Is it worth investing in property in Cyprus? Elena Chirkova, manager of the GEIST Movchan's Group fund, answers

Last year, Russians have sharply increased their interest in foreign real estate. Cyprus remains one of their most popular destinations. Should investors pay attention to this market? Elena Chirkova, manager of the GEIST Movchan's Group fund, tells about the situation on it at the request of The Bell.

What's up with the demand

Once upon a time, before the 2008 crisis for sure, Cyprus was a cheap place in terms of long-term real estate. A one-room apartment in a coastal town could be rented for 150 euros. Gradually, prices began to rise, and the first driver was the move of Greek residents to Cyprus. After the massive crisis of 2008, wages in Greece fell sharply. For example, I know a doctor whose salary was reduced to 800 euros and who was deprived of bonuses. He was offered a starting salary in Cyprus of 1,500 euros, and he took it and moved. And so did many Greeks. Then the programmers reached out: Cyprus is developing this sector of the economy and provides tax and non-tax benefits. An important non-tax benefit, for example, is this: if you are the spouse of a programmer working in Cyprus, then you get the right to work. This rule does not apply to other professions.

The events of February 2022 exacerbated the situation. Russians are moving to Cyprus, Ukrainian men with families who were able to leave the territory of Ukraine through Russia, and Ukrainian women and children who left Ukraine. In addition, Germans and Englishmen of retirement age are also traveling, they do not necessarily move permanently, but they can rent an apartment for the winter, assuming that it will cost the cost of heating in their homeland. So, my friend rented an apartment back in the summer to English pensioners, who rented it from November, having paid since August, so as not to miss the opportunity.

Rental prices have skyrocketed and continue to rise. Since then, when a simple odnushka cost 150 euros, the total increase was probably 3-3.5 times.

As for real estate prices, it has grown over the past year, but not very much: it feels like 20% percent, and official statistics give even less. The reasons are the growth of rent and, accordingly, the rental yield and the increase in the cost of building new housing.

What about income

The net rental yield for a long-term lease can probably be estimated at 5-6 percent. For real estate, this is a lot, and it is understandable that it is determined by a unique set of circumstances. If the situation returns to normal (and in terms of energy costs, it is already much better), then someone will return to their home countries and demand will decrease. My opinion is that those who lived in Moscow or St. Petersburg are more likely to return from Russians, and it is unlikely that those who lived in provincial cities - Cyprus greatly benefits from them in terms of quality of life, and Moscow can compete - it has its advantages. Whatever the case, demand may fall.

Does this mean a drop in rental yields? Don't think. The specificity of Cyprus is that the drop in rental yields for long-term rentals is limited by the fact that you can always switch to daily rentals. There is a long swimming season here - from May to November, in April they come for Easter, and the British are used to while away the winter here.

Short-term rental yields depend on your nationality: non-EU residents cannot rent apartments short-term. I believe that this is due to the fact that the management of an apartment for rent is treated as work, and you cannot work without permission. The Russian will have to rent it out through an intermediary who will “nip off” 15 or even 20 percent of income. , etc.) rental yield will be 8%. This allows us to assume that the profitability of long-term rentals will not fall, and with a decrease in demand, the number of apartments rented for the long term, which will go to the parallel short-term market, will also decrease. So, the market for investment in rental housing can be considered attractive.

What's next

As for the forecast of prices for residential real estate, the pressure on them will be exerted by a sharply increased discount rate in the eurozone. Now it is 3%, and this is a new reality - from 2016 to mid-2022 it was zero. This pushes up the cost of a mortgage, and in an environment of stagnant incomes and inflation, it further affects what kind of home a mortgage lender can afford. If only this factor acted, then residential real estate would definitely begin to fall in price. But the Cyprus market is specific - there is a high proportion of foreigners in demand and an too large proportion of those who buy housing without a mortgage, including the same retired Englishmen who usually sell their homes in order to move to the island. By the way, for this reason, the movement of property prices in the UK is also a factor that affects the price of housing in Cyprus.

In the bottom line, the net influence of factors other than the interest rate is difficult to assess. Most likely, if Cyprus continues the policy of attracting highly paid programmers, it will not fall or fall not much even with an increase in the rate. This is such a vicious circle, in a positive sense: the more wealthy people come to the island, the more relevant goods and services there are and the more attractive life is. I do not expect Cyprus to turn into Dubai or Monaco in the coming years, but judging by the number of new marinas, the island as a center of attraction for the rich is strengthening its position. After all, the tax system here is also favorable, especially for non-citizen tax residents.