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Permanent Residence Scheme

As per the announcement of the Civil Registry and Migration Department (CRMD) on 27/04/2023, applicants whose Sale Agreements have been lodged at the Department of Lands and Surveys Offices between 02/01/2023 and until 28/04/2023, will be able to submit their applications to the CRMD and the criteria of the Cyprus Permanent Residence Scheme according to Regulation 6(2) as of 24/03/2021 will apply.

Considering the new amendments of the Cyprus Permanent Residence Scheme according to Regulation 6(2) of the Aliens and Immigration Regulations, as of the 2nd of May 2023, for the applicants whose Sales Agreements have been lodged before the 02/01/2023, they will no longer be able to include the parents and the parents-in-law to be granted Permanent Residence as their dependents.

The recent amendments were officially announced on Monday, 2/05/2023.

The Council of Ministers approved a proposal by the Ministry of Interior to revise the criteria for granting Permanent residency under the provisions of Regulation 6(2) of the Aliens and Immigration Regulation.

As per the Minister of Interior, Mr. Constantinos Ioannou, the Ministry of Interior is aware of the risks involved in the implementation of these Schemes and the main aim of these amendments is to establish stricter criteria to grant the Permanent residency, to correct any distortions and to establish a mechanism which will monitor that the applicant will be following these criteria.

The new amendments to the Cyprus Permanent Residence Scheme according to Regulation 6(2) of the Aliens and Immigration Regulations apply as of today, the 2nd of May 2023 and onwards.

As per the announcement of the Civil Registry and Migration Department (CRMD) on 27/04/2023, applicants whose Sale Agreements have been lodged at the Department of Lands and Surveys Offices between 02/01/2023 and until 28/04/2023, will be able to submit their applications to the CRMD and the criteria of the Cyprus Permanent Residence Scheme according to Regulation 6(2) as of 24/03/2021 will apply.

Investment in a house/apartment

The minimum amount of at least €300.000 (excluding V.A.T.) shall be paid in advance to the land development company(ies), regardless of the delivery date of the property, and the relevant documentation evidencing the settlement of this amount shall be submitted to the CRMD, for the applicant to be able to submit his/her application to the CRMD. The investment amount shall be transferred from the Bank Account of the main applicant or his/her spouse provided that the spouse is included as a dependent to the main applicant’s application.

Annual Income

Another significant amendment is the increase of the required annual secure income of the main applicant of at least €50,000. The annual income is increased by €15,000 for the spouse and €10,000 for each minor child of the applicant and/or his/her spouse. It is noted that the secured annual income of the main applicant can only be proved through salary from employment, pensions, stock dividends, interest on deposits, rents, etc. coming from abroad, and the annual income shall only be proved through the main applicant’s tax return from the country in which he/she declares to be a tax resident. The tax declaration shall only be provided in cases where the applicant has made an investment in the purchase of a house or apartment by a Land Development company, and in the calculation of the total annual income, the spouse’s income can be taken into consideration.

In the cases where the applicant has invested either in 1) real estate (excluding houses/apartments), or 2) in the share capital of a Cyprus Company with activities and staff in Cyprus, or 3) in units of a Cyprus Collective Investment Organization (type AIF, AIFLNP, RAIF), the total annual income or part of this can also arise from sources originating from activities in the Republic of Cyprus, provided that the applicant is taxable in Cyprus.

Additional significant amendments

All adult applicants shall provide a Clean Criminal Record from their country of origin and from their country of residence if it differs. Additionally, all family members shall provide Medical Insurance Certificate for medical treatment covering inpatient and outpatient care.

In case that the applicant will proceed with the investment in a house/apartment, if the number of bedrooms of the property cannot satisfy the needs of the dependent members of the applicant’s family members, the applicant shall indicate another property or properties which will constitute the place of residence of these persons, along with documentation evidencing this (e.g., the property title deed, sales agreement, rental agreement).

Family members

Another important amendment is that the main applicant can include only his/her spouse, minor children, and adult children up to the age of 25 years who are unmarried and who are university students financially dependent on the main applicant. The main applicant will no longer be able to include the parents, the parents-in-law to be granted Permanent Residence as their dependents.

Compliance with the criteria and preservation of the investment

Lastly, once the Permanent Residence application is approved by the CRMD, the applicant is required to submit to the CRMD, on an annual basis from the date of obtaining the Immigration Permit, evidence that he/she maintains the initial investment, that he maintains the required income determined for him and his/her family members and that he/she and his/her family members are holders of a Medical Insurance Certificate, in case they do not continue to be beneficiaries of the General Healthcare System (GESY). In addition, the applicant and his/her adult family members are required to provide an updated Clean Criminal Record from country of origin, as well as from country of residence. In case the holder of the Immigration Permit fails to prove the above, it will entail activation of the process of cancellation of the Permit of himself/herself and his/her family members based on the provisions of Regulation 6 of the Aliens and Immigration Regulations.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice.

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CYPRUS ECONOMY

Cyprus Economic Outlook

March 1, 2022

GDP growth accelerated year-on-year in the fourth quarter. Although a detailed breakdown is not yet available, subsectors related to tourism—such as hotels and restaurants—and the internal market—such as wholesale and retail trade—were among those that performed well. Moving on to Q1 2022, easing restrictions should be lending some strength to the tourism sector. That said, domestic demand dynamics seem sluggish, with motor vehicle registrations down by double digits in January. In other news, on 14 January, Scope Ratings affirmed the country’s rating at ‘BBB-’, while maintaining a stable outlook. Among positive factors in the economy, Scope underlined the reformist government and the EU-sponsored recovery plan, although lingering vulnerabilities in the banking sector prevented an upward revision.

Cyprus Economic Growth

The economy should slow down this year, following a swift recovery in 2021, weighed on by a less favorable base effect. The gradual easing of Covid-19 restrictions at home and abroad should spark the key tourism sector. Meanwhile, the country’s vulnerability to new variants of the virus poses a risk to the outlook. Focus Economics analysts see GDP growing 4.1% in 2022, which is unchanged from last month’s forecast. In 2023, our panel sees the economy expanding 3.5%.

Cyprus Economy Data

2015 2016 2017 2018 2019
Population (million) 0.8 0.8 0.9 0.9 0.9
GDP per capita (EUR) 21,047 22,256 23,438 24,465 25,050
GDP (EUR bn) 17.8 18.9 20.0 21.1 21.9
Economic Growth (GDP, annual variation in %) 3.4 6.8 4.4 4.1 3.2
Consumption (annual variation in %) 2.8 4.4 4.5 3.3 3.0
Investment (annual variation in %) -0.2 48.9 24.1 -6.6 0.1
Exports (G&S, annual variation in %) 9.9 7.2 8.7 4.6 2.0
Imports (G&S, annual variation in %) 8.1 9.0 12.8 2.4 1.5
Industrial Production (annual variation in %) 4.8 10.3 7.7 6.6 3.2
Retail Sales (annual variation in %) 5.2 6.2 5.4 3.2
Unemployment Rate 14.9 13.0 11.1 8.4 7.0
Fiscal Balance (% of GDP) -1.0 0.3 2.0 -3.7 1.7
Public Debt (% of GDP) 108 103 93.9 101 95.5
Inflation Rate (HICP, annual variation in %, eop) -0.6 0.1 -0.4 1.0 0.7
Inflation Rate (HICP, annual variation in %) -1.6 -1.2 0.7 0.8 0.6
Inflation (PPI, annual variation in %) -5.1 -4.2 3.4 2.3 2.2
Policy Interest Rate (%)
Exchange Rate (vs USD)
Exchange Rate (vs USD, aop) 1.11 1.11 1.13 1.18 1.12
Current Account (% of GDP) -0.5 -4.2 -5.1 -4.4 -6.7
Current Account Balance (EUR bn) -0.1 -0.8 -1.0 -0.9 -1.5
Trade Balance (EUR billion) -3.2 -4.2 -5.0 -4.7 -4.7
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Cyprus’ housing market improving, after dramatic measures encourage buyers

Cyprus house prices

After seven long years of house price falls, Cyprus’ housing market is now showing some improvement, amidst recovering economy. House price falls are now decelerating. Property transactions are rising. Residential construction activity is also increasing.

These developments follow the 2015 passage of a “Trapped Buyers Law” to enable access to title deeds, a 2014 regulatory reform to ensure greater transparency, and measures to exempt buyers who buy during 2016 from all future capital gains taxes, and give them a 50% discount on Title Deeds transfer tax.

During 2015, the nationwide residential property price index dropped 1.8% but when adjusted for inflation, it actually increased slightly by 0.17%, based on figures released by the Central Bank of Cyprus. On a quarterly basis, residential property prices were unchanged in Q4 2015.

This was supported by figures released by the Royal Institution of Chartered Surveyors (RICS), which showed that house prices in Cyprus fell by 1.42% y-o-y in 2015, to an average of €372,714. Nationwide house prices also increased 0.56% during 2015 when adjusted for inflation. House prices fell 0.8% (-1.46% inflation-adjusted) q-o-q in Q4 2015.

During 2015:

  • Nicosia, Cyprus’ capital, house prices declined by 1.42% (increased 0.56% inflation-adjusted) to an average price of €372,714 (US$414,065)
  • Paphos house prices rose by 3.1% (5.7% inflation-adjusted) to an average price of €353,991 (US$393,265)
  • In Farmagusta-Paralimni, house prices remained unchanged at €320,916 (US$356,520) (increased 2.1% inflation-adjusted)
  • In Larnaca, house prices declined by 0.04% (increased 1.97% inflation-adjusted) to an average price of €277,222 (US$307,978)
  • In Limassol, house prices declined by 3.18% (-1.23% inflation-adjusted) to an average price of €304,105 (US$337,844)

Unsurprisingly apartment prices have followed house price movements. Paphos was the only district that saw a meager price increase of 0.14% (2.14% inflation-adjusted) y-o-y in 2015, to an average price of €96,545 (US$107,256). In contrast, Nicosia saw the biggest drop of all Cyprus districts, with the average apartment price falling by 2.97% (-1.02% inflation-adjusted) during 2015, to €105,254 (US$116,931). It was followed by Famagusta-Paralimni, with apartment prices falling by 2.45% (-0.5% inflation-adjusted), Limassol -2.41% (-0.46% inflation-adjusted), and Larnaca -1.08% (0.9% inflation-adjusted).

This across-the-board housing market improvement is largely driven by Cyprus’ recovering economy. In 2015, the economy grew by 1.6%, after annual declines of 2.5% in 2014, 5.9% in 2013, and 2.4% in 2012, according to the International Monetary Fund (IMF). The economy is projected to expand by 1.6% this year, and by another 2% in 2017.

The Cyprus real estate market has historically been divided into the major urban centres of Nicosia, Limassol and Larnaca, primarily driven by local demand; and the seaside resort areas of Paphos and Famagusta, which are mostly driven by foreign demand. The economic decline of recent years affected both areas.

The housing market is expected to continue to improve in the coming months, amidst continued economic recovery, improvements in the banking system, and increasing investor confidence due to the passing of new laws that offer tax incentives and protect homebuyers from frauds.

Cyprus successfully exits IMF program; banking system recovering

In 2012 Cyprus’ banking system collapsed. Like Iceland, Cyprus’ banking sector has long had a huge offshore banking sector. By 2012 the banking sector had assets of $120 billion in an economy with a GDP of only $24 billion, with $60 billion of these assets involving Russian corporations’ deposits. Cypriot banks had a hard time making a return on all this money, and their response was to raise loan risk-levels, lending to Cyprus’ own overleveraged local property companies, and to the Greek government, which in 2012 experienced the largest sovereign debt default in history.

In March 2013, Cyprus became the fifth Eurozone country to get a bailout from the Troika, composed of the International Monetary Fund, European Central Bank and European Commission. Cyprus was lent €10 billion (US$13.71 billion). Included in the agreement was a haircut for bank deposits of more than €100,000 (US$137,070) at the country’s two largest banks—Bank of Cyprus, and Cyprus Popular Bank (Laiki Bank).

The terms required Cyprus to cut public sector spending, hike taxes, and cut its bloated banking sector. The loss of confidence had an enormous impact on the local economy, combined with the decline in tourism largely resulting from the Eurozone crisis, and the downgrading of the Cypriot government’s bond credit rating to junk status.

Over the last three years, Cyprus showed impressive policy achievements and ended its IMF bailout program before term. Significant legal and institutional changes were introduced. The banking system is now on a more solid ground. Unemployment has begun to fall. The economy is back on its growth track. The economy grew by 1.6% last year, from annual declines of 2.5% in 2014, 5.9% in 2013, and 2.4% in 2012. Economic growth is projected at 1.6% this year, according to the IMF.

Despite these improvements, the IMF pointed to some pending tasks including tackling non-performing loans, reducing public debt, and continuing growth-enhancing reforms. The ratio of non-performing loans (NPLs) in the banking sector remains very high at 60%, equivalent to 150% of GDP, while public debt is still over 100% of GDP. Also, the nationwide unemployment rate should be reduced further. It currently stands at over 15%, according to the IMF.

Construction activity improving, but still far below peak levels

In 2015, there were 3,197 dwelling units authorized in Cyprus, up by 12% from a year earlier, according to the Cyprus Statistical Service. In Q1 2016, permits issued for the construction of residential buildings increased 1.7% y-o-y while dwelling permits dropped 2.7% over the same period.

Cyprus dwellings authorized
From an average of 18,000 units authorized annually from 2004 to 2010, dwelling permits fell to under 5,000 units per annum from 2011 to 2015.

Property sales increasing, but still far below pre-crisis levels

In 2015, property sales in Cyprus rose by 9.4% to 4,952 units from a year earlier. But sales remain far below the pre-crisis levels.  Sales were at an average of 18,000 units in 2002-2007.

Cyprus property sales
In the first quarter of 2016, property sales in Cyprus rose by 24.5% to 1,367 units from a year earlier. Over the same period, property sales to the domestic market increased 26% to 1,069 units, and sales to the overseas market were up by 19.2% to 298 units during the same period, based on figures from the Department of Lands & Surveys.

By major urban centres:

  • Nicosia registered 215 sales contracts in Q1 2016, up by 23.6% a year earlier.
  • In Larnaca, property sales rose by 18.5% y-o-y to 307 units in Q1 2016.
  • In Limassol, property sales rose by 33% y-o-y to 468 units over the same period.
  • In Paphos, sales contracts increased 13.4% to 287 units over the same period.
  • In Famagusta, sales contracts rose by 50% y-o-y to 90 units in Q1 2016.

Brief history of Cyprus’ housing market

Cyprus price indexCyprus’ housing market started to decline in 2009, mainly due to the global financial meltdown, according to the Central Bank of Cyprus (CBC), after robust house price increases of 22.06% (17.96% inflation-adjusted) in 2007 and 9.73% (5.93% inflation-adjusted) in 2008.

CBC statistics are collected separately from RICS, so the figures may differ slightly:

  • In 2009, the residential property price index fell by 1.86% (-2.7% inflation-adjusted).
  • In 2010, the residential property price index fell by 3.57% (-5.51% inflation-adjusted).
  • In 2011, the residential property price index fell by 4.96% (-8.24% inflation-adjusted).
  • In 2012, the residential property price index fell by 4.71% (-5.98% inflation-adjusted).
  • In 2013, the price index fell 8.5% (-6.63% inflation-adjusted) – the largest decline since the data started in Q1 2007.
  • In 2014, the price index fell 8.02% (-7.37% inflation-adjusted).

Interest rates continue to fall

Interest rates in Cyprus continue to fall, following European Central Bank key rates. As of April 2016, the following average housing loan rates applied in Cyprus:

  • Interest rate fixation (IRF) of up to 1 year: 3.97%, down from 4.29% in April 2015 and 7.35% in April 2014
  • IRF over 1 and up to 5 years: 3.79%, down from 4.48% a year ago and 6.48% two years ago
  • IRF over 5 years: 3.41%, down from 3.6% in April 2015 and 4.84% two years ago

Cyprus interest rates housing loansIn March 2016, the ECB key rate was reduced to an all-time low of 0.00%, as a response to sharply lower oil prices and volatility in emerging economies and financial markets.

In previous years, banks in Cyprus have been slow to respond to ECB interest rate cuts, because there is little inter-bank lending, so banks rely on customer deposits for funding.  Many banks pay high rates to attract deposits, according to finance minister Makis Keravnos.

The market is becoming more sensitive to interest rate shocks. Variable-rate mortgages now account for about 98% of all housing loans in Cyprus.

Mortgage market declining

From 29.3% of GDP in 2005, the mortgage market grew sharply to about 75.71% of GDP in 2011. However, the mortgage market slowed since then. The mortgage market contracted to about 75.81% of GDP in 2015, from 77.45% of GDP in 2011.

Cyprus housing loans
In April 2016, total outstanding housing loans were down by 3.9% y-o-y to €12.97 billion (US$14.4 billion), according to the Central Bank of Cyprus.

  • Housing loans to domestic residents dropped slightly by 0.5% y-o-y in April 2016
  • Housing loans to other euro area residents fell by 20.5% y-o-y in April 2016
  • Housing loans to the rest of the world fell by 24% over the same period

Total advances to domestic residents consisted of about 88% of total housing loans. The remaining 12% of loans were drawn by Euro area residents and those from the rest of the world. The amount of housing loans peaked in 2011 when it reached €15.14 billion (US$16.82 billion).

Rents rising slightly, but yields steady

Cyprus house monthly rentAcross Cyprus, monthly rents rose slightly by 0.3% for flats with rents up to €326 (US$362), and by 0.9% for houses with rents up to €539 (US$599) during 2015, based on figures from RICS.

By major urban centers:

  • In Nicosia, the average monthly house rent rose by 0.5% y-o-y to €599 (US$665) in 2015.
  • In Paphos, the average monthly house rent rose by 13.9% y-o-y to €541 (US$601) over the same period.
  • In Famagusta, monthly house rent remained unchanged at an average of €445 (US$494) over the same period.
  • In Limassol, the average monthly house rent fell slightly by 0.2% y-o-y to €629 (US$699) in 2015.
  • In Larnaca, rents for houses dropped 8.6% during 2015, to an average of €479 (US$532).

Cyprus rental yieldsAverage gross yields in Cyprus stood at 3.9% for apartments in 2015, slightly up from a year earlier, according to RICS. Over the same period, gross yields for houses were unchanged at 2%. Nicosia recorded the highest gross yields for apartments at 4.3%, followed by Limassol (4.2%) and Famagusta (4.1%). For houses, Limassol had the highest gross yields at 2.5%.

Property title deeds fiasco

Property frauds in Cyprus are a huge problem for expat homeowners, but also for developers, banks, and the government. Many buyers have lost their homes after the developer went bankrupt, despite having paid in full.

Developers tend to keep the title deeds, neglecting to inform house-buyers that their title deeds will be withheld for an unspecified time, or that the land on which their property is built has been mortgaged by the developer.  The bank, which holds the title deed as collateral, has the right to foreclose, but, under normal circumstances, it may take a bank between 9 to 12 years to obtain control over the property. So banks extend and pretend, until the developer goes broke.

Between January 2005 and June 2008 a total of 37,769 overseas buyers purchased 29,949 properties for which Title Deeds had yet to be transferred, according to the Cyprus Department Land Registry report published in October 2008. This figure of 29,949 included properties for which Title Deeds had yet to be issued, plus those whose Title Deeds were in the process of being issued. During the same three and a half year period, 4,440 properties were transferred to 5,988 overseas buyers.

“Some cases have involved ‘double selling’ fraud whereby the developer sells a property to Party A, fails to lodge the contract with the Land Registry, and then sells it again to Party B (possibly for a higher price) but fails to reimburse Party A,” says Alan Waring, an international risk management consultant.

The Land Registry has not issued a report on Title Deeds since 2008.

To resolve the scandal, a new directive on mortgage credit was adopted on January 28, 2014 by the Economic and Financial Affairs Council.  Its new rules will address some of the amazing problems in the Cyprus market, such as insufficient pre-contractual information, irresponsible lending and borrowing, and misleading advertising and marketing. The directive establishes regulatory and supervisory principles for credit intermediaries, and provisions to regulate and supervise non-credit institutions.

It sets out conditions for ensuring professionalism amongst creditors and credit intermediaries; principles for marketing and advertising; obligations relating to pre-contractual information; requirements for information on the borrowing rate; and requirements to check the consumer’s creditworthiness; and disclosure obligations for the consumer.

‘Trapped Buyers’ law

Cyprus unemploymentRecently, the Immovable Property Transfer and Mortgage Law (Amendment) (No. 10) of 2015, better known as the ‘Trapped Buyers’ Law or the ‘Hidden Mortgages’ Law, was passed to transfer property to purchaser(s) who are unable to obtain the Title Deed despite having fulfilled their contractual obligations to the vendor.

The following can apply for Title Deeds:

  • The buyer who has yet to receive the Title Deed of the property he purchased
  • The vendor of the property, whether a private individual or a property development company
  • The lender who granted the loan to the property buyer
  • The mortgagee under the mortgage contract deposited at the Land Registry
  • The buyer who purchased the property thru assignment or vesting contract deposited at the Land Registry
  • The Director of the Department of Lands and Surveys ex officio

The government also introduced a number of major incentives to homebuyers and sellers. Those who buy property in the country until the end of 2016 will qualify for a 50% discount on their Title Deeds transfer fees tax. They will also not be required to pay capital gains tax when they decide to sell the property in the future.

These new laws are expected solve the deeds fiasco in the country and restore confidence in the housing market. More enquiries from overseas investors, particularly from the UK, are expected on the back of legislatives changes.

Economy is now recovering, but enormous problems persist

Cyprus gdp inflationCyprus’ economy contracted about 2% in 2009, mainly due to the adverse impact of the global crisis. This was in sharp contrast to the robust annual average growth rate of 4.25% from 2004 to 2008. After registering anaemic growth rates of 1.4% in 2010 and 0.4% in 2011, the economy shrank again by 2.4% in 2012. The economy remained depressed in the following years, contracting by a huge 5.9% contraction in 2013 and by another 2.5% in 2014, based on IMF figures.

In 2015, the economy finally recovered with a GDP growth rate of 1.6%, driven mainly by domestic demand. Economic growth is expected to be 1.6% this year and 2% next year, according to the IMF.

Despite this improvement, Cyprus continues to face enormous economic problems. Non-performing loans (NPL) remain a key issue. NPLs amounted to €26.69 billion (US$29.65 billion), equivalent to 153% of GDP in 2015. Many NPLs are in the construction sector, consisting of about 18.4% of all NPLs last year. In April 2016, NPLs dropped 8% to €25.53 billion (US$28.36 billion) from the same period last year.

The public budget deficit dropped sharply to just 1% of GDP in 2015, from 8.9% of GDP last year, according to the European Commission. The country’s deficit is expected to fall further to just 0.4% of GDP this year.

Public debt remains high at 108.9% of GDP in 2015, slightly down from 108.2% of GDP in a year earlier. Public debt is expected to remain unchanged this year.

The country is still stuck in deflation. Consumer prices dropped 2.1% in May 2016 from a year earlier, according to the Statistical Service of Cyprus. Prices fell by 0.27% in 2014 and by another 1.54% in 2015.

Unemployment dropped slightly to 15.1% in 2015, from 16.1% in 2014 and 15.9% in 2013, according to the European Commission. Jobless rate is expected to decline to 13.4% this year and to 12.4% in 2017.

 

Lalaine C. Delmendo (globalpropertyguide.com)