In the current economic climate factors such as inflation, the instability of the worldwide monetary systems and the instability of fiscal policies of the advanced economies have made investing in immovable property a very attractive option.
The ideal and strategic location of Cyprus at the crossroads of three continents, its low cost of living, beneficial tax regime, warm climate, highly developed educational system, health care system and low crime rate as well as its first class infrastructure, transparent and reliable legal system and broad network of banking services suggest that Cyprus is an attractive destination for foreign investors, retirees and individuals or families looking for a holiday home or a new working environment. Cyprus' accession to the European Union has made the island an even more attractive candidate for the purchase of immovable property.
Cyprus has a sound legal system regulating the purchase of immovable property and it is harmonised with European legislation after Cyprus' accession to the European Union in May 2004. The Cypriot legal system operates through a series of laws, which are regularly amended and updated to reflect the current economic and social demands and to balance competing interests in this vital sector of the economy.
Any candidate contemplating the purchase of immovable property in Cyprus, which is either complete or still under construction, should be familiar with the Cypriot legal framework dealing with the ownership and registration of property into the purchaser’s name.
What follows is the outlining of the two most important legal issues the purchaser needs to be aware of when acquiring immovable property in Cyprus.
The most important issue for the prospective purchaser to address is whether the property in question possesses a title deed.
Under normal circumstances, it can take between one to four years, given that the property is complete, for the title deed to be issued and for the property to be transferred into the name of the purchaser. However, the law allows the purchaser to formally register the property from the moment consideration is paid. This way, the law protects the purchaser's interest in the property and gives him the right of ownership even before the actual title deed is transferred into their name.
Not all properties have available title deeds, especially if the properties are under construction or have just been constructed. This is because the title deeds are still in the process of being issued. Nevertheless, provided that the necessary permits for the property were obtained and that proper legal advice was sought and given to eliminate any risks it is possible to purchase property where the title deed is still in the process of being issued.
In the event where separate title deeds are not available the purchaser may acquire immovable property through an assignment agreement, which essentially gives the prospective purchaser the same rights as if he had acquired it through a contract of sale.
Any legal entity or individual can acquire immovable property in Cyprus, but with the following limitations attached to the purchase:
Under Cyprus legislation, Cypriots or European citizens are allowed to acquire any property without restrictions. Non-European citizens must ask for the permission of the Council of Ministers in order to do so and are limited as to the type and size of the property they can purchase.
Bona fide foreigners who acquire a flat or a house or a piece of land not exceeding 4,000 square meters or the equivalent of three donums for the erection of only one residence are routinely granted permission.
According to the circular issued by the Minister of Interior in May 2013 non-European citizens may own two properties, which can be two residences or one residence and one shop with a floor area of up to 100 square meters.
Once the permission is obtained and the property becomes registered in the purchaser’s name no other restrictions apply to non-European citizens who own immovable property in Cyprus.
A due diligence check will be carried out in order to verify the property’s status. It is important to obtain copies of the certificate of registration of the property and site plans. It is also important to obtain and check the property’s building and planning permit and any final certificates relating to the property in question.
The terms of the contract are negotiated and the payment method is agreed. The contract or the agreement needs to be drafted and signed.
The contract of sale or the assignment agreement must become stamped. The law provides that the stamp duty is paid on the basis of the purchase price and it is based on the following rules:
The stamp duty must be paid within 30 days from the date of the execution of the agreement.
The contract of sale or the assignment agreement needs to be deposited to the Land Registry and it will effectively safeguard the purchasers.
Based on the provisions of the Sale of Immovable property (Specific Performance) Law the purchaser of immovable property may secure the remedy of specific performance and consequently transfer the acquired property into their name by depositing a duly signed and stamped copy of the contract at the land registry within six months from the date of its execution.
This will prevent the vendor from transferring the property elsewhere or charging it for as long as the contract is valid and legally effective. No charges, encumbrances or burdens can affect the right of specific performance after the contract has been deposited at the land registry. In the event that the vendor refuses to transfer the property into the purchaser’s name, the purchaser has the right to apply to the court for specific performance of the terms and conditions of the contract and thus order the transfer of the property into their name.
In the event where the purchaser is a non-European citizen they must obtain the permission of the Council of Ministers prior to the transferring of the title deed into their name. The permission is granted by the appropriate district authority. The applicant must provide information about their personal details and financial standing and particulars of the property and its present owner.
As a general rule a permission is granted to a bona fide applicant provided they have no criminal record in their country or in Cyprus and they have the financial means to support themselves.
The final step after the settlement of the balance of the purchase price is to transfer the title deed into the purchaser’s name. The parties need to visit the land registry to transfer the property, provided that individual title deeds have been issued and are available, by registering the title deed into the purchaser’s name and issuing a new title deed under the purchaser’s name.
Real estate transfer tax fees must be paid by the purchaser in order to transfer freehold ownership into their own names. The purchaser is responsible for the tax payment and the amount is payable to the government at the time of the transfer of the property and the issuing of the title deed into the name of the purchaser.
Transfer fees are payable by the purchaser based on the market value of the property on the date of the purchase as valued by the land registry on the actual date of the transfer. The purchase price is indicative of the market value at the time of purchase, but it is not decisive. On the date of the transfer and the registration of the property under the purchaser's name at the land registry, the purchaser is liable to pay the transfer fee calculated according to the property’s market value on the date they purchased it as calculated on the date of the actual transfer.
The transfer fees are 3% on any purchase price up to Euro 85,430, 5% on any purchase price above Euro 85,430 and 8% on any purchase price exceeding Euro 170,860.
If the contract of sale is under joint names, then the purchase value is divided into two parts and is calculated as above for each part separately and then the total sum is multiplied by two. As a result, when there is more than one purchaser on the contract the total amount of transfer fees payable is reduced as if there was only one purchaser on the contract.
In an attempt to create incentives for the purchase of new property the government announced temporary waivers and the reduction of transfer fees in December 2011. The transfer fees on a sale of property where VAT is payable will be waived provided that the sale agreement is deposited with the land registry by the 31st of December 2016. Initially, where the sale of a new property is not subject to VAT, the transfer fee is halved (if the building permit was obtained prior to the 1st of May 2004).
The above is a bird’s eye view on how the Cyprus legal framework in relation to immovable property operates. The complex nature of the Cypriot legislation relating to immovable property and the various formalities make it imperative that any prospective purchaser of immovable property in Cyprus obtains reliable and accurate legal advice from the outset to avoid any unforeseen pitfalls and undesirable consequences.