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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the real estate market (both commercial and residential) in your jurisdiction?

The residential property market was one of the first sectors in Cyprus to be hit by the global economic downturn. Activity at the lower end of the property market is virtually non-existent and a number of developers are under severe financial strain. Developers with the foresight and resources to do so have repositioned themselves by shifting their focus to larger and more elaborate properties aimed at wealthy purchasers from Asia, Eastern European and the Middle East that are attracted by Cyprus’s permanent residence and economic citizenship programmes. However, there is a large stock of unsold (and in many cases uncompleted) projects aimed at more modest purchasers and it is difficult to see many of these selling in the foreseeable future in the conventional manner. However, there are value investors from overseas with substantial funds which are prepared to acquire a portfolio of properties in anticipation of a recovery in demand in the longer term.  

The commercial property market, which initially showed more resilience, has been hard hit by the fall in retail demand and the damage to local businesses caused by the loss of bank deposits during the bailout. There is a glut of unoccupied premises, even in prime areas.

Rights and registration

Rights

What types of holding right over real estate are acknowledged by law in your jurisdiction?

There are two types of holding right over real estate in Cyprus: freehold and leasehold.

It is possible to secure occupation of premises in advance of construction or an existing occupier vacating (eg, through an agreement for lease), provided that this is sufficiently detailed to be binding under the Contract Law, and not merely ‘an agreement to agree’. Section 77 of the Contract Law provides that for a lease of immovable property with a term exceeding one year to be valid and enforceable, it must be signed at the end by or on behalf of each party in the presence of at least two witnesses, who must add their names as witnesses. There is no domestic case law on whether an agreement to lease requires the same formalities, but it would be prudent to comply with them.

Leases exceeding 15 years may be registered with the Land Registry, provided that this is specifically provided for in the lease. Registration should be effected within three months of signing the lease. Registered leases give the tenant certain advantages, including the right to trade the lease. Non-EU citizens may not take a lease of immovable property for a period exceeding 33 years without prior permission from the Council of Ministers, and they are not allowed to let their premises. However, this restriction does not apply to EU citizens or companies incorporated in an EU or European Economic Area member state.

Are rights to land and buildings on the land legally separable?

Yes, depending on the right in question. Under the Immovable Property (Registration, Tenure and Valuation) Law (Cap 224), the definition of ‘land’ includes any buildings erected on a piece of land. However, the right to use or occupy a property may be limited to a building or part thereof.

Which parties may hold and exercise rights over real estate? Are there restrictions on foreign ownership of property?

Any registered owner of a property, a lease holder or a licensee may exercise rights over the property.

The Immovable Property Acquisition (Aliens) Law, which dates back to the colonial era, required non-Cypriots wishing to acquire immovable property in Cyprus to obtain prior permission from the Council of Ministers. For the purposes of the law, the acquisition of immovable property includes:

  • the purchase of freehold property;
  • the grant or purchase of a lease of property for a period exceeding 33 years; and
  • the acquisition of shares in Cyprus companies which own immovable property on the island.

Following the end of a five-year transition period after Cyprus’s accession to the European Union, all remaining restrictions on the acquisition of property in Cyprus by citizens of other EU member states were removed with effect from May 1 2009. Citizens of other EU member states, and companies registered and based in EU member states (regardless of the nationality of their shareholders), may now acquire immovable property in Cyprus on the same terms as Cypriots.

Non-EU citizens and companies incorporated outside the European Union still require permission, but this is generally a formality. It may take a year or so for the formal permit to be issued, but the buyer is entitled to occupy the property in the meantime.

How are rights, encumbrances and other interests over real estate prioritised?

Rights, encumbrances and other interests must be registered with the appropriate district lands office register and the priority is fixed in accordance with the filing date of each right, encumbrance or charge.

Registration

Must real estate rights, interests and transactions be registered in your jurisdiction? What are the legal effects of registration?

There is no legal obligation to register rights or interests over immovable property, but if they are not registered, they will be unsecured. For example, under the Sale of Immovable Property (Specific Performance) Law (81(I)/2011), a purchaser of immovable property may secure the remedy of specific performance by depositing a duly stamped copy of the contract at the Land Registry within six months from the date of its execution, thus preventing the vendor from transferring the property elsewhere or charging it for as long as the contract is valid and legally effective. If the vendor subsequently refuses to transfer the property, the purchaser may apply to the court for an order to transfer the property.

What are the procedural and documentary requirements for entry into the national real estate register(s)? Can registration be completed electronically?

Registration can be completed physically, either in person or through a practising lawyer or a representative holding a valid power of attorney.

The person seeking registration must present adequate evidence of identity or a full original set of corporate documents in the event that the applicant is a corporate entity. In addition, the relevant form must be filed together with the appropriate supporting documents, such as the sale agreement or mortgage documents.

What information is recorded in the national real estate register(s) and to what extent is such information publicly available?

The information which is publicly available relates only to the immovable property itself. Although the register also contains details of the registered owner, method and date of acquisition, purchase price (if it was acquired through purchase), encumbrances and rights over the property, this information is disclosed only to parties having an interest in the property.

Is there a state guarantee of title?

No. The holder of a title deed is prima facie the registered owner of the property, but only an extract from the registry can verify this.

Sale and purchase

Brokerage

How are real estate brokers regulated in your jurisdiction (eg, through caps on commission or disclosure obligations)?

Only registered real estate brokers are entitled to commission on sales, as per the Estate Agents Law 2010. The broker (irrespective of whether he or she is acting for the seller or the buyer) must disclose to the purchaser all legal characteristics of the property and any charges and encumbrances burdening the property.

Unless agreed otherwise in writing, commission is set at 3% of the purchase price.

Due diligence

What due diligence should be conducted before conclusion of a real estate sale contract?

Due diligence should be conducted in relation to:

  • the registered owner of the property to be acquired;
  • the encumbrances and other rights burdening the property;
  • the seller (ie, identification and full set of corporate documents in the event of a legal entity); and
  • whether the signatory is fully authorised to sign such agreement.

In addition, it is advisable to obtain an expert opinion from a valuer and an architect or civil engineer in relation to the structure (if applicable) and the legal characteristics of the property to be acquired.

Preliminary agreements

Are any preliminary agreements typically entered into before conclusion of a sale contract?

There is no obligation to sign a preliminary agreement. The common practice is to sign a sale contract directly; however in some cases, a reservation agreement is also executed.

Contracts

Must sale contracts be concluded in writing? If so, must they be notarised?

The agreement must be in writing. Notarisation is required only in the event of an assignment agreement where the signatures of the assignor(s) and assignee(s) will need certification.

Can sale contracts be concluded electronically?

No.

What provisions are usually included in a sale contract?

Typically, the contract should provide:

  • the identity of the parties;
  • a full description of the property;
  • the purchase price and mode of payment;
  • the state of the property;
  • any encumbrances; and
  • the timetable to transfer the property into the name of the purchaser.

Obligations and liabilities

What are the seller’s disclosure obligations and other liabilities, and what are the consequences of breach?

The seller is under an obligation of full disclosure. A breach of this duty is misrepresentation for which the injured party can seek damages.

What contractual warranties are usually given by the seller?

Warranties may be given regarding issues, including:

  • legal ownership of the property;
  • the necessary planning and other permissions;
  • freedom from charges;
  • ability to deliver clean title deeds;
  • freedom from defects; and
  • if the property is under construction, timely completion.

Are there any other obligations on the buyer, aside from paying the purchase price?

The purchaser must pay:

  • taxes as from the date of delivery of possession;
  • the stamp duty to stamp the agreement; and
  • transfer fees, unless value added tax is imposed on the purchase of the property

Taxes

What taxes are payable on the sale and purchase of real estate? Are any exemptions available?

Taxes and fees payable

The Stamp Law provides for stamp duty on contracts on the basis of consideration at the following rates:

  • less than €5,000 – €0; and
  • in excess of €5,000, but not exceeding €170,000 – €1.50 for every €1,000 or part thereof; and
  • in excess of €170,000 – €2.00 for every €1,000 or part thereof, with an upper limit of €20,000.

Stamp duty must be paid within 30 days of the date of execution of the relevant documents or, if they are executed abroad, within 30 days of them being received in Cyprus. The absence of the revenue stamp does not render a contract void, but an unstamped contract cannot be used in court proceedings or to transfer ownership of property in the Land Registry. A previously unstamped contract may be used in proceedings or to transfer ownership provided that it is properly stamped at the time of such use. A surcharge of approximately 10% of the unpaid amount is imposed if payment is made within six months of the due date; otherwise, the surcharge is twice the unpaid amount.

Under the Immovable Property (Transfer and Mortgage) Law (9/1965), a transfer fee is payable by the purchaser to the Department of Lands and Surveys based on the purchase price or, under certain circumstances, on the current market value. The first €85,000 is charged at 1.5%; the next €85,000 is charged at 2.5%; and any excess above €170,000 is charged at 4%. For properties subject to value added tax (VAT), no transfer fees are payable.

VAT is charged on supplies for new buildings and the land on which they stand if the application for a building permit was submitted after May 1 2004. The current rate is 19%. No VAT is charged on leasing or letting of immovable property.

Transfer of title

When does title in the property transfer?

If the title deed is available when the sale is concluded, it is transferred simultaneously with the full settlement of the purchase price. Otherwise, the seller will be under a contractual obligation to transfer the title deed when the separate title deed for the unit is available.

Timeframe                    

What is the typical duration of a sale transaction?

A straightforward case can be completed in a week.

Leases

Contracts

Must a lease agreement be concluded in writing?

Yes. Any lease agreement exceeding 12 months in duration is invalid unless it is in writing and signed by the parties and two witnesses.

Are there any regulations setting out mandatory or prohibited provisions in lease agreements?

No.

What provisions are typically included in lease agreements?

The following provisions are usually included in a lease agreement:

  • a description of the leased premises;
  • a description of the parties;
  • the duration of the lease;
  • the amount of rent;
  • rental review information; and
  • the responsibilities of the parties.

What are the standard forms of lease agreement used in your jurisdiction?

No standard form of lease agreement exists.

Length of term

Are there any regulations on minimum and maximum terms of leases?

No.

Are long-term tenants accorded any special rights as to extension or renewal of leases?

No.

Rent

What regulations (if any) govern rent increases?

The Rent Control Law regulates rental increases for buildings completed before January 1 2000 located within the prescribed areas.

What regulations (if any) govern rent security deposits?

No regulations in relation to security deposits exist.

Can the tenant withhold rent payments on any legal grounds?

No.

Sub-letting

Under what circumstances is sub-letting typically allowed?

This is a matter for agreement between the parties.

Obligations and liabilities

What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?

This is a matter for agreement between the parties, but the usual practice is that the landlord is responsible for paying taxes and levies relating to the ownership and maintaining the premises structurally. A breach of the landlord’s obligations gives the tenant the right to terminate the agreement and claim damages.

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

Tenants are usually required to:

  • pay rent on time;
  • maintain the property in good condition as delivered;
  • refrain from using the property for illegal activities; and
  • reimburse the landlord for any taxes and levies connected with use of the premises.

Breach of the tenant’s obligations gives the landlord the right to terminate the agreement and claim damages.

Taxes

Are any taxes payable on rental income? If so, are any exemptions available?

Rental income is subject to income tax, with some allowances for certain costs. In addition, Cyprus tax residents are liable to a special defence contribution at a rate of 3% on 75% of the rent.

Insurance

Are the landlord and tenant bound by any insurance requirements?

This is a matter for agreement between the parties.

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

For lettings within the scope of the Rent Control Law, proceedings must be conducted before the Rent Control Court. For all other leases, these issues are governed by contract law.

Finance

Finance providers

What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?

The typical providers for real estate financing are banking institutions, but there are no restrictions as to who may provide financing.

Financing structures

What are the most common structures used to secure real estate financing and how are these security interests perfected?

The most common security is a mortgage filed with the Land Registry.

What covenants are typically made in financing agreements?

Typically, the transfer of the property into the name of the purchaser that obtained a loan is simultaneous with the filing of the mortgage and the release of the funds to the seller by the mortgagee.

Enforcement of security

How are security interests enforced in the event of default?

Security interests are enforced through the civil courts.

What is the typical timeframe for the enforcement of security?

The process takes approximately seven years. The Immovable Property (Transfer and Mortgage) Law was amended in 2014 to streamline the process and it is hoped that this will significantly reduce delays. However, as yet, there has been little sign of this.

Investment

Investment climate

What is the general climate of real estate investment in your jurisdiction?

There is strong demand for high-end seafront properties and high-end commercial developments with a yield of 3% or more. This is largely due to the visa programme, which entitles qualifying purchasers of properties above a certain value to residence rights, and the economic citizenship programme, which allows substantial investors to obtain Cypriot citizenship.

Investors

Who are the most common investors in real estate?

The most common investors are third-country (non-EU) investors aiming to obtain a permanent residence permit or Cypriot citizenship – most commonly from Russia, Eastern Europe, the Middle East and East Asia.

Are there any restrictions on foreign investment in real estate?

The Immovable Property Acquisition (Aliens) Law, which dates back to when Cyprus was a British colony, required non-Cypriots wishing to acquire immovable property in Cyprus to obtain prior permission from the Council of Ministers. For the purposes of the law, acquisition of immovable property includes:

  • the purchase of freehold property;
  • the grant or purchase of a lease of property for a period exceeding 33 years; and
  • the acquisition of shares in Cyprus companies which own immovable property on the island.

Following the end of a five-year transition period after Cyprus’s accession to the European Union, all remaining restrictions on the acquisition of property in Cyprus by citizens of other EU member states were removed with effect from May 1 2009. Citizens of other EU member states, and companies registered and based in EU member states (regardless of the nationality of their shareholders), may now acquire immovable property in Cyprus on the same terms as Cypriots.

Non-EU citizens and companies incorporated outside the European Union still require permission, but this is generally a formality. It may take a year or so for the formal permit to be issued but the buyer is entitled to occupy the property in the meantime.

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

The typical structure would be to incorporate a Cyprus company to purchase the property. This eliminates the need for a permit from the Council of Ministers. There are no special tax provisions for such companies.

Planning and environmental issues

Planning

Which government authorities regulate planning and zoning for real estate development and use in your jurisdiction and what is the extent of their powers?

Within each administrative district, the district administration or individual municipalities (for properties inside their boundaries) are responsible for issuing building permits. The Town Planning and Housing Department, part of the Ministry of Interior, sets the overall development framework and issues town planning permits, which are required to obtain building permits.

What are the eligibility, procedural and documentary requirements to obtain planning permission?

Only the registered owner can apply for a planning permit and must submit the architectural study and drawing for the proposed development.

Can planning decisions be appealed? If so, what is the appeal procedure?

Yes, decisions can be appealed through judicial review. This procedure must be initiated within 75 days of the date on which the decision was communicated to the interested party.

What are the consequences of failure to comply with planning decisions or regulations?

Non-compliance with planning decisions is a criminal offence. In addition, the planning authority may seek a demolition order.

What regime governs the protection and development of historic and cultural buildings?

The Listed Buildings Law 2002 governs the protection and development of historic and cultural buildings.

Government expropriation

What regime applies to government expropriation of real estate?

This is governed by the Compulsory Acquisition Law 1962.

What is the required notice period for expropriation and how is compensation calculated?

The notice is published in the Official Gazette and served by registered post on the owner. Compensation is calculated based on the market value of the property at the time that the property is compulsory acquired. In the event of dispute, the owner can apply for judicial review.

Environmental issues

What environmental certifications are required for the development of real estate and how are they obtained?

Certificates of Energy Efficiency are required for new buildings. They are issued by the Ministry of Energy, Industry, Commerce and Tourism.

What environmental disclosure obligations apply to real estate sales?

There is a general obligation of full disclosure of all relevant matters, but nothing specifically relating to environmental matters.

What rules and procedures govern environmental clean-up of property? Which parties are responsible for clean-up and what is the extent of their liability?

The owner is liable for the clean-up of its own property. If the owner fails to take any necessary action, the local authority will undertake the cleaning and charge the owner with the relevant costs.

Are there any regulations or incentive schemes in place to promote energy efficiency and emissions reductions in buildings?

Incentive schemes are available for installation of solar panels and insulation.