01.07.2024
Some ill-informed reports have blown the rent problem out of proportion, claiming that the government is spending €26 million a year on it. To find out whether this is a waste of money or whether it is worth investing this amount in constructing your own buildings, you need to consider the following parameters.
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Construction of own offices
Offices are usually built on land owned by the government, but there is a perception that since it is government land, it is worthless. However, to properly estimate costs, the value of the land at the current market price should be included.
When the government decides to build its own buildings, it invites tenders for architectural design. The process of selecting an architectural design takes about one and a half years and is often accompanied by legal disputes. A final decision on the project requires at least a year and a half. Architectural competitions require participants to estimate the cost of construction, which cannot be exceeded. However, 100% of projects end up being underpriced, and as a result, not a single project fits into budget, while architects are not responsible for changes in its cost.
Renting existing buildings
This option is easier if you can find a suitable building. The building exists, the rent is known, the quality and services are provided. However, it is difficult to find suitable buildings in terms of location and size.
The lease of the building is usually for a fixed term of five years, with an option to extend it up to 15 years. The landlord is usually responsible for paying property taxes, maintenance and repairs, and updating or replacing equipment (air conditioning, elevators, etc.).
Renting a building also means that the tenant pays income tax and other taxes, so ultimately a portion of the rent goes back to the government. Since the government takes out long-term loans at ±3% per annum, it is logical to compare this level with the rental rate, which is also approximately 3%.
Purchase of offices
Purchasing ready-made offices is another possible option. For example, the former offices of the closed Co-Op Central Bank have buildings in various cities that may be suitable for these purposes. Since the government is now the owner of these buildings, instead of buying or renting, one should consider using these buildings for government purposes.
Rent and sale
Another option is long-term lease of office buildings by the government, with their sale to investors on a rental basis. In this case, the government could receive a significant amount, part of which it invested.
Vacant lands
If no construction is planned, but there is an opportunity to use the money for new buildings or improvements, part of the public land can be sold, provided that the funds are used for the construction of offices or other projects (for example, a new Cyprus Museum).
BOT (Build-Operate-Transfer)
The BOT ( build-operate-transfer ) alternative involves the government owning the land and tendering for the construction of the building with a long-term payment. This option takes into account general specifications, design, delivery dates, fixed cost/rent, etc.
Whichever alternative the government chooses, there are always public issues that need to be taken into account:
- Corrupt government competitions.
- Cost overruns and delivery delays.
- Various press reports of pre-determined specifications and locations to favor certain developments or owners.
