Invest in Cyprus real estate

Is this a good time to invest in Cyprus real estate?

BY GEORGE MOUSKIDES

When is it better to invest in the property sector; when the prices are going up or down? In a period of crisis, like the one we are experiencing today, is it reasonable to invest? These are crucial questions for which you cannot simply give a simple ‘yes’ or ‘no’ answer.
First of all who is in a position today to forecast the prices for the next 6-month period or for the next year? No one can make such predictions with precision, except perhaps with regards to properties in popular areas such as those by the sea or in the centre of Nicosia or Limassol, for which a reasonable increase could be expected.
Opportunities for investments in property will always exist and this is something that most people agree upon.
The key question is whether property prices are at a level that allow investment. Because an investment in property is a medium to long-term affair, it is critical if the prices will slightly increase or decrease in the near future. It is more important that the investment can be financed and that it would give positive returns over the life of the property.
Therefore, a thorough assessment of the facts of the property in conjunction with our financials is a must.

What are the advantages?
- The increased number of available properties today gives us more choices.
- The prices are today more reasonable than two years ago.
- The return on property is a critical factor in our decision. When we consider investments, such as apartments or houses that we will buy to let, we need to examine the deposit and loan interest rates in combination with the property return (rents). Our decision depends on how we will finance the investment – from own funds, a bank loan or a combination of the two.
- What is the net return for our investment, if for example I withdraw my savings in order to buy an apartment? The savings interest rates fluctuate currently around 4% annually while the average return of the annual rent is about 5%. Hence we could conclude that initially the net profit is 1%. Each time there is an increase in the rent (usually every two years) the net return increases.
- The facts change if we take out a loan for a large part of the investment. Today for investment loans, the average is approximately 5.5%. This means that our net return is around zero, depending on the interest rate of the loan.
- A factor that needs to be considered is also the increase in the value of property over time, what financiers call the capital appreciation. Historically, the value of apartments increases by roughly 4-6% annually. This increase rate should be added to the calculation to arrive to our profit.
- Property prices increase with the increase in inflation and hence they protect the investor. Inflation is expected to be significant in the near future since in order to face the crisis almost all governments have injected cash into their economies in order to jump start it.

What are the disadvantages?
- If you are afraid of losing your job, given the economic uncertainty, understandably, you will postpone disposing of the savings that you keep for your security.
- The interest rates of roughly 5,5% for investment loans, is much higher in comparison to the interest rates in other Eurozone countries. We expect that they will decrease in 2010.
- Property that we rent may stay unoccupied for some time between tenants and occasionally maintenance expenses may be necessary, therefore we must allow for these events in our calculations.
In general, these are the facts, which we believe justify more investment activity than the current level. It is always a suitable time for investment in property, provided the correct and necessary research is conducted.

George Mouskides is Chairman of the Association for the Promotion of Property Development and Manager at Fox Smart Estate Agency.

URL: http://www.financialmirror.com/Columnist/Property/584
One Response to “Invest in Cyprus real estate”

1.
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