CYPRUS - Due Diligence
Our view on any investment transaction is that you must apply “science and maths” -in this instance I.C.I Investment, Communication and Infrastructure. All these three ingredients must be in the mix before you consider investing in a certain area as, for me at least, they are a proven recipe for success. Let’s face it, if there is no Investment in the area what is going to make your ‘investment” go up in value, and if there’s no Communication links or Infrastructure why will tenants/Clients want to rent it?
The same conditions and science can now be applied to Larnaca in Cyprus. We genuinely believe that there is a fantastic window of opportunity to make some serious money for savvy investors who take action and purchase in 2007.
Larnaca has always been a beautiful town, situated on the southern coastline of Cyprus. It always has been strategically placed, boasting its own international airport and a marina etc. However, in the past that was its Achilles heel. You see, Larnaca has had a big “blot on the landscape” associated with it an Oil Refinery, which, lets face it, is pretty unsightly. However, there is good news…the refinery is being dismantled and by the end of 2008 will have gone, thus returning Larnaca back to the beautiful town it should be.
At this point it’s worth mentioning that Cyprus became part of the EU in 2004, and part of gaining entrance to the EU is EU funding. Due to its history, geographical position, the airport, and amongst a whole host of other reasons, Larnaca is getting the lion’s share of the EU money.
We can use Dublin, Ireland as a benchmark here. When Ireland went into the EU, Dublin got the lion’s share of the money then, and look what happened! It was transformed from a rather sleepy city into one of the most cosmopolitan Cities in Europe, attracting extremely wealthy businesses and subsequently becoming an IT hotspot. All this had a huge impact on property prices as they kept climbing, and still are.
Cyprus is going into the EU monetary system in the beginning of 2008, so learning from historical precedence, we have a pretty good idea of how that is going to have a positive impact on property prices. Also, as an added bonus, there is a tax of 15% being put onto land acquisitions at the same time. History has told us that overnight property prices have the potential to rise, as they did in Ireland. So I can clearly see what is going to make my investment work.
The Refinery is going, to be replaced with Hotels, shopping complexes and an extension to the marina, the airport is currently being expanded to take what was a 2million passenger a year to 6million passengers a year. Note: - Larnaca Airport services most of southern Cyprus (stretching from Famagusta to Limassol) - quite a chunk. Monarch Airlines, plus a host of other “budget” carriers have announced scheduled services from various airports around the UK. With a four hour flight time, Cyprus is becoming an increasingly attractive destination to Brits. The Larnaca area has brand new road networks already in place, plus a new motorway system that will cater for all the passengers.
Remember, statistics show that if your investment is within a 20 minute transfer time from the airport, your occupancy levels are increased by 39%! Therefore, Larnaca is an “all year round” resort, and not seasonal. This is in stark contrast to such towns as Protaras and Kipparis which are only operational for 7 months of the year and are a 45 min. transfer time from the airport.
So you can see why I chose Larnaca above anywhere else. It reflects our achievements to date based solely on science.
Let me give you an example. We bought a2 bed roomed apartment just outside of Larnaca (approx 3km) It cost us CYP £98,000!!! Now if you transported that same specification apartment elsewhere on the island, it would cost you approaching CYP £150,000 or more. (Can you imagine what that would cost in London?)
It’s the timing that counts - not only that but the investors friend…Leverage.
Another bonus with Cyprus is the way you can borrow money. We chose to borrow in Swiss francs. The interest rate is low and it has been a very stable currency to borrow in.
So the math’s works like this.
It’s going to cost us around CYP £500 per month to buy the apartment and the average rental income is CYP £430 per week in high season!!! I think you can see where I’m going with this. Even if I had to drop the rent considerably, to give an economic incentive to my clients (something other owners cannot do elsewhere on the island) it will still pay for itself.
It’s also worth noting that Cyprus has a refreshingly familiar feel to it. The Banking institutions as well as the Legal aspects are very English. Not only that, the country itself is very protective over building practices. Most developments have a height limit of 2 stories and limitations on the amount of land the developer can build on. Cyprus being an island, means that land is always going to be at a premium and will become more so in the years to come. Another favorable fact is that there is no leasehold, only freehold. Which means even if you buy into an apartment with seven others, you own one eighth of the land…you can’t get that in the UK!
So who is going to rent my apartment? Well. Golfers visiting the nearby PGA golf course, or maybe divers coming to dive the world-famous wreck of the “Zenobia”. What about couples getting married or lots of families looking for a safe and secure holiday with their children? Cyprus has one of the lowest crime rates in Europe and feels very safe, even at night. Plus with an average of 340 days of sunshine a year, the tourist season lasts longer than most other European holiday destinations.
Finally, with any investment, you must have an “exit strategy” in place from Day One. Those buying in Eastern Europe and other secondary markets unfortunately do not have one and that feels rather risky for my taste. However, in Cyprus, there is a healthy re-sales market to locals and ex-pats, as well as refinancing options to release equity. It’s worth noting that U.K. pensioners are only taxed at 5% in Cyprus, making the island increasingly popular as a retirement destination – so there will be a healthy
re-sales market for many years to come both from wealthy Cypriot nationals and from U.K. ex-pats.
So to summarise: What we can see in Larnaca, Cyprus is similar to North London 3 years ago…. An opportunity that adds up to property investment, NOT property speculation.
Provided you use the science and maths that I have spoken about there, is an opportunity to make your investment work without going in blind. There is no point buying an investment in an area that has “had its day”. You need to invest where the money is going…remember I.C.I. - Investment, Communication, Infrastructure - Larnaca has all this and more.
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