Cyprus: Acquisition of Immovable Property in Cyprus

Last Updated: 18 May 2006
Article by Christodoulos G. Vassiliades

1. INTRODUCTION

In almost all countries it is usual to regulate and control the acquisition and ownership of immovable property by aliens. The measure and extent of such regulation and control is dictated by the local conditions of each country and by matters of policy on various relevant aspects. In the case of Cyprus, the restrictions are obviously dictated by the following main considerations:

  1. Avoidance of extensive and disproportionate alien ownership on an uncontrolled and unrestricted scale, which might lead to an artificial and unjustified rise in prices and in all other relevant costs ( including construction and consumption) to the detriment of the economy and the local population.
  2. Avoidance of alien individuals and firms entering into the field of competition and exploitation of immovable property to the detriment of local entrepreneurs;
  3. Prevention of undesirable elements from gaining a hold in the country.

Nevertheless, government policy in this matter is encouraging in all bona fide cases. This is evidenced both by the existence of tax incentives and by the general efforts for promoting tourism and for turning Cyprus into a financial centre, not to mention the traditional and characteristic hospitality of the country.

The following information concentrates on the acquisition of immovable property for residence of office space and not for business investments.

The original Law regulating this subject was enacted in 1936 at a time when Cyprus was a British Colony, us the Immovable Property Acquisition (Aliens) Law Cap.109. At the time a British subject was not an "alien" or foreigner. Subsequently however, since Cyprus gained it’s independence in 1960, British subjects, other than Cypriots, became foreigners.

2. RESTRICTIONS IMPOSED

No foreigner may acquire immovable property in Cyprus, other than by reason of death without the prior permission of the Council of Ministers. In view of the use in the Law of the words "otherwise than by reason of death", it is submitted that a foreigner may acquire immovable property without permission if he has inherited it as a legal heir, or if it has been bequeathed to him as a legatee in a will.

2(a) Who is an alien?

In order to clarify the above restriction, it is important to interpret the word "Alien" as provided for in the present law. An alien is defined in section 2 of the Cap.109 as an individual who is not a Citizen of the Republic of Cyprus including:

  • a company controlled by aliens
  • foreign company and
  • A trust in which any alien is a beneficiary

Further, according to section 2, an alien is an individual who is not a Citizen of the Republic of Cyprus but not including:

  • Alien Cypriot
  • Alien wife of a citizen who is not separated from her husband by virtue of an order of a competent court.

  • EU member who has permanent residence in Cyprus
  • EU member who does not have permanent residence in Cyprus. Such category of people can acquire immovable property except for a secondary residence where a permit is required first.

  • Legal entities incorporated according to the laws of an EU state and who has its seat, its central administration or main foundation in Cyprus

  • Legal entites incorporated according to the laws of an EU state and who has its seat, its central administration or main foundation in an EU state. Such category of legal entity can acquire immovable property except for a secondary residence where a permit is required first.

EU members and companies can acquire and invest in any type of property and will be treated as ordinary Cypriots after May 2009.

The term "Alien Cypriot" is further defined to mean a person, not a citizen of Cyprus, who was born in Cyprus at the time when his parents were ordinarily resident in Cyprus or whose father was born in Cyprus at the time when his parents were ordinarily resident in Cyprus and it includes an alien wife of alien Cypriot who is not separated from her husband by virtue of competent court. This provision is significant as it allows complete freedom of acquisition of immovable property in Cyprus by Cypriots who have emigrated years ago.

4. ACQUISITION

Acquisition under the Law, not only covers outright purchase of property but also the following transactions by foreigners:

  1. Those leases of immovable property which extend for a term of more than thirty-three years or which contain a provision lengthening such period through the exercise of a unilateral option of extension or renewal;
  2. Acquisition of shares in a Cyprus registered company which owns immovable property in Cyprus, if such acquisition itself or in conjunction with other shares already held by aliens in that company, would turn such company into an "alien controlled" company in the sense described above.
  3. The creation of a trust in favour of an alien which relates, wholly or partly, to immovable property in Cyprus, leases as above or shares in an alien controlled company or in a company becoming alien controlled by the creation of a trust.

It should also be pointed out that the giving, otherwise than by will, or the sale and transfer of immovable property or shares, or the assignment of leases amounts to "acquisition" as far as the transferee or assignee is concerned and requires permission. However the law provides that the Council of Ministers in granting permission in the first instance may include a provision in the permit, to the effect that no further permission would be required for the transfer of the property to another foreigner, if the transfer is consistent with such conditions, if any, which might be inserted in the permit and in connection with transfers. A general condition relating to transfers of immovable property held by foreigners either to other foreigners or not, is that contained in regulations made under the Law. These provide that the minimum extent to which an alien may for purposes of sale, divide immovable property held by him, is into plots of not less than 1 ½ donums unless the Council of Ministers otherwise allows.

5. GOVERNMENT POLICY WITH REGARD TO PERMISSION FOR ACQUISITION:

(a) Business Investment Purposes

This may be granted only for industrial or tourist investment. Permission is not normally granted for investments in agriculture or estate development

(b) Individuals

This will be granted as a rule, in all bona fide cases where foreign individuals acquire a flat or house or a piece of land for the erection of a house, intended for residence either regularly or when coming to Cyprus for holidays or other stays. The same individual cannot obtain permission for more than one property. Furthermore, no second permission will be granted to the other spouse or to their children unless in the latter case it is for their own actual residence or stay. In the case of unbuilt land, the area allowed would usually be between one to two donums, which is ample for the erection of a luxurious house or villa and its garages, swimming pools and other outbuildings. Acquisition of land for the creation of a farm would normally be refused if the farm is intended for commercial exploitation, but small farms for the use of the owners are borderline cases.

(c) Company Uses

Permission will usually be granted to a company for the acquisition of property for its own uses, such as office space, stores, residences for its directors or employees.

(d) Generally

In keeping with these principles it follows that, save in the case of approved business investment purposes, the policy is that permission would be granted in the case of intended personal or company use and not for the purpose of letting to others, commercial exploitation, profiteering or speculation.

However, once the permission has been granted it is difficult to check or control the actual use, because though the policy is as described above, no conditions are imposed in the permit itself.

The phenomenon of foreigners letting their flats when they are absent from Cyprus, usually to other foreigners, is rampant. It is also somewhat well organized through estate agencies, management and service companies and it is becoming clear that the Government will eventually attempt to control this development. A probable measure which it seems is being considered is the imposition of conditions on the permit. Such conditions might allow a foreign owner when abroad to let to another foreigner, but the rent would have to be declared and paid in Cyprus from external funds converted into Cyprus currency.

The demand by foreigners for property especially flats, is continually increasing and consequently the number of pending applications for permission by the Council of Ministers is always high. It takes six to nine months or even longer for an application to be approved.

1. REASONS FOR INCREASE

The reasons for the increase in the acquisition of immovable property by foreigners are many. Cyprus has always been an attractive place for residency or merely for holidays and its attractions include:

  • An exceptional climate with mild winters and long, dry summers.
  • Fresh and flavorsome food.
  • A civilized and pleasant environment boasting modern facilities
  • Efficient services including medical and legal services
  • A comparatively low cost of living as compared to some European countries
  • Low crime rate
  • A wide range of museums, antiquities and historic sites.
  • Friendly and hospitable local population.
  • Pristine beaches and picturesque countryside.

In addition, the removal of most restrictions since Cyprus’s accession to the EU in May 2004 has resulted in a further influx of demand and market activity. This high demand, coupled with increased local needs, has naturally led to a rapid rise in prices and rents. However they continue to compare satisfactorily with other countries offering similar attractions. The capital appreciation of properties purchased is obviously considerable in view of the above circumstances and there is no sign of any adverse change unless a stage of saturation is reached.

6. PRECAUTIONS TO TAKE

In view of the above it is futile to give any indication of prices. It is important to enumerate and consider the steps and precautions which a foreigner should take when acquiring immovable property in Cyprus.

  1. Reliable and expert advice should, as a rule, be sought, to avoid exploitation on the one hand and legal complications on the other. There is a tendency to overcharge foreigners whenever possible and Cyprus is no exception to this rule. Reliable estate agents, valuers and surveyors should be used in order to ascertain what the proper price to be paid is. Commissions are, as a rule, payable to the estate agents by the sellers, but in order to obtain satisfactory results the purchaser may be required to pay a fee for having employed an estate agent.
  2. The use of reliable legal services is also required in order to ensure proper contracts and that proper steps are taken for obtaining the necessary permissions and to safeguard one’s interest, including securing registration of property in one’s name. As regards contracts, it must be noted that developers or land dealers usually have ready-made standard contracts which are, of course, drafted to suit their own interests and a close scrutiny of such contracts is required. The same people usually volunteer to undertake obtaining the necessary permissions. However, it is advisable for the lawyer of the purchaser to look after this matter as the sellers, once they have got an advance payment and very often full advance payment, do not have the same interest as the purchaser in following the whole matter through as speedily and as safely as possible.
  3. Ownership in Cyprus is denoted by title deeds, issued by the District Lands Office. All contracts must therefore provide for the transfer and registration of the property in the purchaser’s name and for obtaining a title deed.

When one buys a piece of land or a house, the seller as a rule must have a title deed in his own name which can be transferred to the purchaser. However, if one buys a flat, especially one still under construction, there is no title deed in existence for the flat and sometimes the seller does not have a title deed even for the land on which the building is being built because it may still be in the name of the original owner from whom the developer has purchased the property and to whom he still owes money. These are matters which the purchaser’s lawyer must consider and embody in the contract, as well as take such other steps as may be necessary so as to safeguard the interests of the purchaser.

7. CHECKLIST OF REQUIREMENTS

  1. Obtain reliable and expert local advice.
  2. Before entering into a contract carry out a search at the District Lands office to check whether there is already a title deed in the name of the seller in respect of the property to be purchased or, if not, whether the issue of such a title deed is legally feasible, as well as, in either case, whether the property is encumbered in any way or not.
  3. If the property to be purchased is a piece of land, check:
  4. (a) Whether it has road access (without it, building is not possible);

    (b) If the land is included in any zone or area where building is restricted and, if so, to what extent it is restricted;

    (c) Whether it is subject to any street widening scheme;

    (d) Whether the supply of water and electricity is possible and at what expense.

  5. If the property to be purchased is a house or a flat, check whether there is a building permit and, if completed, whether a certificate or approval for the building has been obtained from the appropriate authority.
  6. In any case, check the possibilities or eventual availability of a telephone connection.
  7. Do not enter into a contract before being assured by the lawyer that the case is one in which the relevant permissions from the authorities would, as a rule, be granted.
  8. When entering into a contract, check that there are ample and proper provisions ensuring:
  9. (a) The eventual transfer of the property and the issue of a title deed free from any encumbrances;

    (b) That the contract is subject to obtaining the relevant permissions from the authorities (this is presumed in law but it is advisable to refer specifically to it, inserting provisions for the return of money paid if permission is not obtained);

    (c) That possession is delivered to the purchaser upon execution of the contract if the building is completed and, if not completed, upon completion;

    (d) That, in the case of a flat, there are general conditions attached to the contract, applicable to and binding on all other purchasers and users of flats or shops in the building, regulating their respective rights and obligations.

  10. Ensure that the contract is signed by the seller in the presence of two witnesses, themselves competent to contract, who have signed as attesting witnesses.
  11. If the seller is a company, ensure that all corporate actions have been properly taken for the valid execution of the contract.
  12. As soon as practicable after the execution of the contract ensure that:
  13. (a) An application is submitted to the local District Administration Office along with all necessary supporting documents for obtaining the permission of the Council of Ministers;

    (b) An application is made to the Central Bank of Cyprus for an exchange control permit, unless the purchaser, though an alien, is a resident for exchange control purposes and the seller is also a resident;

    (c) A copy of the contract is deposited with the District Lands Office within two months of its execution, thus ensuring that the contract becomes a charge on the property and that it may be specifically performed.

  14. As soon as practicable after the permissions under 10(a) and (b) above have been obtained, ensure the earliest possible transfer of the title deed through the District Lands Office, and if a separate title deed has not yet been issued ensure with the seller that this is done as quickly as possible. In the case of any breach in the contract ensure that a legal action is brought within six months from the date of the breach, after written notice.

All the above matters should, of course, be looked after by the lawyer of the purchaser, but their enumeration and their following up by the purchaser himself is advisable and useful.

Cyprus real estate Agents Circular buying property in Cyprus is now a safe proposition. Here is why:

Since May 1987, the government of the Republic of Cyprus has passed legislation whereby all professional Real Estate Agents have to register with the Board for the registration of the Real Estate Agents of the Republic of Cyprus.

To register and carry a professional licence to deal in real estate, an agent has to:

Posses a thorough knowledge of the Cyprus law concerning immovable property and the ability to explain it to prospective clients.

Have long term experience in dealing with real estate or be a university graduate in a subject concerning real estate.

Possess an absolutely clean civic and criminal record.

Never declare bankruptcy.

Carry a professional insurance indemnity of minimum UK60 000.

The latter safeguards prospective buyers so that, in the remote case the real estate agent misinforms a prospective client, the client has the right to sue the agent to be compensated accordingly.

Needless to say only registered Cyprus Estate Agents carry this insurance.

It pays you to buy from members of the Cyprus Real Estate Agents Association (CREAA) because all members of CREAA are registered and licensed estate agents and they all carry professional insurance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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