DON’T panic: that was the message yesterday from real estate developers, who insisted the property market wasn’t about to fold under the weight of the global credit crunch.
At the same time, the Land and Building Developers Association (LBD) say there was a lot to be done to improve the market.
“Real estate does not seem to have been affected, at least not to a significant degree, with the possible exception of villas in coastal areas,” said association chairman Lakis Tofarides.
But he admitted that over the past 10 months, there had been a “discernible and worsening” fall in demand for real estate.
That real estate was holding its own despite the crunch was down to a set of circumstances particular to Cyprus, which nevertheless should not be taken for granted.
According to Tofarides, at the moment “there is no reason to panic”. Fears that Cyprus might suffer a similar fate to America’s shattered property market were entirely unfounded, he added.
And although a small drop in real estate prices was inevitable, “nothing dramatic” was on the cards.
“Cypriots love their homes. They tend to hold on to them and pass them onto their children. That’s one of the reasons why the price of homes hasn’t dropped significantly,” explained Tofarides.
But whereas doomsday scenarios are out of the question, at the same time real estate is not exactly booming. The fact the government gets a huge piece of the pie when you sell a property, and the red tape involved, constitute two of the greatest disincentives.
“Today, the average Cypriot is simply not in a position to buy a home. It’s not like the good old days, when a young couple managed to scrape enough – with a loan, help from their parents – to buy a home.”
Tofarides acknowledged that banks’ current lack of liquidity was a problem, but quipped:
“Yes, it’s probably true that banks don’t have enough cash to lend right now. Then again, it’s said that they’ve moved large sums of cash abroad, like the Balkans, where they get a higher yield.
“But hey, what do I know?”
Tofarides said the VAT increase to 15 per cent on the purchase of immovable property, which indirectly has also raised transfer fees paid to the government, has made the purchase of a house prohibitive.
For example, for a house costing €120,000 in 1999, the transfer fee was €4,270; today, the same property would cost €400,000, with the transfer fee going up to €25,300.
“Come next year, when the VAT will go up further, the state will end up harvesting up to 30 per cent on the sale of a house… that’s ridiculous,” said Tofarides.
Developers are proposing a string of practical measures to ease the market. For starters, the government should immediately slash capital gains tax. Because of the high levy, people cheat and declare a lower value on their property.
“Taxation should not be punitive… by cutting capital gains tax, you also minimise the extent of the grey economy.”
Other helpful steps would be to increase the building coefficient in certain designated areas, offer tax incentives to first-time buyers, and simplify red tape to expedite the issuing of building permits.
The government apparatus could use a bit of tweaking, too.
“Did you know that the Housing Division [of the Town Planning Department] has no computer system? They still use paper for God’s sake, files often get misplaced… it’s a Third World situation in there,” Tofarides told reporters.
On a broader policy level, the association is urging the government to tap into the huge European market.
This would compensate for the falling demand for property from the UK as a result of the credit squeeze but also the weakening of the pound sterling.
“Britons are not the only Europeans. There are hundreds of millions of Europeans out there who could be interested in investing on our island. But instead what do we do? We discourage them, by placing restrictions on their access to the property market, for example demanding that they put a down payment of €30,000.”
Tofarides went on to play the big hand, warning the government that it stood to lose the most if real estate were to plunge into a crisis.
“Our sector employs some 45,000 people, and has a turnover of €2 billion. Every year, the state rakes in some €500 million of this money. Now imagine what would happen to the treasury if real estate entered a slump and our revenues were cut in half.”
