03.12.2022
What is better – to buy or rent a property in Cyprus? Unfortunately, this is a recurring problem that most young people with limited funds and other buyers have to deal with from time to time.
When buying a property, the rent is saved, and, as the locals say, “rent money is not thrown away.”
Lenders in the current circumstances require their own cash contribution of around 20-30% of the total value, an amount that is impossible to obtain even for a regular apartment of, say, 200,000 euros. Add to that the annual council and property taxes; in some cases, these taxes on ownership and other expenses can be as high as 10% of rental income.
With variable interest rates on loans, interest payments can be at the level of the rent if the own contribution is 25% or less.
When credit was readily available and real estate capital appreciation was 5-8% per annum, buying versus renting made a certain amount of financial sense.
With interest rates (as in the UK) on housing around 2.5-3%, loan installments can be lower than the rent payable, but again the down payment is a problem.
Given the current circumstances and relatively low resale prices, ongoing foreclosures and the prevailing job insecurity in the economy, perhaps leasing should be preferred, at least until the market stabilizes.
On the other hand, it is attractive for Cypriots to buy an asset (75% own their own houses), which in the future can be sold, mortgaged for future needs and, of course, passed on to children (dowry).
It is interesting to note the following statistics prepared by RICS (Cyprus), which, although not 100% accurate, give an idea of the situation.
Refund based on market value and rental income
| Return more on | |
| Apartments | 4.30% |
| Houses | 2.20% |
| Retail | 5.50% |
| Offices | 5.10% |
In the “good old days” when bank deposit rates were around 5%, renting made more sense (but note the capital gains losses). At present, with deposit rates near zero, the purchase is more attractive, among other things, a tax deduction on the savings income received. In most cases, buying a finished home also makes more sense than building.
Prices are now below the cost of construction/rehabilitation, while asking prices are usually discounted, the level of which depends on the financial needs of the seller. At the same time, banks are guided by reliable borrowers and the most favorable prices.
Looking at the benefits for buyers, one can contribute to the improvement/maintenance of an apartment that increases or maintains its value without having to put up with unwanted landlords and always being subject to unreasonable rent increases.
On the other hand, in the medium term, there are not so many rental offers that one can choose and move out if circumstances change.
There appears to be an emerging rental market for detached 3-4 bedroom beach holiday villas on or near the beach especially in the Protaras , Famagusta and Paphos areas. They are becoming more and more popular with tourists and seasonal visitors.
It must be remembered that the net income can be much less than the profitability, especially taking into account contingencies (non-payment of rent by tenants and free periods). It is important to know the stability of your employment in order to assess the stability of your income and ability to repay a loan.
Antonis Luazou FRICS – Antonis Luazou & Associates EPE – Real Estate Appraisers and Real Estate Agents
