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The Era of skyscrapers and the old testament

25 February 2018


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Limassol Bechfront

If we refer the old testament regarding another historic skyscraper (the Babel Tower) where “one” enthusiastic “developer” at the time aimed for the sky-god, we know what the result was - punishment due to greed.

Over the last year, the first skyscrapers in numbers appeared in the Cyprus horizon and we must say that in total they are quite impressive. The fast rate of sale, in most cases is in cash without loans is encouraging others to follow. As an estimate there are in the market and those on the pipe line in the immediate future, in total approximately 1.000 units (all over Cyprus). The vast majority of these buildings are in Limassol, but two more are under way in Nicosia (and one pending), as well as one in Paphos and one in Larnaca.

These buildings, impressive in appearance as they may be, offer top luxury accommodation all with modern conveniences and including common facilities such as common internal pool, restaurants/cafes, ample parking and 24 hours concierge service etc etc.

Lovely so far, but then who will manage these buildings in terms of the maintenance, administration, the collection of common expenses etc, which we estimate as an average €1.000-€1.500 per month per apartment unit under a rotten common expenses law which cannot be implemented. For this type of property, the situation will get worse since the buyers of such units (99% foreign) who may most likely not live in them, who is going to pay and maintain the projects?

The question is, is there such a demand to absorb the 1.000 (presently available) units, plus another 500 or so units which will come into the market over the next couple of years? In this respect (high end foreign buyers) have alternatives with other pending projects such as the Larnaca-Pafos marina (to be), the golf courses (huge supply) and other type of properties. Living in a small isolated island, it appears that we might not appreciate what we have and not appreciate how others see us and the wealth that foreign investors have and be prepared to invest. Looking at office rents in Limassol reaching €30/sq.m. p.m. (the average top in Nicosia is €15/sq.m., Larnaca €8.0/sq.m. etc) it seems that we are not well informed of the financial ability of foreign investors. It is true that the plight of others helped us so far, of course the Passports/Visas attraction, as well as unique taxation system that we have. Will this huge supply generate enough demand for the next 3-5 years for all these units to absorbed (and provided of course no new ones come into the market at any significant rate). We are very happy (as part of economy-real estate) with this state of affairs but we have to look a bit ahead in the immediate future and not hide our head in the sand.

  • The passport measure is now under revision and although it is will not stop it will make more difficult the securing of passports/ visas with loads of information required from the buyers and with an overseeing committee.

  • The tax situation (as the passport issue) is under scrutiny by the E.U. and if our advantageous tax system is harmonized with the remaining E.U. countries (as is the E.U. goal) we stand to lose another part of our attraction.

  • The Russian Government is taking all sorts of measures to attract repatriation of Russian capital and although we expect that it will not succeed (due to its political situation) to an extent, it might have its appeal to some large investors attracting their interest.

  • Etc etc

As a result of the above danger, a recent announcement by the Planning Department, be it at its initial stage, that such future high rise development is a policy to be reconsidered is a warning (although it will cause a rush of applications by others to climb on the golden wagon).

Prices for such residential units range from €5.000 / sq.m. to €15.000 / sq.m. with the lower end being at Nicosia. Are the investments however going to be sustainable in terms of value and rental income? If an apartment 2 bedroom has a sales price of €1 mil., who is going to pay the rent for say €3.000 p.m. plus common expenses in total say €4.500-€5.000 p.m.? At this point of time suitable land owners, accountants and advocates who deal with this sector of the market, are having a good time (but for now long) and care is required. So as not to have a new situation post 2008 period with the oversupply and especially the 2013 events, we have suggested measures and we repeat our idea of having a quota system for such developments in various regions and locations which will help the even distribution of this unexpected wealth in all towns (with special attention to Nicosia and the mountain resorts). Because we live, as we said, in our little island, we seem to ignore the political situation. It will only take a small episode to scare investors and buyers, let alone the tourists and we dread to think what it will happen by projection to the industry (if a small military episode happens - see now the gas find).

If we refer the old testament regarding another historic skyscraper (the Babel Tower) where “one” enthusiastic “developer” at the time aimed for the sky-god, we know what the result was - punishment due to greed. |

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