Returns of Real Estate Investments

As deposit interest rates are going down (now ½% - 1%) but more importantly with the expected negative charge on them, the rumors that prevail for some of the local banks regarding their sustainability and the increasing rents over the recent couple of years for residential units has directed investors towards real estate for income.

At present the prevailing returns are as follows:
Apartments 3%-4%
Houses 2%
Shops 5%-6%
Industrial units 4%
Hotel projects 10%

In order to clarify, the shown returns (yields) in this context refer to the value/acquisition cost of a unit in relation to the total overall gross income. Unlike other countries, in Cyprus the gross returns are adopted and not net (i.e. after expenses/ taxes/void periods etc.), which are taken into account.

These returns also relate to the eviction/repossession of statutory tenants (i.e. buildings completed prior to end 2009 and it refers primarily to Municipal areas/towns). This is a serious problem since eviction/increase of rentals cannot be easily obtained and it requires time and cost to succeed the same.

A pending proposal on the statutory tenancy is now under review at the House and we expect that to an extent, landlords will be relieved from their legal procedures/cost now required (expected for vote by end of November). It refers to an eviction for non- payment of rent within 1-2 months from application to the Court Registrar.

Rental income must also take into account the common expenses (if any) which relate to comprehensive development projects, since the payment of such common expenses has been difficult causing all sorts of problems. This issue which is quite serious, it is upsetting the free market transactions causes animosity amongst co-residents and on many occasions it leads to buildings disrepair.

A proposal is now at the House to address the issue of the common expenses and we hope by the end of the year (2019) or early next year, a more workable proposal will come into effect.

The popular Airbnb (and other) way of lettings produces a good income, but it requires on spot management and increased hassle. The buy to let for such type of units has increased considerably over the last couple of years and it is still on the up.

Again a new proposal to regulate such short term lets is under discussion at the House, but the measures suggested are lukewarm and as such we do not believe that it will make any serious effort to their existing unregulated operation.

This depression of the real estate market during the year 2008-2016 with the lack of new developments and the depression of prices, did not encourage the development of new projects of a suitable nature, leading to a shortage of supply with rental increase (mainly for residential) to increase by around 30% over the last 2 years. This increase is not related to the high end units however, whose market demand comes mainly from the foreign market and not on a predictable time frame.

As the economy improves and as the banks are providing nowadays more loans in the market, so demand will increase in the near future, sustaining the prevailing demand over the near future at least.

Regrettably our past experience (as Cyprus) in the Stock Exchange losses, has scared away the investors interest for income basically leaving the real estate income as the only “solid” alternative for such investors. Nothing is certain however for all types of real estate investment and a careful watch is needed at intervals in order to monitor the market.