23.04.2022
There is a lot of public discussion about leasing office buildings in the private sector for the government. On the one hand, some say that renting offices from the market is uneconomical for the state (this group includes the Council of Contractors, the Comptroller General and various opposition political parties). Another view is that, depending on the level of rent secured in the market, this can be financially beneficial for the state.
There is no clear boundary, since each case depends on the circumstances.
First, the use of public land for the construction of offices is permissible, provided that the cost of the land is included in the total cost of construction. The presence of public land does not mean that it is free/excluded from any comparative evaluation. This is a serious problem and a mistake that needs to be taken into account. If the state leases the building, the landlord will have to pay income tax, property tax, defense and health contribution, maintenance, etc. If the state owns the building, it must cover the costs without the above income to the state.
Another important consideration is that a building can have 20-30 years of economic life.
Thus, as technology changes and the use of the office, the government may leave a building that is not suitable (besides the size). But if it belongs to the government, it will stay with it.
Maintenance is another issue that the tenant should keep in mind. In government-leased buildings (depending on the terms of the lease), these costs are usually borne by the private landlord, otherwise the government will have to pay the bill.
Another consideration is that not all public lots are necessarily in the right location or the right size.
So it limits a lot of land, while traffic (as well as accessibility) is an issue that creates additional problems on already congested roads.
It’s a pretty catchy slogan that the government pays about 20 million euros a year in rent, which is classified as wasted money, and that only 50% of the government’s needs are rented out, so we can assume that the Auditor General’s report estimates, that the cost of rent could be as high as €40 million a year if all government buildings were rented out.
In my opinion, every case of letting/building should be accompanied by a cost-benefit analysis with comparative figures, because if a property is rented out on, say, an income of 3% per annum of its value, with various deductions made, the cost fall to ±2%, close to the current cost of borrowing government bonds (which appear to be on the rise).
In the past (after 2013, after the bail-in and the catastrophe of the Cypriot economy) I have even suggested the sale of government offices (based on a buy-to-let approach).
I have suggested specific buildings suitable for this in order to reduce the national debt. Instead, we have gone beyond a productive dialogue with government officials.
During colonial times, the then government had a policy of buying land for its future needs, but this policy has since been abandoned, with the result that public land is now rapidly shrinking in line with its size and location. This is not a matter of public policy.
Any decision must be based on financial results in favor of the state, and the construction of new offices by the state takes more than five years with architectural competitions, objections and claims from contractors, which can be avoided if the buildings are rented out.
The buildings that come to mind are the former Orphanides supermarket in Strovolos, with good access, which is on sale for 30 million euros plus the cost of refurbishment, say another 10 million euros, but capable of accommodating the Land Registry/Planning Office and other public services.
This will be a place outside the center of Nicosia.
A similar building is the IMC, which has been idle for years, which is another question (lease or buy at the expense of the state).
There are examples to consider in all of these lease cases.
Antonis Loisou Real Estate Appraiser, Project Consultant and Real Estate Agent
