New Horizons for the Cyprus Property Market — Affordable Housing and Legislative Changes
Housing affordability is a key issue for many countries and Cyprus is no exception. Young families and vulnerable groups often face difficulties in finding suitable and affordable housing. The Government of Cyprus has acknowledged this issue and is taking various steps to increase the supply of affordable apartments on the market.
New Housing Affordability Strategy
- Reducing the Minimum Floor Area of Apartments — will allow developers to create more compact and affordable housing options suitable for young families and people on a budget. Reducing the minimum floor area of apartments will not only increase the number of affordable units on the market, but will also potentially reduce the overall cost of construction for developers. This, in turn, could lead to more affordable prices for new apartments for buyers.
- Tax Exemptions and Incentives — applying a reduced VAT rate of 5% for new constructions of a certain area and value used as a primary and permanent residence. However, this initiative has encountered some problems, as the European Commission insists on adjusting the criteria for applying the preferential VAT rate to comply with EU directives. The Cypriot authorities proposed to apply a rate of 5% for housing up to 150 m², valued at up to €350,000, subject to 19% VAT on the excess square footage. This issue is still under discussion and requires further negotiations between Cyprus and the European Commission.
- Incentives for developers — in order to increase the number of affordable apartments, in December 2023, Cypriot developers approved a government program that involves increasing the development coefficient for properties with a minimum net area of 1,000 m², with an obligation to provide a portion of new housing at affordable prices. This will allow more apartments to be built on the same plot of land, and 25% of the new area will be allocated to affordable housing programs.
- Social initiatives and support for vulnerable groups — includes rental subsidy programs, preferential mortgage loans and targeted grants for improving housing conditions. Particular attention is paid to young families, who often face difficulties when buying their first home. The state is developing special programs offering preferential lending conditions and subsidies for this category of the population. In addition, the authorities cooperate with local communities and non-profit organizations to identify and support socially vulnerable groups in need of improving their housing conditions.
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Problems and challenges
- Pressure from the European Commission — The European Commission has expressed dissatisfaction with the current tax policy in Cyprus, in particular with regard to the application of a reduced VAT rate on housing. The Commission insists on bringing the criteria for applying tax incentives in line with EU directives, which may limit Cyprus's ability to support affordable housing through tax mechanisms. This conflict requires further negotiations and compromises between the Cypriot authorities and the European Commission.
- Increasing tax burden — the government intends to increase property taxes while lowering the threshold below which tax is not paid from €170,000 to €120,000. This move could put pressure on the property market and potentially reduce the affordability of housing for some categories of the population. Increasing taxes could increase the financial burden on homeowners and developers, which in turn could lead to an increase in apartment prices.
- Decreasing demand and changing market structure — despite efforts to develop the affordable housing sector, the country has seen a decline in the issuance of building permits. At the same time, the overall cost of permits for new projects has increased. This trend could indicate a shift in the market towards more expensive and elite projects, potentially reducing the affordability of housing for the middle class and socially vulnerable groups. The Cypriot government needs to find a balance between stimulating the development of the property market as a whole and ensuring an adequate supply of affordable housing.
Prospects and Opportunities
- Despite the existing problems and challenges, the Cyprus real estate market has the potential to further develop and improve the situation with housing affordability. Reducing the minimum area of apartments and investing in affordable housing can increase the supply on the market and make buying or renting an apartment more accessible to a wide range of people.
- In addition, the Cyprus government may consider introducing additional support measures, such as down payment subsidies, preferential mortgage programs and tax deductions for first-time home buyers. These initiatives can ease the financial burden on young families and socially vulnerable groups, making the acquisition of their own home more realistic.
- It is also important to develop cooperation between the state, developers and local communities to create comprehensive affordable housing projects that not only offer apartments at affordable prices, but also provide the necessary infrastructure and social services. Such projects may include the construction of schools, kindergartens, medical centers and public spaces, creating a favorable environment for living and development.
In conclusion, it should be noted that ensuring affordable housing is a complex task that requires a comprehensive approach and joint efforts of the state, developers and society. The Government of Cyprus is taking significant steps in this direction, introducing new strategies and legislative changes aimed at increasing the supply of affordable apartments and supporting socially vulnerable groups. However, the country also faces a number of challenges, including pressure from the European Commission, an increase in the tax burden and a changing real estate market structure. To successfully address these challenges, further negotiations, compromises and adaptation of policies to changing conditions are necessary.
In the long term, the development of affordable housing in Cyprus will require ongoing efforts and innovation. This may include the use of new construction technologies, optimization of apartment layouts, the development of public-private partnerships and the introduction of sustainable real estate practices. Only through the joint efforts of the state, business and society will Cyprus be able to create a more affordable and inclusive housing market that provides comfortable living conditions for all segments of the population. This will not only improve the quality of life of citizens, but will also contribute to the overall socio-economic development of the country.
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