Rave review: homebuyers see hot prospect in the Cypriot boom for bricks and mortar

It's party time for the property market in Ayia Napa, finds Sam Dunn

As an overseas property opportunity, Cyprus has become as hot as its annual summer temperatures, which regularly nudge 37 degrees Celsius. With the island preparing to join the European Union on 1 May, UK investors are jostling to buy bricks and mortar ahead of that deadline.

"A lot of people are buying now before the country joins the EU to try and make a quick profit," says Emma Blanchard, consultant at mortgage broker Conti Financial Services, which specialises in helping people to buy overseas. "With new EU rules [making it easier to buy to let], there will be a big rental opportunity to take advantage of holidaymakers."

Prices are expected to rise along with demand in the wake of Cyprus's new status as a member of the EU, with hope of economic benefits, an influx of workers and fresh investment.

According to Conti, seven out of 10 new homes in Cyprus are being snapped up by Britons, but it's not as if the properties are staggeringly cheap. Compared to homes in other EU accession countries in eastern Europe, such as Hungary, Cyprus remains expensive.

New houses often don't come on the market for much less than the equivalent of £80,000, says Ms Blanchard, but people are prepared to pay for the country's climate, coastline and lifestyle.

Yet many of these new homeowners can't even move their furniture in yet. "Interestingly, nine out of the 10 people buying homes out there who come to us are buying properties that are new [unfinished] developments," she says.

"There are a lot of people who want to invest, as well as those who want to retire out there."

Residential property developers such as Cybarco and agencies such as Christo & Co report a surge in interest from British buyers. As a result, a host of properties are currently under construction in Cypriot hotspots, according to website findaproperty.com.

One-bedroom flats near party mecca Ayia Napa, the island's most popular destination for younger holidaymakers, start from 28,000 Cypriot pounds (CYP), the equivalent of about £32,000. Prices rise to CYP117,000 (£135,000) for a two-bedroom house.

In Paphos, a quieter resort on the other side of the island, a new but small two-bedroom villa will set you back CYP165,000 (£190,000). Alternatively, a three-bed house with a garden and communal pool will cost CYP£178,000 (£205,000).

When you consider that the average UK house price is £138,730, according to Nationwide, decent-sized Cypriot homes don't come cheap.

While Cyprus is in demand among Brits buying abroad, it still has some distance to go before it presents a serious challenge to the most popular countries. According to the Halifax and Abbey National, these are France and Spain, which benefit from their proximity to the UK.

A flight to the international airport in Larnaca takes around four and a half hours from the UK and costs as much as £300 for a return ticket in high season, which might put prospective investors off Cyprus. Discount flights to the island are not yet widely available.

Any property purchase overseas can be fraught with difficulty, and Cyprus has its own particular hurdles. It may be joining the EU but it is not signing up to the single currency, so the low mortgage rates available in other European countries will not apply, especially as the island has a distinctive approach to home loans.

Since Cyprus is a small island, the Cypriot authorities are concerned that too many property buyers from overseas will price local residents out of the market. So they have introduced rules to prevent this. "If you are not from Cyprus, you can only take out a loan over a 10-year period," says Ms Blanchard at Conti. You will also require at least 30 per cent of the value of the property as a deposit, and some banks will ask for as much as 50 per cent, she warns.

Cypriot interest rates are at about 6 per cent - treble the base rate in the EU and well above the Bank of England's 4 per cent - so buyers can expect their mortgage to cost them more. And they will also be at the whim of currency movements. "You carry a currency risk for the term of the mortgage because, as most Britons are paid in sterling, they have to buy local currency to make the mortgage repayments," says Ian Smith, the Halifax's head of operations in Europe.

However, the flip side is that the Cypriot pound could fall against sterling, resulting in cheaper mortgage payments.

Mr Smith recommends buying the property outright in cash by remortgaging your main residence, or calling on any savings you may have.

One advantage of buying in Cyprus is that stamp duty is cheap compared with the UK: it works out at around CYP171 (£200) for a home worth CYP100,000 (£114,000). You will also have to pay legal fees and local property taxes, the latter typically CYP150 (£171) a year.

www.propertyfinance4less.com/cyprus, www.homesoverseas.co.uk

The Homebuyer Show will provide more information on buying a property in Cyprus. It runs from 5 to 7 March at the ExCeL centre in London's Docklands. For entry to two seminars and a show guide, register online by purchasing a ticket for £7.50 at www.homebuyer.co.uk

'Blown away' by the island

In five years, the two-bedroom holiday apartment in Paphos bought by Dubliner Yvonne Smith has doubled in value.

Now the 33-year-old, who teamed up with her brother Henry to buy a property in Cyprus in 1999, is on the hunt for a similar flat to let out - despite the rise in prices.

"I was blown away by Cyprus when I came here on holiday," she says. "It is still very undeveloped and feels like a Middle Eastern terrain - very rough, very barren.

"But we have found that people are extremely friendly. It's not often you get to feel so welcome."

Ms Smith tries to visit her flat twice a year; her family are also regular visitors. Local food, wine and beer are cheap, though "definitely not as cheap as five years ago", and there is no language barrier.

"A key point to remember is 'nothing is a rush' - things go slowly here. We still don't have the deeds to the property five years down the line, and late bills are not a huge problem."

Ms Smith complains of unnecessary administrative charges on her mortgage, which is in the local currency. But on occasion she takes advantage of a scheme that reduces the risk of fluctuation in the exchange rate, allowing her to make repayments for three months at a time.