By Charles Savva
Purchasing property in Cyprus can often have a number of potential pitfalls. We always 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 residency by investment application, as well as High Net Worth Individuals (HNWIs) considering tax migration. We are also regularly approached by clients who have already purchased property in Cyprus and have encountered legal/tax issues during the course of the acquisition. 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 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 an independent property lawyer
I cannot stress enough the paramount importance of appointing an independent lawyer who specialises in property acquisitions. The single biggest mistake we see made is the signing of a purchase agreement presented by a property developer, which is essentially 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 property 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 their clients).
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 an agent/intermediary and the vendor (in most cases the vendor being a developer). Such commissions can range from 5% to 50%, and even more!
You can avoid this pitfall by engaging a reputable lawyer, who can address this issue contractually.
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, and disbursements, 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 real estate agents 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, including in some cases criminal liability due to VAT offences.
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 and other encumbrances, a good lawyer will undertake such review for the protection of his/her client. A contract of sale cannot be properly drafted without taking into account the results from Land Registry 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 your Will as soon as you buy 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 world considering buying abroad, even more than before the financial crisis.
Savva & Associates are leaders in the investment migration space in Cyprus, and we are well positioned to ensure you are fully protected when making a property acquisition in Cyprus- we can assist in all aspects: tax, legal, and property consulting. For more information or a no obligations call, please feel free to contact our Managing Director, Charles Savva, at firstname.lastname@example.org or email@example.com.
Click here to read about how a non-EU individual and his/her family can obtain Cyprus permanent residency, under the Cyprus government’s fast track investment program.