10.09.2022
There is a good initiative by the Cyprus Land Development Corporation (CLDC) to offer residential properties for rent at affordable prices.
Noteworthy is the announcement by this NGO and others (such as the Limassol Municipality) of helping to overcome the difficulties that particularly low-income segments of the population face in paying high rents. However, the reserves are not enough to solve the problem.
In addition to these efforts, I offer my views on this issue.
No matter how hard CLDC tries to help the situation by offering new blocks for this purpose in 2-3 years, it is impossible to meet the demand in terms of quantity and location in the near future.
General expense management by CLDC is a good proposition as non-payment and tenant misconduct or illegal activities are a major “curse” in disadvantaged tenants and one of the major deterrents for interested buyers seeking income.
For this public sector development to have any hope of economic viability and success, it needs large-scale developments in various fields; otherwise, it could lead to a ghettoization of development, similar to what happens in post-war refugee housing estates, with known results.
However, the private sector could help with the above efforts, and this should also include individual units, wherever located. The market is available for apartments for rent or rental of existing units from existing owners. In other words, why shouldn’t existing owners rent out their apartments if they know that rent collection will be guaranteed and avoid the issue of general cost collection?
Determination of affordable rent can be based on a rate of 2-3% of market value and/or determination of rent by area or quality based on pre-existing rent indicated in the area. Further discussion of this alternative is needed.
When buying a rental unit subject to VAT, the VAT rate must be reduced from 19% to 5%. However, in the case of a rental purchase, the unit has an increased value of 19% VAT. Thus, for an apartment of even 100 m2, the cost will increase by (100 m2 x 1,500 euros/m2 x 19%) by about 29,000 euros, with an expected rental yield of 3% per year, and the rental price will increase by about €75/month.
Immediate eviction for non-payment of rent/compliance with the terms of the lease within three months of the tenant’s non-compliance. Right now there is some progress just for legitimate tenants, but what about the rest?
Minimum lease term of at least three years with an annual inspection by the owner/CLDC of the condition of the property.
The terms of the lease stipulate that the owner must cover insurance and maintenance other than normal wear and tear.
In the case of a purchase with VAT reduced to 5%, the buyer/owner will be able to sell the apartment after an 8-10 year period and return part of the savings to the state.
Apartments that will be offered for rent at an affordable price, either as a project or as a separate unit, will automatically be entitled to their expansion by 10-15% with the immediate issuance of a title deed.
CLDC plays a very important role in this approach, whether it is their project or third party owners.
Distribution
The distribution of such units should be independent of politics and other interventions, and rental applications should be considered on the basis of social criteria.
Of course, the issue will not be completely resolved, but this is a start with the involvement of the private sector and the increase in supply, which will be immediate.
Now is the time for this type of investment.
Unfortunately, these multiple problems exist in rent (problems that CLDC will take on), while the various subsidies received by (single) parents are likely to take advantage of the system.
There is a claim that renting to an (unmarried) couple with children is “not profitable” from a financial point of view, and here there is outright exploitation.
There is a way out, the creation of the Deputy Ministry of Internal Affairs with new people.
New people with apolitical views and an appetite for work, who can boldly try to find solutions to chronic problems that remain unresolved for years.
I expressed great dissatisfaction with the problems in the construction industry, which the respective governments, and especially the Ministry of the Interior, barely understand and, even less so, act accordingly to deal with the poor or improve the functioning of the real estate market.
Antonis Loisou FRICS – Real Estate Appraiser, Real Estate Seller and Development Project Manager
