2m investment: villa or commercial?

[Alexx]

Hello All,

My first post. I'm hoping to get unbiased ideas about how to spend the 2m required for CIP. Honestly, I may not spend much time in Cyprus. I'm agnostic on what to buy, but prefer liquidity and not to overpay. For example, would a 10-15 unit building renting for 70k per annum be more clever than trying to rent one large 2m villa? Any best practices for someone in my shoes? Hoping I won't have to reinvent the wheel. :)

Thanks in advance to Nigel and anyone else who might help!

Alex

[Nigel Howarth]

CIP?

[Pantheman]

CIP?

Might translate to Citizenship???

In any case, someone who is looking to spend 2m is hardly going to be asking such a question here!!! By the time you cover all the other costs involved it will be looking more like 2.5m or close to it, if this is the scheme you are referring to.

Is the 70k net or gross?

I worked with a developer that had a sea front property and was letting is for over 30k per month in the summer!

I suppose it depends on what these 10 - 15 units are and where. Would it be easier to liquidate 1 expensive property or 10-15 single units???

You don't really give much info on the investments you are looking at. In any case, if it is the citizenship program you are talking about, you have to keep them for at least 3 years before you can sell anyway.

So over to you.

[Alexx]

Thanks Nigel and Pantheman!

Yes, by CIP I meant Citizenship Investment Program. This forum looks like a place where people are discussing the real situation on the ground rather than promoting glossy brochures... As someone new to the island, I'd be very grateful for honest guidance for best practices. Eg what kind of property would offer the most liquidity and/or income? Which professionals to trust?

Again many thanks in advance!
Alex

[Nigel Howarth]

Hi Alex

I cannot offer you any advice on the Citizenship Investment Program. However, there appear to be two types of investors:

1. Non-EU citizens investing in real estate to obtain residency and a Cypriot passport.

2. Non-EU citizens investing in local businesses such as hotels, schools, restaurants, etc. to generate income.

A good friend of mine 'in the know' tells me that €6 billion has been invested in these schemes so far.

As Pan has already pointed out you have to keep the investment for a minimum of three years. There would possibly be a fall in property prices if investors decided to sell their property after three years.

It's also unlikely that scheme will continue unchanged following warnings from the EU. (see http://www.europarl.europa.eu/sides/get ... anguage=EN )

Regards,

[Alexx]

Thanks Nigel!

Yes, I am the '1.' you describe. It seems so easy for a newcomer to fall prey (overpay, no deeds, etc).

Any best practices to find trustworthy attorney and/or agent?

Thanks again,
Alex

[VCY]

Alex, selling property for passports is a national sport now. I'd guess the best approach is to find someone who already went through CIP and learn from their experience. If you're willing to spend time, then IMO the most resilient investment indeed would be into a project with a number of properties in the 200k-350k range in an area where there is a demand for rent (e.g. currently Limassol is facing a shortage of 1-2 bed apartments) and later on sell one by one as market conditions permit. There are concerns that there will be oversupply of premium property once 3-year terms of older CIP participants expire. But again, I'm not a qualified expert on the matter, just an observer.

[Alexx]

Thanks VCY.

I'd love to learn from others who have sucessfully completed the CIP, but I expect most prefer privacy about their status.

I appreciate your tip about smaller Limassol residences. For practical reasons, it would be difficult to coordinate many individual purchases. Would a single multi-unit residential building of perhaps 10-20 flats be a reasonable alernative? This would lack your benefit of selling them off slowly, but perhaps the rental income would be on par and more reliable than one large villa? And I wonder if it would be easier to sell than a huge villa.

Cheers,
Alex

PS Still hoping for a way to find honest agent and attorney. (Starting to wonder if such a thing even exists?! :)

[Pantheman]

Thanks VCY.

I'd love to learn from others who have sucessfully completed the CIP, but I expect most prefer privacy about their status.

I appreciate your tip about smaller Limassol residences. For practical reasons, it would be difficult to coordinate many individual purchases. Would a single multi-unit residential building of perhaps 10-20 flats be a reasonable alernative? This would lack your benefit of selling them off slowly, but perhaps the rental income would be on par and more reliable than one large villa? And I wonder if it would be easier to sell than a huge villa.

Cheers,
Alex

PS Still hoping for a way to find honest agent and attorney. (Starting to wonder if such a thing even exists?! :)

Alexx,

As a non - EU citizen there will be restrictions as to what you can hold on title. A non-EU can have single title for a residence, but when it comes to commercial you may need more legal advice. You may need to setup a company and buy it on the company. Getting 10-20 units, is ok, but needs much more management (and costs). What about void periods, non payment, committees, communals, etc etc etc. Whereas a single seafront villa, a single item could produce similar incomes and only be used part of the year. So far sea front property has not fallen in price in fact there is a now a general lack of developable sea front land and these are becoming in short supply.

There are some honest agents and lawyers about :) you just need to look! Where do you originate from if you don't mind my asking??

All the best

Pan

[VCY]

For practical reasons, it would be difficult to coordinate many individual purchases. Would a single multi-unit residential building of perhaps 10-20 flats be a reasonable alernative?

Actually this is what I meant by investing into a project.

PS Still hoping for a way to find honest agent and attorney. (Starting to wonder if such a thing even exists?! :)

I PMed some info I know. Perhaps you should also consider agents who post on this forum.

Getting 10-20 units, is ok, but needs much more management (and costs). What about void periods, non payment, committees, communals, etc etc etc. Whereas a single seafront villa, a single item could produce similar incomes and only be used part of the year. So far sea front property has not fallen in price in fact there is a now a general lack of developable sea front land and these are becoming in short supply.

On the other hand, I've seen villas in the 1+ mil range being offered on the market for periods of several years without buyers. It is important to keep in mind that a lot of demand for premium properties is currently driven by CIP which may evaporate if it is discontinued. And as far as I know, re-sale property is not acceptable for CIP.

[Pantheman]

For practical reasons, it would be difficult to coordinate many individual purchases. Would a single multi-unit residential building of perhaps 10-20 flats be a reasonable alernative?

Actually this is what I meant by investing into a project.

PS Still hoping for a way to find honest agent and attorney. (Starting to wonder if such a thing even exists?! :)

I PMed some info I know. Perhaps you should also consider agents who post on this forum.

Getting 10-20 units, is ok, but needs much more management (and costs). What about void periods, non payment, committees, communals, etc etc etc. Whereas a single seafront villa, a single item could produce similar incomes and only be used part of the year. So far sea front property has not fallen in price in fact there is a now a general lack of developable sea front land and these are becoming in short supply.

On the other hand, I've seen villas in the 1+ mil range being offered on the market for periods of several years without buyers. It is important to keep in mind that a lot of demand for premium properties is currently driven by CIP which may evaporate if it is discontinued. And as far as I know, re-sale property is not acceptable for CIP.

I think this is the case for villas for PrPs, since you can buy hotels, commercial and other resale for the program.

If the property is turning over good money then there may be no need to sell quickly, if the yields prove to be good it can be sold as a going concern, either way, property in the 2m+ range do take time to sell, but that said depends where it is, what it is and so on. I doubt a building of 10-20 units would be any easier to shift either. Each investor has his investment horizon and expected returns, they need to find a balance before investing this sum of money.

[Alexx]

My main concern with a single 2m+ villa

1. As VCY pointed out, the glut of properties that will hit the market when CIP celebrates 3rd anniversary will depress prices.

2. Risk of depressed luxury rental market due to above.

3. Risk of overpaying 2m for a large villa that is objectively worth 1.7m or 1.3m. Becuase the primary purpose of investing in multi-unit projects is rental income, sellers would be expected to produce real evidence of the projects annual return on investment. Wheras a large villa could be sold with big promises of holiday letting with no track record whatsoever.

4. 10 to 20 units aimed at average income earners seems a more reliable and diversified risk. If one tenant leaves unexpectedly, it is not as disastrous as failure to attract that rare super rich 30k/month holiday letter for the high season.

[VCY]

My spouse was working for a Russian, doing management of a few blocks of flats he purchased. Almost all had tenants and probably he did this as part of CIP. For sure there are management costs, but IMO overall it provides a more diversified and liquid investment. You can sell in chunks and not all at once. Cyprus is not a real premium destination like Monaco to easily rent out or sell property worth 1m+, especially since glut of these properties is building up due to CIP.

[Pantheman]

My main concern with a single 2m+ villa

1. As VCY pointed out, the glut of properties that will hit the market when CIP celebrates 3rd anniversary will depress prices.

Really, the Ayia Napa Marina, the New 5* Hotel and sea front properties about to be started, the other new sea front projects that are just completing, I don't see and these as being a glut. These are select properties for those that can and are being sold much before the digger has even hit the ground. Similarly in the Paphos region a colleague that works for a large develop can't get enough of them. Can you show me where there is a 'glut' at the present time standing around??

2.

Risk of depressed luxury rental market due to above.

I doubt it, see above. My spouse works for a rental company and their (not even sea front, but close) villas are constantly full and now going into Sept/Oct.

3. Risk of overpaying 2m for a large villa that is objectively worth 1.7m or 1.3m. Becuase the primary purpose of investing in multi-unit projects is rental income, sellers would be expected to produce real evidence of the projects annual return on investment. Wheras a large villa could be sold with big promises of holiday letting with no track record whatsoever.

I doubt anyone is making promises on rentals for these villas, you only have to look around, it's public info. Call any rental company and enquire about availability and prices. Speaks for itself.

4. 10 to 20 units aimed at average income earners seems a more reliable and diversified risk. If one tenant leaves unexpectedly, it is not as disastrous as failure to attract that rare super rich 30k/month holiday letter for the high season.

This would only be diverse if the apartment units were spread out and not in the same block (but then you could not do this legally as I understand it), you are only looking at the rental, you mentioned being able to liquidate. If you are non EU, you may hold the title of the block, how then are you going to separate and sell individual apartments??

Anyway, the choice is yours, if you are just looking for reassurance about which way to go, I think you need to research some more than a few comments here. Each have their own opinions on this matter, I was considering not only your rental income, but your exit strategy and what you can legally be able to do.

If you want serious advice about which way to go, approach a property advisory / asset management company to do a proper analysis for you. You you are looking to spend 2m+ it'll be worth the extra spend to make the right decision. There are numerous companies that would undertake such a study for you. Look at Delphi partners or NAI, to mention a couple.

Good luck with whatever you choose.

[VCY]

Really, the Ayia Napa Marina, the New 5* Hotel and sea front properties about to be started, the other new sea front projects that are just completing, I don't see and these as being a glut.

We're discussing what will happen in a few years when 3-year mandatory CIP property holds will cease.

So far we know that *newly-built* premium properties are selling well. As regards to re-sale demand, it is early to say. You can already find concerns in the local press that the new Limassol high-rises might end up empty in a few years.

Exclusive properties like villas at the marinas most probably will go well. However, I heard numerous anecdotes about construction quality there. Especially since property is situated right on the sea, with all the salty winds in winter, upkeep can be quite expensive.

I doubt it, see above. My spouse works for a rental company and their (not even sea front, but close) villas are constantly full and now going into Sept/Oct.

Just curious, what is the gross yield on those?

This would only be diverse if the apartment units were spread out and not in the same block (but then you could not do this legally as I understand it), you are only looking at the rental, you mentioned being able to liquidate. If you are non EU, you may hold the title of the block, how then are you going to separate and sell individual apartments??

Alex is getting a Cypriot passport as part of the CIP process.