IN A MEMORANDUM to President Demetris Christofias the Cyprus Land and Building Developers Association has put forward a number of suggestions to revive the Island’s property industry.
The memorandum calls on the President not to impose new taxes on businesses as these will result in a further deterioration in the business climate by depriving businesses of working capital and increasing unemployment.
The Association suggests that the government should provide incentives and measures to help revive and revitalize the property market and in particular, a review of the Property Transfer Fee bands, VAT and Capital Gains Tax.
Ten years ago, the average apartment cost the equivalent of €51,000 and attracted Property Transfer Fees of €1,500. Today, that same apartment would cost €200,000, and would attract Property Transfer Fees amounting to €9,000 plus €30,000 VAT; that’s a 2,600% increase in tax!
Capital Gains Tax thresholds, which have remained unchanged for 20 years, should also be reviewed. The Association argues that the current rate of 20% and the present thresholds deter sales and result in under-declaring a property’s purchase price in efforts to reduce a vendor’s Capital Gains Tax liability.
It also argues that revising Capital Gains Tax will eliminate the problem of creating what it calls a ‘shadow economy’ and the distortions that occur from the failure to declare the actual sales value in contracts.
Tax reviews
Other countries have recently reviewed their taxation systems to help revive their property markets.
In Ireland, for example, the government has reduced the stamp duty for deeds to 1% on the first €1,000,000 and 2% on the remainder.
The government of Holland has just announced plans to cut its overdrachtsbelasting (conveyancing tax) from 6% to 2% for a year in an effort to boost its housing market.
Comparison
The RICS Cyprus Property Price Index for the fourth quarter of 2010 gave the price for an average 3-bedroom semi-detached house at €431,705.
The Property Transfer Fees (or equivalent) payable by the purchaser would cost:
In Cyprus – €27,701.99
In Ireland – €4,317.05
In Holland – € 8,634.10
Perhaps the suggestions put forward by the Cyprus Land and Building Developers Association warrant further investigation.
Whilst I welcome any proposals to reduce fees it might be more appropriate for this Association to put pressure on their members to pay off their own taxes, clear their mortgages and build properties in accordance with their building permits.
I doubt these proposals will save their industry.
Dear God Nigel, I’m not even going to skim read that methodology!
Yes it was late and I may have got mixed up, but somewhere amongst all of the confusion there’s a nagging feeling that the Reading Report / Cyprus RICS / District Lands & Planning offices and the Governments desire to inflate property valuations to increase revenue are all linked together somehow.
I may have lost the plot or become so worn down that I’m now believing in conspiracy theories!!
Honest, I was fine before I bought in Cyprus!
That’s my excuse and I’m sticking to it!!
@Costas Apacket – It isn’t a RICS (Cyprus) criterion that is used for calculating Property Transfer Fees; these are set by the government.
If the Reading University report makes you nod off, take a look at the methodology used by the Nationwide in the UK to calculate its index at: http://www.nationwide.co.uk/hpi/methodology.htm
@Nigel
The methodology may have been developed by Reading University and it may have been applied by RICS (Cyprus) but it must be flawed in development, application or both. The quoted figure, €431,705 is sheer fantasy: no matter what formula was applied to reach it.
I still maintain the the true value of a medium quality 250 sqm semi-detached residential property with three bedrooms and a garden is what it can be sold for. I do not and cannot believe that the quoted price of €431,705 is the median price paid for a medium quality 250 sqm semi-detached residential property with three bedrooms and a garden in Cyprus. Surely that median price would give a more accurate figure than any theoretical, mathematical formula designed by academics in their unreal world. One wonders how accurate the Reading University methodology might be in even obtaining an accurate house price in Reading itself.
Hi Nigel,
I have just skim read the Reading report and would point out that their proposed methodology for the Cyprus RICS includes the parameters below, and I quote:
General parameters – Common to all Property types
Ø Freehold,
Ø All licences and permits in place (building, planning, etc),
Ø With title deed,
Ø Subject to VAT,
Ø Good state of repair.
Note the ‘With title deed’ parameter.
How can the Cypriot RICS use criteria for calculating Transfer Taxes for properties without Title Deeds using parameters which suggest that their valuations are based on properties already possessing Title Deeds?
The report is so full of waffle that I may have lost the will to live, or even nodded off, before I got to the above section of the report, but I think I’m correct in my assumptions?
I’m sure that you will have the answer!!
@U boat & @Frank – The methodology underpinning the RICS (Cyprus) Property Price Index was developed by Reading University in the UK – see http://www.joinricsineurope.eu/uploads/files/Methodology_1.pdf
@Steve – VAT is charged on all new property (not resales) and this is quite common in a number of EU countries.
But Cyprus (I think) could reduce the VAT rate on property or perhaps zero rate it until the market recovers.
@dave – Property Transfer Fees are the Cyprus equivalent of the Stamp Duty Land Tax (SDLT) that you pay in the UK on completion.
And yes, you should pay them to secure ownership of your properties.
Surely the true value of a medium quality 250 sqm semi-detached residential property with three bedrooms and a garden is what it can be sold for: NOT some fairytale figure concocted by the RICS (Cyprus) Property Price Index.
Just tell them to get their “heads out of the sand” and solve the Title Deeds problem once and for all, and then the property market will improve.
@ Nigel
I have a property of what I would call above good standard construction and up keep. Detached C/W pool and of similar meter Sq size. I could advertise it for that, BUT would not be able to sell it for that I would be lucky to get 300,000 Euro.
That’s if the sale was not blocked by the developer who would want extortionate fees for transferring the tile deeds.
So how do they arrive at this figure ? It has got to be vastly over inflated so as to justify the transfer TAX rate.
Is it my imagination or do they just make it up as they go along? and when it does not work in there favour they change it until it does.
We have very little or No chance?
Regards
UBoat
I could be wrong, but I understood that the introduction of VAT on land and property was part of the obligations placed on Cyprus with respect to entry into the EU. If plans had been submitted before May 2003, no VAT was charged. There may have even been a delay in introduction of VAT beyond the date of EU accession.
Being a thicky what is Property Transfer Tax. Is this when you buy new now——- we bought 7 years ago, does this tax affect us—- also resale 4-bed very large plot in Ayia Thekla up for 350,000 euro.
Therein lies the problem. The Daily Telegraph, a week or so ago, was highlighting a development in Ireland of some 5 or 6 beautiful thatched cottages which when built at the height of the recession were priced in the order of €700,000. They remain empty. Current value is €170,000.
Cyprus on the other hand builds sub-standard units at a very low cost and charges telephone numbers for them. Buyers are there, I don’t care what anyone says, but they are not idiots and are buying freely where the infrastructure and environment is pleasant, not where graffiti full of expletives is prevalent, where rusting cars and fly-tipping is unavoidably evident, where toilet paper cannot be flushed, where there is some evidence of planning control, where locals are welcoming and friendly and where builders and developers clean up after themselves and leave the area of work landscaped, neat and tidy.
I have two friends who recently bought in Buccament Bay, St. Vincent. They were originally intending to buy in Cyprus. They are now very glad they did not.
We must wake up to the realities of life and drag ourselves into the real world where people have a choice and do not view Cyprus as the centre of the Universe but just another Island albeit a messed up dirty one with lovely locals (away from the tourist areas).
@Martyn – the €431,705 figure comes from the RICS (Cyprus) Property Price Index and is based on a medium quality 250 sqm semi-detached residential property with three bedrooms and a garden.
I haven’t personally seen anything across the island that suggests the ‘average’ cost of a 3 bed semi is €431k, where have they got this figure from?
Looks to us like the Cyprus government decided not long before the Credit Crunch and ensuing prolonged Recession to harness the highly productive Golden Property Goose and charge 15% VAT on new building land, now adding considerably to overall new property costs, no wonder the poor old goose has almost stopped laying completely by now!
And we do smile at the roadside hoardings that now boast 40-50-60% discounts on New build Properties, show a seemingly attractive resulting ‘Price’, with the tiniest possible appendage that reads (+VAT)!!
Cyprus government clearly remains in Denial about the severe impacts of Recession on a country, like Ireland and Spain, that relied heavily for too long on Property and Construction as one of the mainstays of it’s economy.
@Andrew. Who is now daft enough to touch anything without a Cert of Final Approval & Title Deeds?
The average price of a 3 bed semi @ €431,000 in Cyprus , add to that another €27,000 and they wonder why no one is buying. Ye Gods!
Sell up quick if you can, because it’s easily two for the price of one in the UK.
If Cyprus wants to get it’s housing market going again, it should follow the lead of Ireland and The Netherlands.
This government will not do anything.
@Costas Apacket – Yes, the Cyprus Property Transfer Fees are based on a property being purchased in a single name.
If it were to be purchased in joint names, the Property Transfer Fees would be €20,867.66.
Still considerably more than the equivalent taxes payable in Ireland and Holland (and in the UK for that matter).
I assume that the Transfer Tax example amounts contained in the article are correct for single ownership of a property in Cyprus and that they would be reduced in the case of joint ownership of a property?