December 6 2019
With the lowering of the deposit interest rates, now prevailing at ½%-1% p.a. and with the signs of negative interest which was recently announced in the press, as well as the non-stable situation of some of our local banks (the fear of the Bail in, is still with us) there is a turn towards real estate investment properties for income.
This turn of added interest for investment in real estate is also the result of a constant increase in the rental levels for most properties, the expected (be it speculative) increase in capital values in the future and the feeling that no one can take the property away from your ownership (unlike bank cash). To this end the various reports regarding some financiers’ instability due to the N.P. Loans (see recent E.U. reports) and all these at the end our “wise” MPs are causing part of the problem with the financiers increasing depositors worries.
In general, gross income for real estate market is around (i.e. gross expected income p.a. in relation to the capital value):
Our own opinion based on own experience RICS Statistics
3%-4% for residential apartments 4%-5%
2% for houses 2.5%
5%-6% for shops 5.7%
5%-7% for offices 5%
4% for industrial units 4%
Hotel/tourist projects show return of around 10% (uncertain long-term income).
Others – e.g. medical centers, small (500m2) for group doctors visiting clinics (due to the National Health) show at this point of time around 8%-10% (supply is expected to increase, but demand as well). Similar for rehabilitation centers.
All these returns/rates assume permits availability and good location depending on the use and as such returns can vary – the more attractive and secure the investment, the less the expected return.
Regarding residential apartments, the returns can increase if close to local universities/ colleges, where supply is nowadays limited. Notwithstanding increasing students’ accommodation, numbers of students are also increasing at a faster rate.
Shops rates indicated are in commercial suitable areas, be it that the more commercial the property is, so it is higher the acquisition cost. The question of sizes regarding flats, the highest in demand are the one- and two-bedroom units in the region of 70m2-90m2 units offering some views which are not easily to be found in suitable locations. Double size shops of around 70m2-80m2 and mezzanine are more in demand, due to their capability to be used for other purposes, such as cafes/take away units etc.
Offices is another attractive investment if they are in suitable locations, mainly within the town centers, with easy access, ample parking and quality (e.g. high-tech units) since lower end offices are just not in ready demand. Most popular size 150m2-200m2.
The upcoming Airbnb is an investment to look for, especially in the towns and near the beach areas (complexes with common swimming pool and facilities, or individual villas of 3-4 bedroom with own pool and services are in top demand). This type of investment notwithstanding the high let out/agents’ cost, show nowadays a return of at least 10% on the investment (net of costs). Especially suitable for investors who can look after their own projects – care is needed however pending the new Parliament’s measures on the subject (recent agreement with the Airbnb/villas to let set ups and so on) including tax charges, VAT etc.
With an improving real estate market, one must consider the possible increase in capital values on such investments and this is another plus vis a vis cash deposits.
We have the option of investing abroad in real estate in counties that we are more known to, such as Greece, Romania and of course the favorite Cypriot investment place that of the U.K. and London in particular. Examining however the local Cypriot way of investment wishing to “see and touch” their investment (and as such Cyprus is to be preferred), as well as foreign agents and managers who seem to overcharge and under declare the income (many examples) is a drawback.
At some point of time the Cypriot Co-Op (during the good old days) was placing ads, where the Co-Op was suggesting to keep one’s money in a plastic bag in a hole dug in the garden!! Be that as it may, we are not far away from it, as circumstances appear from time to time.
Real estate investments are attached with problems as well, such as non-payment of rents and common expenses by tenants, delays and costs for eviction, maintenance costs etc.
Our experience has shown that a landlord should place a greater weight on the quality of the tenant and his capability to meet the lease terms, as opposed to the level of rent.
Nothing comes free we are afraid.