The Cyprus Real Estate Market and the shade of the Economic Crisis

The Cyprus real estate and property market remains firm despite the global economic crisis, but there is a need for urgent measures to be introduced by the government in order to ensure future stability, improvement and growth. The major problem in the property sector of newly constructed and off-plan properties has been the imposition of the 15% VAT on property since 2004, which has lead to a dramatic increase in the prices and generated millions in added revenue for the Republic of Cyprus in the form of taxation. Thus, the Purchase of immovable property though property Auctions does not entail any taxation in the form of VAT, since all the properties are Re-Sales.

The growth of the real estate sector has been further hindered by the red tape procedures, and the imposition of VAT on land purchases in 2009 will provide more dilemmas for the real estate industry. The Ministry of Finance in its revised budget calculations has assumed that the revenue from the property sector would decline by 50% or revert back to the year 2006 levels.

The Economic growth in Cyprus has held firm over the course of 2008 with the International Monetary Fund expecting an expansion of around 3,4% in 2008 and 2,8 in the year 2009. According to Financial Analysts, the Cyprus Economy is expected to continue expanding into 2009 at the rate of 2,8%. Notwithstanding the global economic situation, economic growth is projected at 3,7%. Inflation is expected to be between 2% - 3% and public debt is expected to decline to 45%. Despite the expanding economy, the investment market will inevitably slow down but remain secure.

In the recent weeks the Finance Minister has confirmed that the Cypriot Banking System has been largely unaffected by the global economic turmoil due to its minimal exposure to high-risk financial instruments and complex procedures. He has furthermore acknowledged that the economy remains sensitive to global conditions but he is confident that growth will still advance and full employment would be maintained. The Budget would be achieved through fiscal disciplines and the fact of economic growth, without any need for increase in taxation.

The European Property Market which is huge has also been affected by the financial crisis but still remains powerful enough for property transactions to be executed. The demand for purchasing property in Cyprus from UK citizens has decreased due to the credit squeeze and the weakening of the Pound Sterling which has lead to great luck of liquidity with the Banks failing to grant mortgages for property purchase. The purchase of properties around the Globe is currently leading an extraordinary way, since the depreciation of property prices is obvious in many Countries. The crisis which is currently affecting the UK property market is also adversely affecting the Cyprus market in a way, and especially in areas for which the highest demand has been emanating in the last few years from British Investors.

The extreme instability in the Stock Exchange Market has forced many Investors to invest their funds in a more stable and less risky investment, that of Immovable Property. Capital owners now have the opportunity to purchase properties through property Auctions, the performance of which provides a safeguard for the growth of the re-sale real estate market.

The property market plays an important role in the fundamental aspects of wealth growth for each country, but it is also a very sensitive sector which needs to be carefully observed. The consequences of the emanating crisis for the Cyprus economy are yet unknown.