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Cyprus

We consider Cyprus to be a developing market. As a fully fledged member of the EU and, all of the financial support that this provides, Cyprus is not a second or third world nation, and has practices and overall infrastructure that is of a high standard.

However, with all the detailed plans that the government has outlined and begun to implement for further infrastructure improvement, we believe that the island has 10 years of significant growth and opportunity ahead of it and this is particularly attractive for any type of investor. The icing on the cake would be the delivery on time of all the other intended projects (such as the proposed Disney World site at Pyla) and the resolution of the separation of the island which will need to occur to satisfy the aspirations of both countries in the international arena. All of this marks this country out as a superb investment opportunity.

Location

With an area of 9,251 square kilometres, Cyprus is the third largest island in the Mediterranean, and is basically divided into two areas as a result of the occupation of the North of the island by Turkey. Our analysis in this document concentrates solely on the southern Republic of Cyprus, as we would not recommend any investment in the unrecognised Turkish Republic of Northern Cyprus because of the complicated land title issues and illegal settlement.

The location of the island in the north eastern basin of the Mediterranean Sea means that it sits at the crossroads of Europe, The Middle East and Africa. The island therefore displays cultural influences from all its surrounding neighbours which only add to its charm and appeal.

The People and The Culture

Cyprus has a population of approximately 850,000. The majority of the population are Greek Cypriots, accounting for approximately 80% of the total population, whilst 18% are Turkish and 2% being of other origins.

The vast majority of the population speak English and the influence of the British can be clearly seen on the island in all aspects of Cypriot life. The legal, banking and financial systems are essentially based on British models and Cypriots drive on the left. All signs are in English as well as Greek.

However, the people of Cyprus are intensely proud of their 9000 year history and deep routed family values. Throughout this time, religion and family values have been and still remain strong and it is not unusual to see several generations of one family living collectively under one roof.

An interesting development in recent years however has been the move away from this ‘family home’ concept particularly by the younger members of the family looking for independence. This is beginning to have a significant impact on demand for residential apartments, particularly in the cities, which is then being further driven by the increase in the standard of living and wage increases of young professionals.

The Climate

Cyprus is truly an island for all seasons. It enjoys an average of 340 rain free and predominantly sunny days a year. The climate for three quarters of the year is exceptionally good, with only December to mid February being classed as winter months. This is ideal for a tourist market, but is proving increasingly attractive for retirees and long term visitors who are seeking to escape the colder and more unsettled climates of northern Europe.

Every season has its own particular charm with the countryside being ablaze with colour and fragrance in the springtime, to the heat and outdoor pursuits in the summer, and even the opportunity to ski in the Troodos Mountains for a short time in the winter.

Tourism

The tourism market is well established in Cyprus, particularly in areas around Paphos and Limassol. However in the face of increasing competition from the likes of Turkey, Dubai, Morocco and Bulgaria for example, the Cypriot government and leaders within the tourism industry have started to look at ways to attract the more affluent traveller which bodes well for future rental income potential from well placed real estate.

With this in mind, the government has put together the Strategic Plan for Tourism 2010, which plans to upgrade the facilities and resorts, and launch Cyprus tourism to the more affluent traveller. This plan has also set a target of developing infrastructure that will sustain approximately 250,000 tourists a month. So what are the upgrades that are being planned or are currently being implemented?

  • Approximately €650 million is being spent in developing a new international airport in Larnaca which is due for completion in 2009.
  • There are plans to develop 11 major golf courses in the south of Cyprus, in addition to the 3 already located between Limassol and Paphos. The latest course to be developed is in the Tersefanou region and will be a PGA approved course – the first (and only) on the island.
  • The commercial port of Larnaca is due to undergo a €1 billion facelift including the building of a new marina that will be able to accommodate the largest cruise ships, closing of the oil refinery, and relocation of the petrol depots.
  • Many new 5 star hotels/resorts are being planned.

For tourists and investors alike, the presence of many low cost airlines and the wide network of air routes connecting Cyprus to Europe, Asia, Africa and even America make compelling consideration. In fact in March 2009 Easyjet started flying to Larnaca and this will only serve to further drive prices down.

Cyprus is therefore ideally placed to maximise the potential of having one of the longest tourist seasons in Europe and its location at the crossroads of Europe, Africa, and the Middle East.

The Economy

The economy of the island is robust based on free market conditions. The standard of living in Cyprus is very high and this combined with the relatively low cost of living is a further attraction for the affluent inward migratory. It has relatively low unemployment (around 3.5%) and low inflation (around 2.3%) and a very attractive tax system. Cyprus boasts the lowest European Union corporate tax rate with corporate profits are only taxed at 10% whilst it has one of the lowest personal tax rates at 30% and only 5% taxation on pensions for all residents and zero inheritance tax. In fact, The Sunday Times rated Cyprus as the number retirement location in the world, based on a variety of factors.

Some pertinent statistics from the Central Bank of Cyprus, unless otherwise stated, are:

  • GDP per inhabitant has continued to show an upward trend over the last decade, and joining the Euro has provided a further filip with a further strong increase shown in 2008.
  • Official International reserves have increased from €2,443m in 2003 to €4,961m at the end of 2008
  • The Euro was succesfully introduced into circulation on 1 January 2008 with no major impact on economic growth.
  • Latest EU forecasts show that Cyprus is expected to continue to show economic growth in 2009. Such growth, (forecast at 1.1%) is against a backdrop of economic contraction in every other major EU and world economy.

So to conclude as stated by The Wall Street Journal, ‘ Cyprus offers a strategic location, favourable tax environment, educated workforce, excellent telecommunications, modern banking and legal infrastructure which make the country the perfect business bridge for the European Union and the Middle East.’

Foreign Direct Investment (FDI)

EU accession has led to FDI flowing more freely into Cyprus as companies take advantage of its favourable tax rates and strategic location.

Cyprus ranked among the front runners of the world according to the latest UNCTAD ‘World Investment Report 2007’, which indicated both high FDI performance and high FDI potential. In fact FDI flows for 2006 were above 1.4 billion dollars showing an increase of 23% from 2005 (Source: Eurostat) highlighting the country’s attractiveness as an international investment and business centre.

We anticipate significant increases in FDI in the tourist industry as leisure facilities are upgraded such as golf courses. The attractions for businesses have been highlighted elsewhere in this document, but in summary, the main attractions are listed below:

  • Strategic location as Europe’s Middle Eastern Outpost.
  • European Union Member State.
  • Highly qualified and multilingual labour force.
  • Lowest EU corporate tax rate.
  • Macroeconomic stability with successful economic performance.
  • Efficient legal, accounting and banking services.
  • Advanced telecommunications network and infrastructure.
  • FDI track record.
  • Reputable International Shipping Centre.

Property Specific Issues

The land in the south of Cyprus is primarily designated as agricultural, government owned or sovereign owned all of which prevents or severely limits its use for development. In addition to this, there has been in place quite stringent planning laws to prevent the over development of the island.

As a result of this, developments are restricted both in height and build density, imposing a significant restriction on the amount of development on any plot of land.

Now finally, the new ten year planning control laws were introduced on January 1st 2008 which has further reduced build densities and will have a significant limiting impact on total units built in the future. This will result in a strong resale market and allow investors the ability to exit (once the current world economic difficulties are overcome) in a structured way similar to the UK market amongst others.

In our opinion, this tight planning environment will lead to a significantly different market in 5 years time, when resales may well be more popular than off plan. With this in mind, and applying the law of scarcity as per our property investment report, we expect strong property price rises to continue for many years.