How Not to Fall Into the No-Exit-Strategy Trap With Your Cyprus CIP Investment

 

Cyprus has appealed to foreign investors for decades for a plethora of reasons ranging from multi-award-winning blue flag beaches and excellent living conditions to the island’s strategic location at the crossroads of three continents, as well as its attractive tax regime. Over the years it has offered ideal real estate investment opportunities for relocating, for retirement or for second homes, as well as for offshore companies and international corporations. Today, the Cyprus Investment Programme aims to strengthen foreign interest with very attractive packages that offer buyers a fast-track course to European citizenship, but not without its capital risks. 

History of Investment in Cyprus
The island became a hot spot of foreign interest during the 1960s when European tourists began to show an interest in owning property across stunning coastal regions, and specifically around the Famagusta area. 

The market came to a halt during the 1974 occupation but, true to its persistent and hospitable character, Cyprus pulled together fairly rapidly and the market stabilized in a very short period of time. Swedes seized the new real estate market opportunities first, followed by the Lebanese and wealthy families from Kuwait. Cyprus then began to attract the British and the Russians but mostly for humble homes and midrange properties rather than high-end investments, similar to those that London, Paris, and Moscow were securing.

After the global financial crisis that peaked in Cyprus in 2013, public and private sector strategies to attract foreign investment needed reassessment and restructuring. As the country depended on bulk investments for a speedy economic recovery, it looked to the real estate market and the island’s natural and favorable taxation assets, to enhance interest by UHNW individuals. 

For these reasons, the government created and aggressively promoted a new Cyprus Investment Programme (CIP), which called for investors to purchase properties valued at 2.5 – 3 million euros, in order to acquire Cypriot – and, by extension, European – citizenship. 

The market, however, had suffered a great deal, with sales dropping over 50% since 2008. Most developers were on the verge of bankruptcy. While developers looked to the banks for loans, and real estate offices looked for decent ready-to-sell projects, investors found it increasingly hard to buy quality high-value properties in good locations without risking a 50% chance they would be repossessed during or even after the purchase.  

After a three year recession, Cyprus returned to growth in the first quarter of 2015 and continued to surpass all expectations which led to a very rapid bounce-back. The luxury property development market grew exponentially and it became very easy to qualify for the CIP as upmarket projects became available across the island. Developers used the Programme to dynamically promote their properties as secure investment opportunities and, today, almost 5,000 passports have been granted.

In February 2019, the Council of Ministers approved and announced a number of changes to the CIP, in order to target and encourage the creation of an eco-system of business innovation as well as facilitate the creation of finance for affordable housing through mandatory contribution to the Cyprus Land Development Corporation. The new plans also aimed at preventing any overgrowth of the real estate sector, through foreign investment. 

In essence, these changes made it slightly more bureaucratic and slightly more expensive to acquire Citizenship through investment. Stronger due diligence procedures, controls, and promotion of new areas of local investment aside from real estate proved the intention of the government to sustain the Programme’s economic benefits for the country and its people, rather than direct benefits solely to developers. 

While the new measures had a positive impact on the market, and property prices stably increased across the island, private developers saw the upcoming changes as a chance to promote a sense of urgency, essentially scaring investors into ‘buy-now’ behavior. The negative promotion of the new measures resulted in a dramatic drop in CIP investments, once they were officially implemented in May. 

Thinking Outside the Box: Securing investment in Cyprus with innovative strategies
While developers drove CIP interest toward high-end property investments in prime locations only, and there are still some attractive purchase opportunities from the secondary market at 2014 prices, the sudden decline in CIP applications reveals certain risks. 

The first cycle of the CIP worked favorably for investors as they secured their investments with a plan to resell their properties to other CIP buyers, effectively recycling their capital at a profit. There is, however, no secure plan B for when interest in the CIP falls. The high value of the luxury properties acquired makes it very difficult to develop an exit strategy at times when the Programme, for whatever reason, no longer attracts investors at the rate it has done in the past.  

There is no reason, however, why a level-headed and intelligent investor would allow fluctuations in the CIP’s success, due to unfortunate and opportunistic scare tactics, to affect plans to follow through with what could and should be an excellent investment opportunity. 

As with all investments, trigger-happy and copy-cat behavior is risky. As the CIP shifts gears, purchasing from the mass market during this second cycle will very likely make it difficult to secure returns, and may result in an exit at a loss. 

For strategic investors, however, there are, in fact, safer and higher performing real estate investment opportunities in Cyprus. The only thing they need to do is avoid quick fixes and overpromising offers, and turn to logical and tested ways of maximizing their potential profits. 

Two secure ROI investment strategy examples:

#1: Avoiding standard residential real estate investments that are currently saturating the market, and instead, investing in unique and out-of-the-box opportunities. This means purchasing or developing projects that do not just appeal to wealthy CIP buyers, but also international and local investors. These projects should make the most of the island’s tourism sector, which will always occupy a dominant position in the economy of Cyprus.

Moreover, they should offer flexible and sustainable usage options which will help investors successfully shape their resell and exit strategies, according to any future market changes. Examples of these types of projects include:

1. Hotel Apartments
2. Co-working spaces
3. Hostel Accommodation 
4. Staff accommodation for new hotels opening in Cyprus

#2: Transitioning from buyer to developer. This allows investors to choose their own plot of land and control all stages of development, customizing their project in a way that suits their personal needs, while also keeping the local market needs in mind, so as to secure a quick and profitable resell, when and if needed.

An investor that chooses this route has ownership of the entire process and can handpick a team that will create plans, obtain licenses as well as hire a contractor and construction team that will secure a high-quality end product with no hidden costs. This scenario also enables investors to keep profit margins that would otherwise be paid to the developer, and also ensure maintenance, management and promotional control for project rental or sale. 

Harnessing Local Expertise
While both of these exciting investment scenarios should be undertaken by experienced and market-savvy individuals, who want to skillfully tailor and secure their potential returns, local representation will be necessary in order to optimize all procedures and foresee the smooth completion of all stages. A local partner who knows the Cyprus market and can offer guidance at all times, planning out a fruitful strategy that will help the investor exit after a five-year holding period, or maximize returns on both a short and long term basis.   

At Pandomus Group, we can help you identify the best strategy for your real estate investment, through innovative projects such as the above examples that can offer you all CIP benefits, without depending on the future success of the Programme, to secure profits. 

With an in-depth knowledge of the industry and an excellent portfolio of investments that we have assisted or managed since 2003, we have gained a truly unquestionable reputation by consistently finding new ways to create risk-free, insight-based opportunities that perfectly suit our client’s current and future needs. 

Pandomus Group works as a Multifamily Real Estate Office that focuses on helping you develop, plan, navigate and execute your smart and highly calculated investment in Cyprus, with the promise of an assured flourishing future. 

We are known for our reliable, down-to-earth way of operating, planning realistic, fact-based investment forecasts and using a highly connected database of experts that share our common goal of making sure your investment becomes profitable, in a very reasonable amount of time. Our experience is only surpassed by our flexibility and we undertake projects of all sizes, creating new-builds, guiding the transition from investor to developer, and ascertaining resale projects that are always in your best interest. 

Our services include: 

• Market Research 
• Land Acquisition 
• Business Plan & Feasibility Study 
• Due Diligence 
• Negotiation
• Architecture & Design 
• Licensing
• Precise Bill of Quantities 
• Construction & Supervision 
• Quality Check 
• Asset Management 
• Promotion of the Project

The CIP is a valuable tool, but so is finding the right partner, with access to the right strategies that will make the entire investment process, as risk-free as possible. With Pandomus by your side, you will have everything you need, every step of the way, in order to secure high returns and all advantages of investing in a European member state, with none of the hassle. Simply prepare to get creative and think outside the box with meticulous pre- and post-management, solid planning as well as a personalized collaboration package, adapted and tailored to meet and exceed your personal targets and individual needs. 

For more information visit: pandomusgroup.com

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