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NEW PROPERTY INVESTMENT PRODUCT

Published on 31st January 2017

Cyprus Investment A new, safer and more productive investment approach is now available as a result of newly enforced legislation. The traditional way of investing in real estate would be for someone to spend €100,000 or more to buy flat(s), office space or shops and rent them out. The average rent return (yield) in Cyprus is relatively low, ranging at about 3% for houses, 4% for flats and 5% for commercial properties. The investor has to deduct costs for maintenance, taxes, municipal fees, etc, from collected rents. The traditional investor has to bear the burden of collecting rents, pay the various taxes, carry out any repairs required and handle tenants’ demands. Furthermore, the investor has to chase around late payments, try to find new tenants every time the property is vacated. It is not unusual to have the property vacant for 1 or more months. The new investment opportunity The new investment opportunity was the result of new legislation about ‘’Alternative Investment Organizations Law of 2014 (N. 131(I)/2014’’, allowing investment companies to invest in real estate, following permission by the Cyprus Securities and Exchange Commission (CySEC). The investment company presents its information memorandum, which is distributed to interested buyers, if approved. `The investor can buy shares into the investment compartment owning the properties described in the memorandum. The investor’s benefits with this new scheme compared to the traditional way are multiple, as follows:

  • Investment organizations usually buy large properties at prime locations occupied by well-paying, long-term tenants. One investment company that we know and use as an example buys only commercial buildings, (in the center of Nicosia and Limassol), occupied by government offices, banks, accounting firms, etc. under long-term contracts. This offers them the safety of rents paid on time and not having to look for new tenants every few years.
  • Most investment organizations aim to distribute net rents as dividends every 3 months, aiming for a 6% annual cash return or more. Dividends are paid throughout the duration of the investment. The investment is terminated with the sale of the property, at which point the investor can expect an even higher return due to the fact that the sales value of the property is anticipated to be higher than what was bought for. The investment organization is committed by its memorandum to CySEC and to the investors, to sell the buildings in 5-7 years.
  • The investment group undertakes the maintenance/repairs, tax payments, finding tenants and collecting rents, etc.
  • The investment organization can borrow from banks, if it wishes to do so, under better conditions than a small-scale investor. The aim of borrowing is to improve yield for investors, as the rent return is higher than the cost of borrowing.

A legitimate question is what happens if the buildings cannot be sold within the 5-7 year period? This is always an unknown factor when someone invests in real estate, small-scale or large-scale. Investment groups try to deal with this sort of an issue, if it arises, in cooperation with their banks and/or with new investors. An investment group is obliged to regularly report to its investors and CySEC of its financial status. Concluding, the investor will evaluate the strategy of the investment organization as presented in the information memorandum and decide whether to invest his money. If his decision is positive, he will have the opportunity to be part of a real estate investment in properties with high-end tenants, with a satisfactory return, better than what he could achieve had he made the investment himself.   FOX Director Written by: George Mouskides General Manager, FOX Smart Estate Agency Chairman Cyprus Association of Property Owners (ΚΣΙΑ)

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