Buy to let in Cyprus – Returns and Expenses

Aug 19, 2020

Buy to let is one of the favorite investments for Cypriot investors, who extend their interest outside Cyprus primarily in the U.K. (London) and Greece (Athens), as well as other towns with a high population of students.

With the prevailing situation and with reference to deposit interest rates (which now are negative), the near uncertainty of the local banks retaining their profitability even on mid-term, the expected increase in value for some real estate investments are factors to consider, as are the advantage that exists in real estate for “seeing and touching” the asset and the investor managing his own property (as opposed to funds). In addition by Cyprus standards and circumstances, investing in real estate for the children’s future (dowry/education) the sharing of assets amongst the family, the mortgaging of real estate at some future time to secure funds for business etc., are an added advantage for locals. At the same time “solid” international Cos are not doing so well, whereas the Cyprus financial circumstances with the virus and the Russians double taxation treaty now in the air, are also considerations to be taken into account (as is the Cyprus Investment Scheme saga).

As circumstances stand at present and referring to the local RICS statistics, but concentrating in the towns and tourist areas, we have the following recorded returns:

Houses 2.6%
Apartments 5.0%
Shops 5.7%
Offices 5.7%
Industrial 5.3%

We do not necessarily agree with this and we are of the opinion that in actual practice these returns are much less, whereas investors in the market with ready cash of a size are seeking a return of 5%-7% (very high and not attainable) but this is how it is.

What we mean by returns is the rental income of a property by comparison to the cost of purchase or market value as is. The Cyprus return levels has no direct relation to those in the international markets, since other than the income, repairs/ maintenance, non-let periods (voids) etc. are not considered by Cyprus practice.

In order to demonstrate the difference, we have the following picture as an example to the let of an apartment (local market demand):

Cyprus International
Approach Approach
Market value €200.000 €200.000
Income p.a. €12.000 €12.000
Less administrative costs, taxes,
Voids, repairs, agent’s fees etc €3.000
Total income (net) €12.000 €9.000
Return ±6% ±4.50%

So, there is a difference between the two on the returns (and this is before income tax dues).

Investors for such units must also bear in mind the following:

Quality of Tenant
Pay more attention to the tenant being capable to meet his total obligations under the lease, as opposed to the level of the rental payment. The aim is to keep the tenant as long as possible, since in any change of tenant, the landlord must pay agent’s commission (1/12 of the annual rent + VAT), any repairs/improvement that the new tenant may require, whereas good paying tenants are hard to find.

Eviction of Tenant
Regarding statutory tenants there is now an “express” type eviction procedure, which can be attained within 3-6 months (if non-payment of rent) as well as rental dues payment collection within 12 months. Non statutory tenants/landlords must follow the ordinary procedure which takes years.

Common Expenses
Better to add this on the rent as an addition since the non-payment of common expenses by a tenant at the end it is the responsibility of the landlord. Avoid the hassle, be it that a landlord might take an added risk.

Pay attention to the availability of parking (1 spot per apartment) and 1-2 additional ones by those stipulated by the law (one spot/60 sq.m.) for commercial (shops) properties. Aim for a minimum shop size of ±60 sq.m. plus mezzanine and pay particular attention to the availability of a wide pavement – as such the shop can be used as a café/take away/bar etc.

Future expenses
Before buying pay attention to the expected capital expenses that you may be called upon to pay in the immediate future, such as the replacement of lift, decoration of the building and common areas and any other items that need to be looked after.

Administrative Committee
For us this is a major issue to have a good and efficient administrative committee, whereas the new law regarding common expenses creates confusion.

New type of lets
Airbnb lets although show returns more than 10%, they require added management on the investor’s part, added commission to the specialized agents (±20%), whereas the nuisance that it is evident in such lets created by the tenants may at the end cause the landlord to be liable in a law suit without being necessarily his fault.

Returns V Capital Appreciation
The returns are low bearing in mind the above, but you must take into consideration any capital appreciation to be expected. For us even if you expect a return as low as 2% this could be acceptable in cases there are expected future appreciation of value.

Insurance Cover & Scam
Watch with your insurance cover since our experience has taught us that insurance Cos come up with all sorts of justifications for not paying. Small prints regarding the conditions “new for old”, third party insurance, let properties V owner occupied, vacant periods not more than 30 days, bad workmanship etc. are numerous points to be considered, which regrettably the owner come to know at the end when a claim is submitted.

So, returns have not a clear picture and due diligence been required since the investment involved refers to a large capital unlike shares etc.


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