Purchasing property in Cyprus can often have a number of potential pitfalls. As such we urge potential purchasers to exercise extreme caution when buying a property, particularly if the title deed is not readily available, being a common scenario encountered when purchasing new property in Cyprus.
We are regularly approached by EU and non EU nationals interested in acquiring property in Cyprus, with many such cases connected to a citizenship by investment or residency by investment application, as well as HNWIs considering tax migration. We are also regularly approached by individuals who have already purchased property in Cyprus and have encountered problems with their property purchase, requiring our assistance in order to clean up the mess left behind. In most such cases, the simple reality is that the problems could have been avoided had the purchasers been aware of the proper process for acquiring property in Cyprus, and avoided the pitfalls that can be encountered along the way. The purpose of this article is to communicate the top 10 list of pitfalls to avoid when buying property in Cyprus, and in the process ensure that your purchase will move forward smoothly and efficiently.
Pitfall 1 – Not appointing a property lawyer
I cannot stress enough the paramount importance of appointing a lawyer who specialises in property acquisitions. The single biggest mistake that can be made is signing a purchase contract presented by a developer, which is simply a recipe for disaster (and unfortunately, a situation we come across all too often). Such contracts will likely not protect the buyer, and instead be heavily biased in favour of the developer.
Also, beware of lawyers acting for vendors or builders, who are therefore not independent. This is the equivalent to not appointing a lawyer at all.
A reliable lawyer who is proficient in English (or whatever your native language may be) and is independent of all the other parties involved in the transaction, is the most important consideration for buying property in Cyprus. A good lawyer makes all of these potential pitfalls easier to navigate around.
In short, a property acquisition is a major investment – would you buy in your home country without engaging a lawyer?
Pitfall 2 – Ensure the property is not the subject of an ownership dispute
While this pitfall can generally be avoided by purchasing property from a reputable developer, this is not always the case, especially in recent years where developers have also become active in assuming an intermediary role for resale properties (typically properties they have developed and sold in the past to clients of theirs).
Ensure the property you are interested in is not the subject of an ownership dispute, common in divorce proceedings, for example.
Pitfall 3 – Hidden commissions
Perhaps the most costly pitfall on this list is hidden commissions negotiated between the agent/intermediary and the vendor (in most cases a developer). Such commissions can range from 5% to 50%, and even more!
You can avoid this pitfall by engaging a reputable lawyer, readily able to provide potential clients with references.
Pitfall 4 – Failing to consider all the relevant costs
It is important to calculate the VAT (nil, 5%, or 19%), transfer fees, stamp duty, legal fees, disbursements, and immovable property taxes that will be applicable for your purchase early on so that you can budget your purchase accordingly.
VAT is often misunderstood and misrepresented by many developers and advisors in Cyprus. We are often approached by property purchasers who have made uniformed VAT elections, and find themselves either unable to manage their properties as they wish, or face significant VAT liabilities.
Pitfall 5 – Handing over a reservation fee without written reservation terms
If you are asked to provide a reservation fee to the developer, ensure something is put down in writing, ideally by your appointed lawyer, to confirm how much was paid, the circumstances in which it will be refunded and that it will be reduced from the full purchase price for the property.
Pitfall 6 – Signing a contract of sale without due diligence undertaken
While lawyers are not required to automatically conduct a property due diligence, such as check for mortgages, a good lawyer should do this as a matter of course. In 2011 the Republic of Cyprus Government introduced a Specific Performance Law to give a contract of sale precedence over any pre-existing mortgage; however, we still strongly recommend that you check that no mortgages have been placed on the land prior to purchase to ensure you do not run into potential difficulties at a later date. A contract of sale cannot be properly drawn up without taking into account the results from these searches.
Also, do not rely on the developer to conduct the due diligence, even if they are providing you with official extracts from the Land Registry and other government departments.
Pitfall 7 – Failing to put everything in writing
Your contract of sale outlines your agreement with the seller – ensure that everything you have negotiated is put down in the contract of sale, particularly any agreed extras. This includes an inventory of any necessary repairs or damages.
Pitfall 8 – Failing to deposit the contract of sale
A Contract of Sale must be deposited at the Land Registry within the timeframe specified by law. You will lose very important legal rights if this is not done.
Also, a Contract of Sale must be stamped within the timeframe specified in the law, otherwise you will be liable to pay penalties.
Pitfall 9 – Failing to give focus to material contracts connected to the property
Many luxury villas and apartments will require a property management agreement to be executed, a service commonly offered by the developer. This is a material agreement and the necessary attention should be given to understanding all terms and conditions, so that you ensure your property is maintained and kept safe during your absence from Cyprus.
Pitfall 10 – Failing to make a Cyprus Will
Cyprus Law will govern all immovable property situated in Cyprus. The Cyprus Law includes an element of forced heirship – but certain categories of foreign purchasers are entitled to bypass these rules and make a Will to pass the property as they wish. It is very important to consider you’re Will as soon as you buy a property in Cyprus.
To Sum Up
It is important to learn from the lessons of many people who bought foreign property in countries such as Spain, Italy, France, Portugal, Greece and Cyprus before the financial crisis, who remain embroiled in expensive legal battles. Despite this, the foreign property dream is still alive, with millions of Chinese, Russians, Britons and HNWIs from all over the globe considering buying abroad, even more than before the financial crisis, according to the latest research by HSBC.
Avoiding these pitfalls in Cyprus becomes all the more important when investing a material amount of funds into property, which is typically the case when the investor is doing so as part of a Citizenship by Investment application, where such property investment typically ranges between EUR 2.0 to EUR 2.5 million.
In actuality, most of the potential problems encountered when buying property in Cyprus could be avoided if you consider (and avoid) the above pitfalls. Above all, it is paramount that you obtain independent legal advice from a competent lawyer that you trust. A good lawyer should ensure you are protected from all other pitfalls on this list.
As leading Cypriot immigration professionals, Savva & Associates has a fully dedicated Immigration team that can provide specialized assistance for obtaining the Cyprus citizenship and Permanent Residence Permit offered to foreign investors. Our experienced team has a 100% success record on all submitted Cyprus Citizenship applications and can advise you further on obtaining Cyprus Citizenship by Investment or any other residency permit, on the basis of your particular facts and circumstances. Please feel free to contact Charles Savva at firstname.lastname@example.org to discuss how we can be of assistance to you.