Introduction

In Cyprus, real estate trends and developments are closely linked to developments in the wider economy and legal reforms. The economy drives supply and demand and underlies Cyprus’s position as an international business hub, while the government regulates and monitors activity through legal and fiscal measures.

Recently, the Cyprus economy faced several challenges, such as rising prices, inflation and cost of living increases. Nevertheless, the forecast is optimistic. The European Commission (latest available data 15 February 2024) expects GDP to grow from 2.4% in 2023 to 2.8% in 2024 and 3% in 2025. Meanwhile, it projects inflation to fall from 3.9% in 2023 to 2.4% in 2024 and 2.1% in 2025. This will have a positive effect on real incomes.

The Commission also notes robust private consumption, rising incomes, and available employment possibilities. Regarding real estate, the Recovery and Resilience Facility of the EU partly supports large investment projects that, in turn, positively impact growth. A January 2024 study from the University of Cyprus Economics Research Centre notes a significant budget surplus for 2023 and solid economic growth during the last quarter of the year.

The Real Estate Market: Challenges and Optimism

The above-mentioned University of Cyprus study examined, inter alia, the real estate industry. Usefully, it has identified a positive contribution made by construction investment to GDP growth. Although business confidence in sectors inclosing services, retail and manufacturing has decreased, confidence in construction remains strong and has reached its highest level since 2019. The real estate sector in Cyprus remained largely unaffected by negative global trends. Good performance is set to continue.

Furthermore, the Department of Lands and Surveys (DLS) statistics, the first for 2024, show healthy activity in property transactions, surpassing the EUR110 million mark in Limassol alone.

The trend for foreign nationals purchasing residential property in all areas of Cyprus, but especially on the coast, is set to continue. There have been satisfactory foreign sales in the first trimester of 2024.

It should be noted that EU nationals may purchase realty on the island without restrictions, while third-country nationals (TCNs) need approval from the Council of Ministers. The approval procedure is a largely technical requirement; all good-faith applications are approved.

Revised Criteria for Permanent Residence by Investment in Real Estate

Cyprus has been administering a permanent residence through investment programme for several years with considerable success. Such programmes exist worldwide and, at their simplest, provide the right to permanent residence in a state based on specific capital investment, income and other criteria.

In Cyprus, two of the investment options involve real estate acquisition. The first option consists of buying residential property, and the second option involves purchasing commercial real estate.

Nevertheless, as the Financial Action Task Force (FATF) and the OECD point out in a 2023 joint report, there are concerns that residence by investment programmes may be misused and exploited to perpetrate financial crime and fraud. To this effect, in May 2023, Cyprus introduced amendments to its Permanent Residence by Investment Programme. The aim is to strengthen internal controls and manage risk.

Under the new regime, the investment and secure annual income amounts are raised while the number of family members who may benefit from the scheme has been reduced. The investment requirement is now EUR300,000, while the annual income is EUR50,000; the additional requirements for spouses and dependants are also higher. The applicant’s parents and parents-in-law can no longer be included in the permanent residence permit.

Moreover, a monitoring and verification mechanism has been introduced. To comply with the requirements, the applicant should verify:

• on an annual basis, that they continue to maintain the investment, and they have either registered themselves with the General Health System (the Cyprus National Health Service, abbreviated as Gesy) or hold a health insurance policy; and
• that they and the adult members of their family continue to hold clean criminal records from their country of origin and country of residence, if these are different, every three years.

The relevant evidence and supporting documentation should be submitted to the Civil Registry and Migration Department of the Ministry of the Interior in Nicosia. Applicants who fail to verify will lose their permanent residence rights. The right is also lost if the applicant is absent from Cyprus for over two years.

The programme operates on an accelerated application basis. Applications are examined and determined within a period of two months.

Reduced VAT on Property Purchase

A significant development in 2023–2024 concerned the reduction in the size of property that can be purchased at a reduced VAT rate. Certain real property transactions, including the sale of a primary residence, are subject to a VAT rate of 19%. Under the previous rules, a primary residence’s first 200 sq m were subject to a reduced VAT rate of 5%.

On 16 June 2023, the Cyprus House of Representatives amended the VAT Laws of 2000–2022 with Law 42(I)/2023. Correspondingly, the current regime for VAT has been modified to the effect that the reduced VAT rate of 5% applies as follows:

• the primary residence of 130 sq m and total value of EUR350,000 gets the reduced 5% rate;
• primary homes between 131 and 190 sq m and up to EUR475,000 in value get 5% for the first 130 sq m and 19% for the remainder;
• primary residences over 190 sq m and EUR475,000 in value do not qualify for reduction; and
• persons with disabilities receive the 5% reduced rate on the first 190 sq m of primary residence.

The European Commission approved this scheme in January 2024.

Change of Rules for Buying Without Title Deeds

The purchase of real estate without title deeds has been an ongoing issue for several years. This sometimes happens because the seller has already mortgaged the property and cannot transfer it.

The House of Representatives responded by passing the Sale of Property (Specific Performance) Law of 2011 (81(I)/ 2011). Under this law, the buyer of property without title deeds could be protected by using the remedy of specific performance, whereby the side in default is ordered to carry out its contractual obligations. The buyer could be protected provided they:

• deposited the contract of sale at the Department of Lands and Surveys (DLS) within six months;
• paid the mortgage; and
• sought specific performance against the seller through the court.

This law was amended on 12 December 2023 to strengthen the protection available to buyers. Under the new amended provisions, the deposition of the contract of sale at the DLS must be accompanied by either of two documents:

• a declaration from the mortgage owner(s) and seller that once the buyer has repaid 95% of the mortgage, they will lift the mortgage (once the receipt of payment is also submitted, the DLS will then transfer the property to the buyer); or
• a declaration from the buyer that they do not wish to accompany the contract of sale with the first type of declaration.

Moreover, the seller is obliged to integrate in the contract of sale a search certificate concerning the real property. The search certificate, an official document issued by the DLS showing burdens on the property, must not be older than five working days from the signing of the contract. If there is a mortgage and the seller wishes to repay it (as above), the mortgage owner(s) are obliged to accept payment. Once the buyer has repaid 95% of the mortgage, the DLS will transfer the real property to the buyer.

The amendments to the law concern contracts signed after 12 December 2023. Contracts signed before that date are covered by the previous law.

Mortgage to Rent (MTR) Programme

Due to recent economic considerations, vulnerable real estate owners in Cyprus have been concerned about their ability to repay mortgage loans. On 12 July 2023, the Council of Ministers approved the Mortgage to Rent (MTR) programme, aiming to protect the primary residence of specific vulnerable groups. The programme started on 4 December 2023 and will remain open until 4 August 2024.

MTR works as follows:

• The government owns the Cooperative Asset Management Company, an asset management company created from the former Cyprus Cooperative Bank. In turn, the Cooperative Asset Management company established a subsidiary named KEDIPES, to manage the non-performing loans (NPLs) that were brought to light during and after the financial meltdown of 2012–13.
• KEDIPES purchases the primary residence of qualifying applicants (the assets and share capital of KEDIPES are pledged to be used for the benefit of the Republic of Cyprus, in line with both entities’ co-operative roots).
• The maximum value of a qualifying residence is EUR250,000.
• The government pays rent for the property so the applicant can remain in residence.
• After five years, the applicant may re-purchase the property through a new mortgage.
• Applicants over 65 may remain in residence on rent terms for life.
• Within the programme, an incentive has been announced to create affordable housing for foreign company professionals and employees. The incentive is linked to the Cyprus Business Facilitation Unit (BFU, see below). Foreign company professionals and employees will also benefit from an increase to the allowable building areas of certain residential zones. Both incentives were approved by the Council of Ministers on 20 December 2023.

The programme was launched with success. On 3 April 2024, the government extended the criteria for eligible applicants.

Real Estate Trends

Current real estate trends refer to both the business environment and household life. Specific real estate trends are linked to new government policies on foreign-interest businesses and employee citizenship acquisition.

Business: trends and relocating to Cyprus

Regarding business, the trend is for companies from abroad to buy or rent premises in Cyprus, especially in the coastal cities. Such companies are often, but not always, call centres. Another flourishing business type is setting up and running small hotels within the city rather than large hotels on the coast. Reasonable prices attract tourists since even city centres are never far from the sea in Cyprus.

Several options exist when a foreign business wishes to relocate to Cyprus. These include:

• registering as a foreign company with the BFU, provided specific criteria are met (see below);
• opening a branch of an existing foreign company upon relevant application to the Registrar of Companies;
• registering a new Cyprus company or a European Company (SE) with the Registrar of Companies; or
• performing a cross-border conversion and converting a company registered in the EU to a Cyprus company – the procedure is carried out through the Registrar of Companies.

Cyprus possesses a number of attractions as an international business centre. It is poised in a strategic location between Europe and the Middle East; as an EU member, it offers political and social stability in a financial environment controlled by the European Commission and the European Central Bank.

Recently, the government of Cyprus established the Business Facilitation Unit (BFU), which operates through the Ministry of Finance. The BFU facilitates the registration and running of businesses of foreign interests, issues residence and employment permits to personnel, and allows for tax exemptions. Under family reunification rules, members of the family of such personnel may also come to Cyprus. This justifies the trend for companies to consider Cyprus a prime relocation choice and to acquire real property for entrepreneurship.

In November 2023, Cyprus passed Law 149(I)/ 2023, an amendment to the Civil Registry Law 2002-2021, which creates favourable conditions for highly skilled personnel in companies of foreign interests or foreign companies.

The terms “company of foreign interest” and “foreign company” are used interchangeably in the Ministry of Finance documents and refer to companies where:

• shareholders are TCNs; or
• TCNs hold up to 50% of the shares and have a share capital of at least EUR200,000.

Law 149(I)/ 2023 came into force on 19 December 2023. It allows highly skilled personnel of foreign companies to apply for naturalisation (citizenship) after three or four years of work and residence on the island, depending on knowledge of the Greek language.

Respectively, the certificate of knowledge of the Greek language must be at the A2 or B1 level under the Common European Framework for Languages (CEFR). The applicant must show a twelve-month continuous and lawful residence in the Republic preceding the application (absences of up to 90 days are allowed).

The Ministry of Education conducts language examinations at regular intervals. Highly skilled personnel means personnel with a university degree or equivalent or two years of experience in their field, receiving a monthly salary of at least EUR2,500 gross.

Moreover, in a policy announced on 5 February 2024, the government expressed an intention to allow businesses registered under the BFU to remain in the BFU Registry even if, after shareholders acquire citizenship, they no longer satisfy the foreign participation requirements.

Households: decentralised real estate markets and renting out

Ownership patterns among new households are exhibiting a trend for decentralisation (ie, properties in urban districts or rural areas that are near a larger city). Moreover, renting out is becoming a popular investment strategy. Buying a flat or erecting a cabin-sized house to rent out is increasingly considered a secure source of income.

Forecast and Conclusion

The real estate field in Cyprus is exhibiting resilience and is expected to continue its significant contribution to the economy. Legal measures aim to rectify weaknesses and ensure the system functions smoothly. New areas of opportunity and new fields of regulation for the near future are expected to be the role of AI in real estate and the government’s focus on sustainable development and green building.