Real Estate

Cyprus, property purchase – Change of contract

Contract change is a situation where a person enters into a contract to buy a new property off-plan, but only pays 30% as a deposit before selling it for a profit. Essentially, the speculator can take advantage of the property’s potential price increase over the one or two years it takes to complete the property.

In fast moving markets, the opportunity to invest is excellent, but in periods of stable or even falling prices, the speculator could be stuck and have to collect the remaining 70% and take possession. And if you want to sell, you could lose out on less popular resale markets.

The potential contract investor should also ensure that they have excellent legal advice, just like any other property buyer; actually it is obvious but many just think they are buying and selling contracts but if the final buyer cannot get the property then the investor will not make any sale. .

When buying a property abroad to change the contract, the same rules apply as when buying a property at home: location, location, location and value for money.

With VAT being levied on land sales in Cyprus in 2008, anyone buying property can now expect a built-in 7% mark-up and until title deeds are transferred in the buyer’s name, transfer tax from the land is about 2% of the value of the property. does not have to be paid.

But the smart flipper needs to consider the cancellation fees payable to the developer when it comes to selling, hopefully long before they have to shell out 70%. Property developers don’t usually mention contract cancellation fees on resale before titles are issued, and if they aren’t mentioned, they tend to charge a fee of around 2% of the purchase price. So the smart flipper limits this in the contract to CYP500 and makes sure there is an explicit right to sell. This last point is surprising but sometimes it is forgotten.

In addition, the smart flipper will ensure that you do not pay a portion of the developer’s liability for real property tax on your entire portfolio by making a provision in the contract as well.

The smart flipper can only use personal CGT assignments in Cyprus once. Therefore, the contract flipper may need a corporate vehicle for his business. Yes, it is a business!

Setting up a company in Cyprus through your Cyprus lawyer will cost you around CYP1500, but can be very fiscally efficient from a CGT and corporate tax point of view.

If you are a multiple contract flipper then the savings could be significant. Cypriot companies attract a corporate income tax rate of 10% on rental income and a capital gains tax of 10%.

Unlike personal tax, you will not have to pay any additional tax in the UK unless you get the income or capital gain from the Cypriot company. If you retire in Cyprus, you can withdraw the money at Cypriot personal tax rates and, if you’re an investor, you can reinvest the earnings in more real estate without paying additional UK tax.

The next big thing in Cyprus is the accession to the euro zone in May 2007 and the adoption of the euro as the symbol of the country.
badge. Interest rates on euro loans could be in the region of just 2.5%. Generally speaking, this is good for the contract investor because as interest rates fall, people can afford to borrow more money to buy property and more people can afford to enter the real estate market. taking advantage of this rate of capital growth.

Following the success of the ecu peg policy, the Cypriot pound was pegged to the euro on January 1, 1999, the first day of the introduction of the new European currency. The central parity rate remained at CY£1 =EUR1.7086. Initially, fluctuation margins were also kept at ±2.25%.

However, on January 1, 2001, however, wider bands of ±15% were introduced to allow the Central Bank to absorb any impact of possible destabilizing capital movements and deter speculative capital flows, in the context of the liberalization of the capital account. At the same time, the narrower bands of ±2.25% were temporarily maintained in order to anchor prices and expectations.

Based on some pretty crude math, it could be GBP/CYP at 0.75 at the bottom. Those who pay for a property in installments would like to note the downside potential.

The feeling is that it’s still 50/50 on whether or not there will be a devaluation, but perhaps it’s best to keep as little capital in CY£ as possible, just in case!

Bearing in mind the above, what happens if you have a mortgage here in Cyprus in Cypriot pounds and the Government of Cyprus devalues ​​it and then converts it to the euro?

It would mean you could be a winner! It all depends on what source of money you use for mortgage payments. If the Cypriot pound devalues ​​it means other currencies will buy more CYP than before, so if you are using UK pound sterling income for the payment, for example how many sterling you will need to change to make the same payment of CYP will be lower.

Put another way, if you have a CYP mortgage equal to, say, £50,000 and the CYP devalues ​​by 10%, then you would only have to pay £45,000 to pay it off.

If you have a CYP 50,000 mortgage at the current exchange rate of CYP 1 = EUR 1.74333, then the Euro equivalent of the loan at this time is EUR 87,166. If the CYP depreciates against the euro by 10%, the exchange rate would be CYP = EUR 1.56899, which means that a loan of CYP 50,000 would be equivalent to EUR 78,449. With 105 discount.

There is much in this article for the Cyprus real estate contract investor to think about in setting their strategy for the next two years.

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