Rising rents and VAT - Paphos Investments

Rising rents and VAT

Rising rents and VAT

In recent years residential rents for locals have seen a noticeable increase, especially for units in the town centres, especially those near the universities and colleges.

Rents are established in a free market by demand and supply. Then investors want a certain percentage of return on their purchase and a major role is also played by the VAT rate, which is now at 19 per cent.

We have suggested the reduction of the VAT to 5 per cent for new buildings to match that on units acquired to be lived in by the owner. VAT can be used as a tool to hold rents steady. So even if an investor requires a minimum return of 3 per cent with 5 per cent VAT the rent will come to significantly less.

So that the state does not lose out, we suggest the 5 per cent VAT apply to properties that are let for a minimum period of 10 years and in the event of a subsequent sale of such units (within the 10-year period), the owner must pay the government the difference of 14 per cent for the peiord depending on the date of sale, a similar approach to that for those who buy to occupy. This way the government will not lose out the VAT charge, it will be postponed.

The rate of 19 per cent VAT puts investors off, especially when it comes to larger scale projects. Often the rents they would have to charge to secure a good return are not competitive in the market.

Another way to reduce rents concerns student lets. Universities could take on properties and sublet units to students. Owners will have a secure income and reduce rents by around 15 per cent. Educational institutions may not be so keen as would have to bear added administration costs, but on the other hand they would be able to offer cheaper accommodation to their students. This is similar to the approach in the UK.

These tenants would not to be protected by rent control laws (adding to the attraction). Any differences between the institution and students to can be resolved in a summary form, through an arbitrator appointed by ETEK.

The phenomenon of increasing rents is not limited to Cyprus. There has been a big increase housing demand in Europe leading to shortages. The homeless have increased by approximately 20 per cent and subsidised housing has a waiting period of 7-10 years.

In Cyprus the cost of rent in terms of one’s income is approximately 30 per cent, whereas landlords in Europe require evidence of a steady income of three to five times that of the rental cost.

The trend of residential rents going up is expected to continue, especially with rising building costs. We urge politicians and the government to look into this matter as a matter of urgency.

When discussing the housing problem, the Irish prime minister said that housing cost should match the financial ability of citizens. This is wise, but in Cyprus we have the mentality of buying a Mercedes when our financial ability provides for a simple Japanese car.

 

Antonis Loizou & Associates EPE – Real Estate Valuers, Estate Agents & Property Consultants, www.aloizou.com.cy, info@aloizou.com.cy

 

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