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04 September, 2017
Cyprus has long been something of a conundrum for investors. On the one hand, there are clear risks associated with doing business there. The infamous “Cyprus savings grab” of 2013 is far from forgotten and given that Cyprus is still navigating its way through turbulent economic waters, investors have to wonder if their Cyprus-based assets will be safe from future raids.
On the other hand, Cyprus does still have clear and obvious attractions, most especially its strong tourist industry. It is also currently operating a “golden visa” scheme similar to those in place in many Mediterranean countries including Spain, Portugal, Greece and Malta.
The promise of passports has stimulated the real estate market
The golden visa scheme was introduced on properties for sale in Cyprus about two months after the government raid on savings deposits and was viewed in some places as a tacit quid pro quo to international investors who’d lost significant sums. This initiative was billed as a short-term solution to bring in an urgent injection of cash, but since then the government has not only made the scheme permanent but relaxed the eligibility criteria. There are, however, several reasons, why this is unlikely to be an effective, long-term stimulus.
First of all, the fact that the scheme is now permanent means that investors are placed under less pressure to act promptly and hence have more leisure to look at other options. Secondly, the scheme is rather controversial and may cause the EU to force it to be abandoned, or at least (heavily) revised. Thirdly, the current scheme allows investors to sell their international property investment (or residential) properties after three years, which has the potential to set up a merry-go-round of investors selling on their properties to other investors, rather than investors buying up new properties. At the same time, it’s unlikely that this clause will cause a severe downturn due to investors selling up all at once, for the simple reason that these high-net-worth individuals can typically afford to hold properties for as long as they need to achieve the price they want.
Investment in tourism helps promote sustainable economic development
The Cyprus government has just signed a contract with a consortium comprising Melco International, Hard Rock and CNS Group to develop Europe’s biggest casino resort, which is expected to provide a significant boost to Cyprus’ tourist industry, which is arguably the country’s strongest economic sector and one in which investors clearly feel they can have confidence.
The most obvious indicator of this confidence is the fact that hotel investment is performing so very well compared to the market as a whole. It should, however, be noted that the benefits of the tourist industry are much broader than this. For example hotels need goods and services themselves, hence improving the attractiveness of commercial property such as office space as an investment class. Tourists also spend (most of) their time outside their hotels, which benefits other leisure facilities such as restaurants. Workers serving the tourist industry (either directly or indirectly) need places to live, hence tourism also stimulates the residential property market. Even though air travel means that Cyprus is competing on a world stage, it is, by any measure, great value for money as a travel destination, hence its enduring popularity.
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