31.12.2023
Developers are using government incentives for affordable housing.
Developers in Cyprus are pleased with Cabinet approval of a package of incentives for the construction of affordable housing, promising dynamic growth in an island property landscape that has become financially burdensome for Cypriots.
Stelios Gavriel , secretary of the Federation of Building Contractors Associations of Cyprus (OSEOK), said developers are already strategizing on how to use the scheme and overcome funding problems.
Last week, the Council of Ministers approved incentives for new construction proposed by the Ministry of the Interior. The goal is to have about 800 affordable housing units on the market for both purchase and rental over the next three years.
As part of a strategic initiative to stimulate the development of affordable housing, the government has introduced innovative housing policies.
Landowners who have a building block with an area of more than 1000 sq.m. and construction ratios above 100% now have access to a lucrative additional construction ratio of 45%. On the contrary, for plots of less than 1000 sq.m. There will be an increase in real estate construction by 25%. These incentives are specifically targeted at developers, with the scheme aiming to promote affordable housing through an additional construction factor. Of the 45% increase, 25% is earmarked for affordable housing and the remaining 20% is left to the discretion of the developer.
In the event that properties remain unsold, the state-owned Cyprus Land Development Corporation acts as a safety net.
Homes that remain unsold for two years become the responsibility of the organization that purchases them and includes them in the affordable rent concession program.
Available liquidity
While the new incentives are attractive to developers, stakeholders will need to ensure investors have available liquidity for larger projects. Simply put, if a developer builds 100 apartments, then under the scheme he will be allowed to build 45 more, of which 25 must be provided at cost.
With the new scheme, developers can build additional units, of which 25% must be available at low cost.
For those who choose to rent out 25% of the apartments built using the Extended Construction Ratio, a 30% discount on the average price of properties in the same category will be applied.
Developers will need to find investors who have the cash and are willing to make a long-term investment before seeing any return on it in additional housing units. But banks remain hesitant to provide loans to developers, who in turn must rely on self-financing or find wealthy investors.
Despite the high demand for housing, rising rents and prices, banks are severely limiting the issuance of loans to developers. Most projects are self-financing as developers turn to investors for funding.” “We share the government’s plans to increase the number of housing units on the market while reducing purchasing costs and rents for fellow citizens in need.”
Gavriel expressed agreement with the government’s plans to increase the housing stock in order to reduce purchase and rental costs for citizens in need.
He expects demand to grow in the coming years, especially as Cyprus becomes a popular relocation destination for fintech and high-tech companies thanks to government incentive schemes.
Marginalization
Real estate agents have confirmed the high demand for housing, which has led to rising prices and marginalization of Cypriots from the market, especially in coastal towns.
Eleni Danos /BNPRE Group ‘s Averkiou explained the problems of renting in Limassol , calling it a “mission impossible” due to long waiting lists and the predominance of foreigners with large salaries willing to pay significantly higher rents than locals.
Averkiu noted that “managers with large salaries are willing to pay above the minimum wage, about 1,000 euros, just for a studio apartment. Such employees can and are willing to pay up to 2,000 euros for an apartment, which leads to rising prices and the creation of a shortage of apartments.”
“As a result, real estate agencies have long waiting lists and Cypriot students and families are essentially unable to rent an apartment or house in the city,” the property expert added.
The rental situation is especially difficult for students: the cost of a second-class studio outside the city center ranges from 500 to 700 euros per month. Rent for a one-bedroom apartment starts from 700 euros, while a two-bedroom apartment costs between 1,000 and 1,200 euros per month. Three-bedroom apartments cost between 1,500 and 2,000 euros. As for new apartments, prices significantly exceed the 2000 euro mark.
