North Cyprus Property Prospects- 12 September 2006
North Cyprus Property has become a popular investment for many EU investors in recent years, with the majority of buyers being British. The attraction of Spain is clearly over as prices have peaked and UK owners of Spanish property and unable to recoup their investment.
The opportunity of the Annan Plan in 2004 for reunification of the island provided a powerful stimulus for the North Cyprus residential property industry and tourism. Despite the fact that a large majority of Turkish Cypriots voted in favour of reunification, the Greek Cypriots in the South voted against the Annan Plan. The negative vote of the Greeks was heavily influenced by the government, media and church in the South.
Within months of the rejection of the Annan Plan by the Greek Cypriots, South Cyprus joined the EU. This provided a further boost to property development in North Cyprus as many thought that it was incongruous for the south of the island to become an EU member while the north did not.
The scale of this euphoria was significant. Land prices in 2002 were often in the region of £2,000 a donum or 1,338 sq metres. During 2004, average land prices in the north rose to around £30,000 a donum and have continued to rise to near £40,000.
There has also been a flood of new Estate Agents and property developers entering the North Cyprus market, many of them British.
However, the increase in land prices and the growth of activity in the sector has not been reflected in prices of property. A three bedroom villa with a pool on 700 sq metres of land will sell for around £88,000. Sales prices have only modestly increased since 2004 and there are few prospects of an imminent boom..
The underlying economics are worth exploring. Current build costs are some £400 per sq metre, so a 130 sq metre villa will cost around £52,000. If a pool at £13,000 is added, then the total is £65,000. The cost of a 700 sq metre plot also should be added at £20,000, making a total of £85,000. The main Estate Agents in North Cyprus charge 5% commission, and when taxes are taken into account, there is very little profit, if any, for a builder or property developer.
These calculations explain the crisis in North Cyprus property development. There are scandals in which property developers disappear from the island, leaving unfinished properties in their wake, such as Gary Robb of Aga Developments Ltd. Several large construction companies and Estate Agents are also in financial difficulties, including North Cyprus Properties Ltd.
The exuberant optimism of 2004 has all but evaporated, and relations between the two communities have reverted to the negativity and bitterness of earlier decades. In order for Cyprus to be reunited, both sides need to support this vision, and within a framework of mutual compromise. Many consider that the Annan Plan was, and remains, a fair basis for reunification. Unfortunately, the Greeks have consistently rejected the main tenets of the Annan Plan without articulating any coherent counter proposals.
From an investor's viewpoint, the current situation may be considered a propitious time for property purchase, as prices remain flat. Certainly a 3 bedroom villa with a pool at £88,000 is half the price of a similar property in South Cyprus, while the price in Spain could well exceed £200,000.
However, the future of the market remains clouded with uncertainty. Firstly, the Greek Cypriots have consistently claimed that some 85% of the land in North Cyprus belongs to dispossessed refugees who fled to the South in 1974. Several Greek Cypriots have lodged cases with the European Court of Human Rights. There are apparently some 1,500 cases pending and these have now been referred to the North Cyprus Properties Commission, which is a North Cyprus institution, backed by Turkey. The Property Commission is a new agency and needs to demonstrate a capability to deal with such cases in a fair and effective manner.
Secondly, Turkey has made an application for EU membership. As Turkey is a secular muslim state, several EU members have expressed reservations. In order to facilitate the application, Turkey needs to open her ports and markets to other EU member states, including the Greek Republic of Cyprus. Turkey has refused to do this unless it is coupled with a relaxation of the isolationist measures experienced by North Cyprus.
The fact that South Cyprus is an EU member has led to an alleged dispossessed Greek making a claim in the UK against a British couple who have allegedly built a house on his land in the North. This is the Orams case. This case was heard in London during July 2006, and a ruling was made on 6 September 2006. The ruling was in favour of Mr & Mrs Orams and confirmed their right to purchase property in North Cyprus, regardless of whether the land had previously been owned by a Greek Cypriot. This is a landmark case and should provide a stimulus to the prospects of North Cyprus property market.
So it may take sometime for an investment of £90,000 to increase in value to over £200,000. In the meantime, an owner of a North Cyprus property can enjoy the unhurried and laid back lifestyle of the north and experience the friendship and warmth of the Turkish Cypriots.
Les Hardy, 12 September 2006