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Rent control law distortions

Published on 17th January 2020

 

 It is widely accepted that the Rent Control law must be abolished as it is anachronistic in nature and causes a number of real estate market distortions.

Following the 1974 invasion the law was drafted to protect refugees forced to relocate, from ‘’greedy’’ property owners at the time. Similar laws had been adopted in some European countries in the wake of wars or natural disasters.

These laws were either abolished or amended so as not to cause problems in the real estate sector in Europe. In the case of Cyprus not only was the law not abolished but new articles were introduced to engulf all buildings constructed until 31/12/1999 in all cities and some villages.

The main provisions causing distortions are the following:

.1. The maximum rent increase which a landlord can ask for from a tenant renting under the Rent Control law is set by the government every second April. Unfortunately, these decisions are not based on economic criteria but purely on a chase-for-votes mentality, something which has severely and negatively affected rent increases for properties under the Rent Control law.

.2. The conditions under which an owner can regain possession of the property are set by the law. Taking into account the snail-pace operation of the courts it is highly unlikely an owner can gain possession before at least 7 years go by.

As a result of all these, properties under the law, that account for about 50% of those available for rental in cities, are rented out at very low prices compared to all other properties. Unfortunately, this promotes the formation of two-tier owners, tenants and properties. The law is also partly to blame for substantial rent increases in non-law-controlled properties. Half the properties are out of competition (as no tenant in his right mind will leave a flat with very low rent) and all demand from new tenants is focused on the other half.

Taboo issue

A bill was tabled recently to amend the law. The bill, expected to be voted into law during the coming weeks. The bill mainly aims to speed up the eviction of seating tenants not paying rents. It is positive that some MPs have dared touch this taboo issue called Rent Control, but it would have been better if they’d aimed for the gradual abolition of the law.

The way the status quo has developed it is the owners rather than the tenants who need to be protected by law. Owners have to put up with tenants who are late payers, cause damages and leave behind unpaid bills forcing owners to resort to lengthy legal procedures. It also has to be taken into account that rent is the only triple-taxed income, (income tax, defense levy, GESY).

In conclusion, property owners need state support to be able to offer properties for rent at reasonable prices. The law must be substantially amended to simplify relevant property taxes, speed up court decisions and improve the legislation for commonly-owned buildings, among others.


George Mouskides

Director FOX Smart Estate Agency

Chairman Cyprus Property Owners Association (ΚΣΙΑ)

 

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