Sunday, 7 September 2008

Cyprus - The Island of Aphrodite

Fast Facts

- 3rd Highest GDP per capita in the European Union

- Non-Residents investors may freely repatriate proceeds
from any investments

- Capital: Nicosia

- Population: 800 000

- Currency: Euro (€)

Economic Overview

'The island of Cyprus is also called the Island of Aphrodite, which in Greek Mythology is the goddess of beauty and love........'

'This museum is boring !! Let's go and demolish a plate of calamari, finish off a few bottles of graca and then check out the nightlife !! :)'

Officially the Republic of Cyprus is a Eurasian island country situated in the eastern Mediterranean, south of Turkey, west of the Levant, north of Egypt, and east of Greece.

Cyprus is the third-largest Mediterranean island, and one of the most popular tourist destinations, attracting over 2.4 million tourists per year. A former British colony
(why are we not surprised?!), it gained independence from the United Kingdom in 1960 and became a Commonwealth republic in 1961. The Republic of Cyprus is a developed country and has been a member of the European Union since1 May 2004.

The island in itself is effectively partitioned by the "Green Line" - dividing the two parts from Morphou through Nicosia to Famagusta - with the northern third inhabited by Turkish-Cypriots and the southern two-thirds by Greek Cypriots. The border is patrolled by United Nations troops. (Just in case........)

Cyprus acceded to the EU in 2004 and in July 2007, the currency was locked into the Euro. From 1st January 2008, the Cyprus Pound was replaced by the Euro, with one Euro worth 0.585274 Cyprus Pounds.

Since its accession to the EU, Cyprus has tightened its fiscal policy, following a slippage in 2003 which saw a general government deficit of 6.3% of GDP. The deficit was reduced to 4.2% in 2004, and only 1.2% in 2005 which is well within the EU prescribed 3% of GDP ceiling.

The Cypriot economy saw good growth in 2007, recording 4.4% GDP growth.

Since the heady days of the 1980's, there has also been a significant decline in inflation which recorded a very respectful 4.6% in April 2008.

In February 1997, the government revised its policy on foreign direct investment, permitting 100% foreign ownership in certain cases (Whoooohoooo !!). Regulations on foreign portfolio investment in the Cyprus Stock Exchange also have been liberalized as well.

Cyprus has concluded treaties on double taxation with 26 countries, including South Africa, and has removed exchange restrictions on current international transactions. Non-residents and foreign investors may freely repatriate proceeds from investments in Cyprus. (Gotta love that !!)

Property Market Review

The past year and a half have been quite extraordinary in Cyprus in terms of house price growth. The island is enjoying an extraordinary property boom after a long period of gentle house price rises.

Liberalization of the financial sector, a decrease in interest rates, and increased demand for higher quality housing and second homes as well as the introduction of VAT on the sale of new property, are the main drivers for the recent price increases.

Under the EU accession treaty, VAT on land purchases should've been introduced on 1 January 2008. This has helped create overnight price rises, as all new properties bought since the January 1st deadline are subject to 15% VAT on the value of the land, whereas all properties bought before this time were not. (So the idea was to buy before VAT is scheduled to be added on !!!)

However, the Cypriot government were able to postpone (don't know how they managed that??) the implementation of the VAT on land to July 1, 2008, then to August 1, 2008. Real estate agents capitalized on the confusion by enticing buyers to buy before prices increased with the imposition of VAT.

Look at what this 'enticing' did to the house price growth:

So as you can see, after good solid growth since middle 2006, it was 2008 and beyond which caught the eye !!

EU nationals who are resident in Cyprus may own as much property as they wish, but Non-resident EU nationals, may own as much land as they wish (awesome news !!)

But if Non-resident EU nationals (that's us Saffers) wish to buy any other sort of property, ownership is restricted to one house or one apartment for which approval from the 'Council of Ministers' is needed. Regardless of their residency status, nationals of non-EU countries must seek the approval of the Council of Ministers before they can own any type of immovable property.


The first question you'll ask me is 'Has Cyprus had its day & has the growth in property prices come and gone?' The answer is YES........ and NO.

YES = Due to the extraordinary situation in becoming part of the EU & by postponing the introduction VAT, house property growth has shot through the roof (excuse the pun :) thereby curtailing the historic stable growth figures once experienced before EU ascension.

NO = Cyprus is now part of the EU which promotes stability and growth to its member countries and therefore growth will continue....... albeit at a slower rate than before.

(Sources: http://www.globalpropertyguide.com/ , http://www.wikipedia.org/ ,Daily Telegraph, http://www.iafrica.co.za/ )

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