Cyprus: A gain of two halves

The changing political landscape is affecting the property market

After this month, nothing will ever be quite the same again in the Cyprus property market. On Saturday, the country goes to the polls to vote in a referendum on uniting the Greek and Turkish parts of the island after years of partition and, whatever the outcome, a week later the Greek portion will join the European Union.

For over a generation, buying property in Cyprus has for most overseas purchasers been an activity confined to the Greek part of the island, if only because they could not be sure they would have clear title to a purchase in the Turkish north. That could now change.

The current deal on offer would, broadly, give dispossessed Greek Cypriots 10 per cent of their lost holdings back plus compensation for the rest.

"The result of the referendum is too close to call in advance," says Michael Cartwright, the Cyprus-based UK sales and marketing manager of Leptos Estates. "Even if the proposal is thrown out, you can expect them to come back with revised terms in a year or so," he says.

It is hard to overstate the impact that the partition of the island back in the Seventies had on current buying patterns of overseas buyers, who may be oblivious to the fact that the resorts they most admire would never have been built if the island had not been divided.

Cartwright's employers, the Leptos family, were successful builders from Kyrenia in the north. After partition, they came south and were among the first to start developing Paphos, then a sleepy fishing port on the more barren west coast.

Paphos is now the most popular destination for homebuyers on the island. The second international airport is located there, and with good communications plus an azure sea, cool hills and pleasant architecture it has attracted substantial numbers of retirees from the UK.

"When my father first announced plans to build in the area, the locals all thought he was mad," says Pantelis Leptos, son of the company founder Michael.

The area has become one of the most desirable locations in the Mediterranean, he argues. "You escape the humidity of the coast, but it is only a 10-minute drive from the beaches and Paphos town, with its shops, restaurants and bars, an international school and a new marina planned for 2004," he says. The expatriate buyers might soon be grateful of the cooling breezes of the Paphos hills.

As others have discovered before them, EU membership has a tendency to heat up retail prices and tax levels. Political stability comes at a price.

"There has been a rush to buy this year because of a proposal to levy VAT on new houses on the island for the first time," says Alek Kleanthous of award-winning builders Pafilia. A date has yet to be set for implementation of the new tax which will be levied at between 6 and 8 per cent.

A double taxation treaty with Britain which allows retirees to pay tax in Cyprus at a rate of 5 per cent both on their pensions and other income is set to remain for the time being, although there is a question mark over its long-term future.

"House prices have increased 45 per cent in three years. Before that they stagnated for eight years and there was hardly any capital growth," says Kleanthous.

Property prices remain 30 per cent cheaper than in Spain, 20 per cent lower than in Portugal and 50 per cent cheaper than in both Italy and the south of France, according to a recent survey.

Entry to the EU should ease the letting rules for foreigners opening up to the buy-to-let market and giving a further boost.

At the moment, over 65 per cent of overseas buyers entering the Cyprus property market intend to make it their principal homes, but the proportion is set to decline, says Kleanthous.

Many new buyers appear oblivious to the imminent changes to the low-cost, high-sunshine regime and cite cheap living as one of the big pluses the island has over mainland Europe.

"Everything from petrol to an à-la-carte meal is less than half what you have to pay back home," says Andy Leck from Grangemouth near Edinburgh. With his wife Eileen, Leck has recently bought a £159,000 villa in the hills above Paphos. "Eileen and I had considered buying in Portugal, but after just a couple of days in Cyprus, we both fell in love with the island," he says.

"As Cyprus approaches membership of the European Union, interest in property sales has been on the increase," says Graeme Grant, director of Premier Resorts, which is selling Aphrodite Hills, another award-winning development, near Paphos. Aphrodite Hills has been selected by the British Olympic Association as a training camp prior to the Athens Olympics.

"Whether it be for a holiday home or something more permanent Cyprus is a good investment opportunity for property," Grant says.

But even if the referendum result goes against the advocates of unity this time around, it seems unlikely that you will be able to buy a new villa anywhere on the entire island without forking out on EU-style taxes for much longer.

Leptos Estates: 020-8883 2333, www.leptosestates.com;

Pafilia: 020-8886 2929, www.pafilia.com;

Aphrodite Hills: 020-8940 9406, www.aphroditehills.com