be given to all Cypriots and other European Union citizens buying a permanent home in Cyprus.”
- Capital Gains Tax should be halved from 20% to 10% for a finite period allowing land-deals to be done “at more logical prices” thereby enabling the state to tax the transaction on the full sales price rather than have money changing hands under the table.
- Finally, Tofarides said that the fact that just €25 million has been used out of the €200 million offered by the government in the form of cheap loans to low- and middle-income families shows that this measure “clearly has not yet worked correctly”. He has therefore proposed raising the qualifying income threshold from €40,000 to €60,000 per year.
A possible reason for the “negative climate” in today’s property market appeared in a poll published by Politis newspaper yesterday. This showed that 42% of those who responded saying that they had postponed or cancelled purchasing a property were unable to secure a bank loan.
(As reported earlier, property sales to non-Cypriots are down by 75% this year, falling to just below 1,100 at the end of July from the 4,552 sold during the same period in 2008. Tax receipts resulting from the sale and acquisition of property have plummeted this year by more than €200 million.)