In a radio interview, the Mayor of Limassol announced the initiative of the municipality to take part in the construction of more than 600 housing units. This will help reduce housing shortages, lower rents and lower sales prices.
He stated that the municipality would cooperate with the state land development corporation. The mayor expects the company to provide housing at prices 20-25% lower than in the current market. This measure will be implemented for both buyers and tenants.
We appreciate the efforts of the Municipality of Limassol, but we wonder if this goal is achievable and if it is in the interests of the municipality.
The municipality intends to provide its own large plots of land for the development of these projects. We assume that the cost of land will be determined at current sales rates. Otherwise, it could create problems both with the regulation of subsidies and with interference in the free market on an unequal basis.
The land development corporation must manage development costs. The quality will be the same as existing projects, but using low maintenance materials. The final cost of construction of projects in which public authorities are directly involved is often higher than for others. The University of Cyprus built student dormitories at twice the cost of the free market. And this despite the fact that the land was free and the loan rate was 1%. We suspect that the development organization’s overhead is much higher than that of private developers.Of course, it is possible that this joint venture will not charge the same percentage of return on risk, which averages 20-25% of the total cost. This would help keep costs down so prices could be lower than the overall market.
The management of such projects is another matter that should be seriously considered. The Housing Finance Corporation reports that non-performing loans exceed 50% of total sales. Then comes the collection of general house expenses, maintenance, illegal changes by tenants, and so on.
The 600 housing units are to be secured with long-term financing provided mainly by banks or the Housing Finance Corporation.
This brings us to another disadvantage that we have to deal with, namely the intervention of politicians and others with all sorts of demands.
The existence of such a large number of apartment buildings can also lead to the creation of a “ghetto”. We believe that projects of this type should be spread across different districts with small apartment buildings of 10-20 units per block.
For these and other reasons, given the new information, we believe that the municipality should sell its land and use the money to purchase finished houses for this purpose.